Deregulation and Profits

January 15, 2019

Deregulation and profits are unpopular ideas in some quarters these days. In a major speech last summer, Senator Elizabeth Warren lashed out at the Trump administration’s deregulatory efforts:

Deregulation is code for ‘let the rich guys do whatever they want’ … The Trump administration and an army of lobbyists are determined to rig the game in their favor, to boost their own profit, the cost of the consumer be damned.

… Regulations are about setting the rules of the road, plain and simple. Done right strong fair regulations protect the freedom of every American.

Warren’s comments are internally inconsistent and divorced from the actual workings of politics and the economy. On politics, her latter comments assume that the government works in the public interest, yet her former comments suggest that the government gets hijacked by private interests.

In economics, deregulation is actually code for “undercut the rich guys and their lobbyists by opening the door to new competition.” Deregulation and competition channel the profit-seeking impulses of producers into providing more value to consumers.

The only good part of the recently enacted farm bill was the deregulation of hemp growing. The prospect of high profits is now drawing farmers into hemp and encouraging businesses to develop new consumer products in health, food, and textiles.

Wall Street Journal story on hemp today illustrates the harmony between deregulation, profits, freedom, and consumer benefits:

Cultivation was largely banned from 1970 until December, when President Trump signed a new $867 billion farm bill that removed hemp from a list of federally controlled substances.

Hemp’s return to farm fields this spring coincides with a surge in demand for cannabidiol, a derivative of hemp or marijuana that has become a popular additive in drinks, foods and dietary supplements. Proponents say it relieves anxiety, inflammation and other maladies without the psychotropic ingredient that delivers a high to marijuana users.

Farmers and processors believe growing demand for cannabidiol will turn hemp into a lucrative cash crop.  

… Hemp flourishes in rocky soils inhospitable to other crops. It also represents a new potential revenue stream for tobacco farmers abandoning that crop. Other growers are eager to diversify away from mainstream crops after several years of low prices spurred by a production glut and trade tensions.

… Growers can earn $200 to $400 an acre growing hemp for use in textiles, plastics, insulation and construction materials, according to Rodale Institute, a farming research agency. Hemp grown for cannabidiol could earn farmers thousands of dollars an acre, according to the institute. Farmers earned net profits of around $11 per acre for soybeans and lost $62 for corn in 2017, federal figures show.

… Processors in the U.S. also are expanding. Folium Biosciences is building a $30 million, 110,000-square-foot hemp extraction facility in Colorado to increase its capacity 10-fold, said Chief Executive Kashif Shan. 

To recap. President Trump and Congress deregulated hemp. Farmers and corporations lured by potentially high profits are producing a range of new and beneficial products. Over the longer-term, high profits will be eroded by competition in markets and prices for the new products will be driven down. Farmers have new freedom to diversify. The nation’s income and output will be higher as investment increases and new jobs are created.

In her speech, Senator Warren said, “To hide what they’re doing big corporations and Republicans here in Washington often claim that regulations are bad for the economy. They go on and on about how big government restricts freedom and makes it harder for businesses to succeed. That is a big greasy baloney sandwich.”

Hemp regulations were bad for the economy, they did restrict freedom, and they made life harder for farm businesses. So Warren’s logic would only make sense to someone smoking a big, greasy cigarette of hemp’s sister species.

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