5 Laws Designed to Make Businesses Rich

by JT McGee

Laws are passed for one reason: to make someone rich.

Here are just a few:

  1. Health care reform – No business hates guaranteed customers for life. Health care insurance companies are now guaranteed a steady supply of customers. We’re supposed to believe that insurance companies hate the law – the smaller ones do – but the larger companies love bearaucracy. More red tape brings bigger barriers to entry. Cue the M&A activity – managed care organizations are going to be red hot targets for acquisitions. Financiers dream of the opportunity to buy a business with guaranteed sales.
  2. Ethanol – There’s a reason corn fields were one of 2011’s best investments. Some 40% of corn produced in the United States is used to make ethanol. Ethanol subsidies make farmers wealthier, as supplies are drained to produce inefficient energy sources. Recent laws require 90/10 gasoline-ethanol mix at the pump, creating demand for ethanol at any price.
  3. Anti-smoking policies – A recent law passed to make smoking less attractive for young people. The law had support from only one major cigarette producer – Philip Morris. It bans full-color cigarette ads in magazines and periodicals that young people read. But look at Philip Morris’ packaging; it’s monochromatic. Other cigarette producers have much “prettier” packaging that will look awful in black and white. Flavored cigarettes were also outlawed – Philip Morris sold only menthol cigarettes (still legal) while competitors like RJ Reynolds had a product mix much more heavily dependent on flavored tobacco products. When a “loophole” in that law allowed some competitors some breathing room, a rider on a transportation bill made sure it was promptly sealed shut.
  4. Sugar import restrictions – Sugar imports are heavily regulated to protect a very small American industry. In 2011, sugar tariffs cost american consumers as much as $4 billion in higher prices due to an artificially restricted supply.
  5. Magnesium tariffs – The magnesium industry in the United States is huge…err, actually it’s just one company – US Magnesium Corporation. But US Magnesium Corporation has political clout, and in a move to protect the company from lower-cost foreign producers, the company lobbied for magnesium import tariffs. We “saved” 370 magnesium production jobs, only to lose thousands of automotive manufacturing jobs to other countries where magnesium motor parts could be built without excessive tariffs. Here’s a quick video on the topic of magnesium tariffs.

Stocks are Corruption Protection

Big businesses get protection that small businesses do not. Stocks offer investors a way to get back at corruption by getting some of their money back.

Wall Street gets bailed out all the time. It’s not just about bailing out banks or automakers in 2008-2009; it’s about laws passed to influence whole industries by design. It’s the direct bail outs that people hate, but the indirect bailouts that add up to so much more. A 2009 study found that $1 spent on lobbying brought $6-20 in tax savings for businesses.

A later study found that $1 in lobbying brought $24-44 in additional corporate income. Those that spent most heavily beat their competitors in the next three year period. Read about that here.

{ 3 comments… read them below or add one }

Financial Samurai July 12, 2012 at 00:36

How about lawyers? Gotta love em!

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Joe July 13, 2012 at 00:12

The ethanol issue always makes me lol. Corn-based ethanol requires much more energy to process than it produces as a fuel. Sugar cane ethanol, on the other hand, is exceptionally efficient. That’s how Brazil has basically achieved energy independence.

As for the sugar import restriction… I think that’s more of a Pigovian tax. I mean, do Americans really need more sugar? Is the diabetes rate too low? Perhaps it’s be more legit if they used the tariff to subsidize fruit and vegetable imports (not corn!)

Reply

Financial Independence July 13, 2012 at 07:50

It is quite all right, as in nowadays the rich do have freedom. If you spike the taxes, they will simply go.

Like Halliburton left for Dubai. That is why there is competition among the governments to attract the rich. At least they will spend their money and pay sales tax : -)

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