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April 1, 2022 - Doug Collins Podcast
53:44
LOOK OUT THE GOVERNMENT IS AT AGAIN!
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By who?
Georgia GOP Congressman Doug Collins.
How is it?
The greatest thing I have ever heard in my whole life.
I could not believe my ears.
In this house, wherever the rules are disregarded, chaos and mob rule.
It has been said today, where is bravery?
I'll tell you where bravery is found and courage is found.
It's found in this minority who has lived through the last year of nothing but rules being broken, people being put down, questions not being answered, and this majority say, be damned with anything else.
We're going to impeach and do whatever we want to do.
Why?
Because we won an election.
I guarantee you, one day you'll be back in the minority and it ain't gonna be that fun.
Everybody, you know, it's amazing how government, if left unchecked, will find a way to creep into more and more avenues of our life.
And we've just seen evidences of this with the Security and Exchange Commission just this week, releasing a climate change proposal is in essence what it is.
But it's really a documentation form on what companies have to report on how they're dealing long term with climate change and how they report that to investors and others.
Debate's been raging both sides.
There's been some who I've read recently who said this is a good thing.
It should be done.
Then you, of course, have former heads of the SEC and others who say this is very much of an overreach with what we have going on.
So I just said, let's have a discussion about it.
We talked about it a lot on our podcast, how this affects our businesses, affects everything that you may or may not know about.
It even goes on in our economy.
But I have Richard Morrison today from Competitive Enterprise Institute.
We're going to talk about this and other things.
Richard, it's good to have you today.
Thank you, Doug.
It's good to be here.
Okay.
Well, Richard, before we get started, just sort of tell us about your background, what your involvement, how you got with, you got an interesting background.
I've read a little bit of your bio.
Sort of just tell us where you came from in this regard and just where you're at today with some of these things.
Oh, thanks.
So, I'm a research fellow now here at the Competitive Enterprise Institute, and I've been here most of my career in Washington.
I was here for a while as a communications person.
I used to book interviews on radio and TV, so I've been on the other half of this as well.
Then I worked for the Tax Foundation here in Washington, D.C., just like it sounds, about...
I'm trying to enact good sound tax policy, and then I came back again.
I'm one of CEI's boomerang employees, people who have been there, left, and come back.
So now I focus on things like the SEC, corporate governance, what we call ESG, environmental, social, and governance, which is a lot of...
I would say a lot of left-wing activism coming together with business.
And issues like that about sort of capitalism in general.
You know, why do we have a free economy?
Why is a free economy good?
How can we keep it free?
That sort of thing.
Well, you just brought it, and this is why I've done it.
So many times now with guests, start off with sort of where you came from and your background and what your interests are, and it leads me to questions, and this is another, I think this is a perfect way to start this off.
For listeners out there, I'm a believer that a lot of young people today, and even middle-aged people who've grown up, With hearing a lot of isms in their life, they've heard socialism, Marxism, fascism, communism, capitalism, and all the isms run together.
And they just sort of block it off.
In fact, polling numbers have actually showed this, and from being in the political arena, being in Congress, you know, you pay attention to what people pay attention to, or don't pay attention to.
So your comment just a minute ago about keeping capitalism a free market, those free market comments.
I know this sounds basic, but I think a lot of our listeners would just, let's talk about what that truly means from a perspective of having a capitalist society, which has raised more people out of poverty than anything else in the world, that free market principles.
What does that actually mean in real life?
And also sort of, I'll tag this question by saying, How close is America to leaving that system in many ways?
Well, Doug, that's a great question.
I think a lot of people today think of capitalism as just always being focused on profits and always being obsessed with money.
And I don't think that's really true at all.
Capitalism is a couple different things.
It's the ability to have a private business and run your own business.
But it's also the legal...
And political institutions that make that possible.
So property rights, where you have a right to your property, whether it's your house or your car or stocks and bonds.
We have a court system that recognizes that.
People can't steal your stuff.
And we have a due process of law.
So if someone sues you or the government wants to fine you, they can't just step in and do it.
There has to be a process.
There has to be evidence and proceedings and things like that.
So, the freedom we have to pursue our own best interests and start a business, accumulate skills, You know, try and get that bigger salary.
That's half of it, and then the institutions are the other half.
But the essence of that is you get to choose.
Each individual citizen gets to choose for themselves.
And I personally think that that's an extremely important freedom to have.
You know, we might say that the very most important freedoms, say, are freedom of religion, for example, or freedom of speech.
Those are pretty important, and we all recognize that.
The way you live your life is not just on a pure spiritual plane, right?
We have to live here in this world.
We have to make a living.
We have to take care of our families.
We have to do things like that.
So having an economy where we are also free to make our own choices is a very significant, important part of having a free society in general, and it impacts all of those other freedoms, like those First Amendment freedoms, like speech and religion that, you know, sometimes we take for granted.
Well, and I think you've hit it there.
It goes back to a simple word of freedom to choose.
And especially having the freedom to sort of, you know, if you wanted to even sort of take off of your spiritual plane there, the freedom to be what many believe God intended you to be.
Sort of that purpose-driven, if you would, in your life.
But the reality is we're not, and this may come across a little bit different to some who are listening, we're not a pure free market economy, are we?
Oh, well, that's absolutely true.
So, you know, if you were in an economics class, you'd probably say that we are a mixed economy.
You know, you have the old Soviet Union is a, you know, pure command and control, you know, socialist-style economy.
The economy we had, you know, maybe more like say in the 19th century would have been more to, you know, what some people call like the laissez-faire, you know, the pure free market economy.
But, you know, the government is involved in either spending or sort of directing to be spent a huge percentage of all the dollars in our economy.
Government has enormous influence on things like healthcare.
Healthcare itself is something like, you know, 15-16% of our economy if you, you know, include everything.
And this distinction, I think, is really important because this came up, you know, for example, in the fight over Obamacare, right?
So the, you know, the Patient Protection and Affordable Care Act, you know, which was passed back when the Democrats were controlling Congress and President Obama was in the White House.
And this turned into a, and so some people were for it, some people very much against it, but it turned into a fight between people saying, oh, we should have the government Well, that couldn't be further from the truth, right?
Because there's not a free market in healthcare in the United States, and the existence of huge amounts of government regulations and subsidies You know, going back decades mean that the government is regulating and incentivizing and changing what would normally be an actual free market for healthcare.
So I think people who are defenders of markets sometimes get caught in this trap of, you know, when they are trying to defend against even more government encroachment, then they feel like they have to take responsibility for the entire system as it is now with all its flaws, whereas a lot of its flaws come from existing government regulation that's been there already.
Exactly.
That was one of the problems because when I was in Congress, the Republicans had our best attempt, and I have to call it an attempt because we weren't able to follow through after the defeat in the Senate with a changing of the Obamacare, the healthcare bill that we had.
And part of that was really the struggle to realize that the healthcare market is so intertwined with regulatory, with government, with restrictions and stuff.
Truly just unwinding it to say, hey, go to your doctor, pay cash, or pay credit card, or whatever, just really doesn't exist.
It was an insurance bill, and I think that was what was always missing in this whole discussion of the economy.
So you're right.
It's not fair in many ways to call our healthcare system a free market.
It never was, especially in the last, say, 40 to 50 years with the advent of the insurance and everything else.
But that brings us into, again, I'm glad we're headed this way because it really starts to tail into the rest of our economy.
And, you know, probably the advent of the internet in the last 25 years has given us back a little bit of a piece of what a true, you know, what we'll say is for the most part a free market base.
I have a product, I sell it, I get a price for it, you know, except for the taxes paid.
But even that's starting to, you know, be regulated out a little bit more.
But then, sort of the last bastion of free market that everybody thinks of in the world is Wall Street.
It's the stock market.
It's NASDAQ. It's the S&P. It's the bonds.
And it looked at as brutal capitalism.
You know, pure, you win, you lose.
You know, if you go back to what was the old movie from the Trading Places movie back with, you know, Eddie Murphy and Dan Aykroyd.
You know, there's just that idea.
There's brutal economics.
The truth is that's not as open Wild West as you think.
And there's a group called the Security Exchange Commission that regulates that, watches over it.
Explain to our listeners, before we get into this rule and before we get into the possible impacts, let's unpack it a little bit further.
What is the SEC, what is their intended role in this marketplace?
Yeah.
Yeah, so the Securities Exchange Commission was created in the 1930s after the Great Depression where a lot of people thought the 1920 non-stock market crash meant that the Markets needed more government supervision.
So Congress passed two laws, one in 33 and one in 34, that basically are the basis of the modern institution of the SEC today.
So they regulate public companies, publicly traded companies that you can buy shares from.
And most of what they do is requiring companies to issue information, make truthful disclosures about their company.
So there's A bunch of different regulations and forms that they have to follow.
It's called a 10-K form where they have to fill in all sorts of information.
And it's a lot of the sort of things that you would find in a company's annual report.
If you're a shareholder, you just go to a company's website.
You can almost always find their annual report there.
So it's a description of the company and what they think their opportunities for the future are and possible threats.
So, you know, the other thing is the policing fraud.
And so there have been a long history of, you know, investment fraud, get-rich-quick schemes, people that are trying to, you know, take your money with false promises.
And so the SEC is in charge of policing that as well.
So it's a little bit like the Federal Trade Commission.
Also, you know, protects consumers from fraud in lots of different areas.
The SEC does it specifically when it comes to investments, things like, you know, stock trading and whatnot.
So there is, I think there's, even if you are sort of a libertarian, you are, you know, a freedom-loving, you know, person, a small government person, there's certainly a role to play for an agency like the SEC because we don't believe in force and fraud.
You know, we don't believe in people stealing your money under false pretenses.
And so I'm glad that the SEC is there, you know, stopping people from You know, defrauding the widows and orphans of America.
But I think it's also possible, and it's often the case with government agencies, that they tend to like to expand their authority whenever they can.
And sometimes they expand it too far beyond reasonable authority, and even beyond, in some cases, what Congress has allowed them to do.
And I think that's where we are now with what's happening this week with the most recent SEC rule.
Well, and we're going to get to that climate rule here in a minute, but in the way you've been saying that there's implication, and I think there is truth, where have you seen before this climate piece, and we'll get into this, have you seen the SEC starting to branch into areas that probably should be more to policy and then implementation than it is from an agency perspective making their own?
Well, I think this is probably one of the...
The most dramatic cases of that.
Prior to this, I think, there were expansions of sort of incremental expansions that perhaps were arguably unnecessary, were sort of burdensome.
The thing with these requirements, there's what we call diminishing marginal returns to requiring more and more information.
So if you ask a company to say, well, you have to tell people these 10 most important things.
It's like, well, maybe that's probably, you know, good.
But if they say, well, you have to tell them also these additional 100 things, well, there's probably less value to each one of those.
And if you say, well, now you have to disclose a thousand additional things, well, that's going to cost even more money.
They're going to be less important.
Fewer people are going to care about them or read them.
So that's the sort of diminishing returns to expanding more and more and more what the, like, the burden of these regulations, because they all have some cost.
Well, let's jump into it, because this is the one that's really starting to catch a lot of people's attention, especially when it comes to these disclosures.
So, let's do this first.
Break out what the SEC has said, and we'll start unpacking it from there.
What is the intent of this climate regulation?
Right, so this is the proposed rules announced this week.
So the public companies, you know, the ones that are, you know, listed on stock markets, are going to have to disclose a lot of additional information about their operations relevant to climate change.
So how much energy they use, do they produce, you know, how many tons of greenhouse gases they produce, how much, what's their volume of greenhouse gases versus their production, like, you know, how much greenhouse gas per unit of, you know, say per car or, you know, per, you know, A thousand dollars for products.
And also a lot of internal things like about how the board and how the senior management of a company makes decisions related to these topics and their long-term planning and things like that.
So it's going to be a lot of additional information and will probably be, will almost certainly be very costly And it's unclear to me and to some other critics of this rule whether it will actually do what it is intended to do Also, whether that thing that they intended to do is actually a desirable thing in the first place.
Right.
And I think you brought up an interesting point.
And we sort of see what they're asking.
They're asking for more information.
What is the company doing?
What's really interesting to me is they're asking of any public company, not even a company that says, hey, we're into the green agenda.
They're going to ask it of everybody.
That's interesting to me.
I can almost see it from the...
Would you agree with me that if the SEC came out and said, if your company claims to be a green-friendly company or a totally equal environmental-friendly company, that they would then say, well, you need to disclose exactly why that is, because that could be a...
I mean, that is what you said.
That's that fraud element there.
If you are a company that's not saying that, but you're not doing it, okay.
But if you're a company that's not even part of your manifest, okay?
You're a box company or whatever it may be.
And now the SEC is going to require this additional burden on some companies that would have a hard time managing or determining that footprint.
Could you see how there could be, and I disagree that it should be, but there could be, okay, if you're promoting it, that's one thing.
That's like advertising, you know, or your prospectus saying something that's not true.
But for just a general application, I mean, this just seems like an overwhelming overstretch.
What is the SEC trying to accomplish with this?
Yeah, so...
Those are a couple of very important questions.
So first of all, the rule that we see that's just coming out this week actually is, or some of it, is sort of conditional, which means the rule says if your company does certain things, then you have to disclose it.
So, if the company has already had certain plans related to climate change or if they've announced them, if they say they've built this into their operations, then they have to disclose certain things, but not if they don't.
So, that is, you know, one perhaps silver lining to a reasonableness, even though there's a lot of burdensome parts in other areas.
But the other thing is, even before this was announced, The Security Exchange Commission and the chairman, Gary Gensler, came out and said that they were going to, you know, the SEC has what they call an Enforcement Division,
and they have an ESG, again, Environmental, Social, and Governance, ESG and Climate Task Force that's specifically going after, looking for evidence of exactly what you suggested, that companies who have said that they have an environmental focus or that they are climate-friendly But perhaps might not be,
you know, or that are making claims Beyond what's supported by their actual operations, trying to do what some people call greenwashing, trying to appear environmentally friendly when they're really not.
I've said I think there is a role for, even in this area, for the SEC to go after companies that are actually making fraudulent claims.
If they say we use 100% renewable energy and they don't, well, they shouldn't be able to claim that.
But this is sort of forcing every company to be an environmental company, like you said.
Even if that's not part of your business plan, that's not part of your marketing, that's not what you do, the SEC is basically saying everyone has to be a sort of green, friendly company now.
That is sort of turning almost upside down what the SEC usually does, which is they're telling companies, you have to describe in detail what your company does and how you do it and what risks and opportunities there are.
Traditionally, they haven't told you how to do your business, and now they're kind of sort of doing that, which is not really what the agency is for.
And this is an interesting thing because you made a claim that if a company is doing that, I mean, they already have rules in place.
It strikes me a little bit of the old montage that if we don't like what's happening, we just say regulate it more, make more laws.
Even if the regulation or the laws that are there would enforce it, they're not being enforced.
Is this a case of that?
I mean, does the SEC have rules that probably they could have, if they wanted to go down this path, could have enforced But are instead trying to use this as a platform to promote a bigger agenda.
Yeah, I mean, I think that's definitely true.
So there are, you know, right now there's four members of the SEC. Usually there's five.
One of them just left at the beginning of the year.
And so when you have a Democratic president, that would mean you would have three Democrats and two Republicans.
Right now there's just one.
And so that Republican has to purse.
Gave a rather blistering counter-argument when this was announced, as the one commissioner speaking against it.
And her top, she had five points, I think, that she was especially concerned with.
But one of the first ones was that...
The current SEC rules already cover this.
So the idea is that there's, quote, material information.
That's a particular legal meaning in the world, material and materiality in this area.
Material information.
It has to be disclosed.
So if you're a company and there's, you know, important information that's, you know, relevant to, you know, your future profits and operations that investors would need to know, then you're required to disclose that already.
It doesn't have to be about climate.
It doesn't have to be about any particular category.
The SEC says if there's material information, you need to disclose it, period.
So there's no reason why you need special rules that say you have to disclose all the material climate information, because you're supposed to disclose all the material information on any topic already anyway.
The only reason you would need rules like this is if you're forcing companies to disclose information that's not material to their operations, that doesn't have anything to do with business success or profit, and that's only motivated by the sort of political activism of, you know, the climate change activists.
Well, I think we're seeing that.
I read an article as I was preparing for this and read an article out of Forbes magazine, and I'll just leave it as an opinion piece, but it was saying that this was overdue.
This was actually good.
And I read through the article and the person who wrote the article basically was stating that this is good because, you know, if you're wanting to invest in green companies, this just helps you do some more.
It sort of struck me, and forgive me here, this is my words, not yours, but if you would like to tag on to them, that's fine.
It seemed to advocate lazy investing.
To me, it indicated that for those of you who are in the stock market, and we have a lot of folks who watch our podcast, I mean, Legacy Precious Metals is one of our sponsors.
I mean, we're involved in these kind of issues, but I mean, and the...
But the interesting issue here is for our sponsor, Legacy Precious Mail, I want you to go in and research them, find out what they do, find out where they go, and then you make your investment decisions there.
What this article writer was saying was these were designed Basically to help investing and to narrow out or winnow the field, if you would, from those that you wouldn't want to invest in.
That's not the SEC's job, is it?
A lot of different investors want a lot of different kinds of information.
You might be really concerned with how companies that operate in the developing world have relationships with indigenous tribes.
But that doesn't mean that I as an investor should automatically be able to have every public company spend a million dollars writing an indigenous tribes relations report.
All right.
We already have, again, we have the sort of materiality standard, which is if you've got important information that's relevant to your company, finances, you've got to disclose what it is.
And that has teeth, too, by the way.
I hate to jump in here, but some people out there are saying, well, what does that mean?
But actually, if they violate, a company violates the materiality side here, that has teeth and consequences to it, doesn't it?
Yeah, absolutely.
The question with this new proposal here and this conflict is that...
You know, the SEC has what they call the principles-based approach to determining what's material.
And so that means that the management of a company sits down and they look, you know, they do sort of that, you know, SWOT analysis, the, you know, strengths, weaknesses, opportunities, threats kind of thing, from the perspective of their own company and their own industry and what they think is going to be relevant to their profits going forward.
But it doesn't have to be, again, like we said, on any particular topic.
It doesn't have to focus just on A or just on B or just on C. It's whatever is relevant to the future financial success of that company.
And that has been a very successful standard that they've used for decades.
And there was...
Something for National Review this week that I mentioned this.
There was a speech by a senior SEC official a few years back where he was talking about this and he said, the advantage of this principles-based approach is that we don't have to change our material disclosure standards every few years when some new topic comes up because it automatically covers the things that are most important.
But this rule that's announced this week goes in the absolute opposite direction.
Instead of saying, just focus on the things that are most financially important to your company, and that's what you need to disclose, because that's what investors need to know, it says, well...
Focus on things in general, but also this one specific bucket of things.
And, well, if that specific bucket of things is important, why not a second one and a third one and a fifth one and a seventh one?
And by the time you get to every interest group in American society saying, oh, well, my thing's important, too.
You should require companies to report on that.
Well, then you have ten times as much paperwork.
But it's 90% less useful because it's not all about the financial future of the company.
Well, at a certain point in time, as you said, I love the diminishing returns of material return here.
I think it's an important understanding is that after a certain amount of time...
The material sometimes being offered is not helping you move closer to a decision or not.
That material has become superfluous, it's just out there, and it's there, but it's not really, like I said, the top ten, and you move away from it.
Has this been a long time coming with these, you know, we have three, of course, Democrats on the SEC right now, one Republican, one Republican left, but has this been something that's been building at the SEC or has this come within just the new with the Biden administration or is this maybe a holder back from maybe the Obama administration as well?
Well, there's definitely people at the SEC who wanted to move in this direction for a while.
So all the way back in 2010, the SEC issued its very first guidance.
This wasn't a rule like this is, it was sort of like more informal, just a statement of guidance, suggestions to companies about climate change saying, That some things having to do with climate change and the environment might meet the general standard for materiality.
This is sort of a new specific one, but the old traditional general one, just reminding companies, well, there are some things that are environmentally and climate related that might meet that general standard, so don't forget to report those things if they actually are legit.
So that was...
You know, a sort of advisory opinion, right?
It wasn't a new set of rules.
But that was, that went through back, you know, in the Obama era.
And then, you know, right now we have one of the Democrat commissioners, Commissioner Lee, Allison Herron Lee.
She has been the one most, by far, most aggressive in pushing this.
So she published a document about a year ago asking for input, you know, request for information.
But it was a rather leading request for information, so it clearly signaled the direction that they wanted to go in and that she wanted to take the SEC in requiring more and more stricter climate rules for companies.
And so, it's been about a year, and then this is now the result of all of that, you know, years of, you know, years of work at the SEC, her staff putting together this rule, trying to sort of push the SEC as far as possible in the direction of, you know, in my opinion, of climate activism.
Yeah.
And before we get into how this would actually operate and how it would actually be filled out, have they pushed themselves far enough to, and as an attorney, you always look at the litigious side or litigation side, has the SEC put themselves out on, in your opinion, a tenuous edge here of being sued?
And possibly having the prevailing party win because of the tentative nature or tenuative nature, if it would be, of the ability for them to enact this rule?
Yeah, I think there's definitely a threat to them.
So, you know, we have this rule now.
We have 60 days to comment on it.
It probably takes some months after that for them to publish a final rule.
But I wouldn't be surprised if on the first day the final rule drops.
There would be...
A lawsuit filed that same day or that same week.
There's already been some people, legal analyst types, who have thought through how such a rule might be challenged.
But the most important one, which strangely seems to be taken for granted sometimes in Washington, the question is whether they have the authority granted by Congress to do this in the first place.
There's a great guy at the Mercatus Center at George Mason University in Virginia.
Andrew Vollmer, he's actually former Deputy General Counsel of the SEC, and he had a report out last year that said, like, that's absolutely not.
This is beyond what Congress has given them the authority to do.
Again, as I described, it's a big break with the way they've operated in the past.
They're sort of taking almost a U-turn to their traditional strategy of expecting companies to disclose material information.
So, That's obviously a way that can be challenged.
Parts of it, potentially, could also be challenged separately.
And there's actually a First Amendment issue here as well.
So when the government says that you have to publish something, that's compelled speech.
And normally, the First Amendment takes a dim view of compelled speech.
But when it comes to a corporation, and when you're asking them simply to publish truthful information about themselves, that's reasonable, right?
And for decades, the SEC is...
We've had those regulations that corporations have to disclose certain information.
But a lot of this is going to be subjective and not numerical, right?
It's going to require these companies to sort of come up with the idea like, well, how serious do we think climate change is?
What do we think the effects will be in 25 or 50 or 75 years?
Often, when it comes to these predictions about climate change, the scientists will say, well, this is what we expect to see in 2100. It's like, well, I don't know how many business analysts you've met that make predictions that far into the future.
The uncertainty level there is off the charts.
This information will, one, probably not really be objective.
It will be based on a chain of assumptions that, you know, will be, you know, possible to prove or disprove.
But because of the sort of like politically charged nature of, you know, climate change where...
The more greenhouse gases you emit, the worse corporate citizen you are, is the assumption, that this information will be inherently disparaging.
And so federal courts have said, if the government says you have to put out information about yourself that's straightforward and numerical and accurate, that's fine.
But if you're requiring companies to, like, make statements that are subjective and disparaging against their own interests, that's much more questionable.
And courts have actually struck down a rule that came from the Dodd-Frank financial regulation law from several years back.
Having to do with conflict minerals and things.
They were trying to require them to say whether or not they traded in blood diamonds and things like that.
And the court said that is both subjective and disparaging.
The government cannot require that.
So there's already...
That's National Association of Manufacturers versus SEC, if any of our legal eagles want to look that up from 2015. But there's already precedent that has restrained the federal government's ability to make some of these financial disclosure requirements, and so I think that will definitely be at the top of the consideration of anyone thinking to file a legal challenge here as well.
I think what's interesting here to me, though, is being sort of blunt here.
This just smacks straight up of the SEC, in many ways, directly putting their thumb on the scale in favor of favored companies, favored organizations.
As opposed to unfavored organizations in the marketplace.
And that's the very antithesis of a market that should be free, a market in which people can make investments within legal realms and legal rights and their own admission.
And I'll just break it down.
If I wanted to invest in an oil company, then I understand the implications of oil to the climate change discussion.
If I want to invest in a solar panel company, I understand the implications of that.
But the SEC is basically saying here is you're going to like the report from one company, you're going to dislike the report from the other company, and that can actually move money.
And that's becoming more and more of a concern that I have, is the coercive power of government.
Like you said, the coercive speech or forced speech.
Is that sending a little bit of a chill through the economy or markets right now, and some of the companies in particular?
Well, we've already seen it when it comes to guns, when it comes to pharmacy, when it comes to medical marijuana, whatever you want to call it.
We're seeing that.
Is the SEC, I mean, again, we know they're seemingly overstepping their bounds, but this seems to be more egregious that they're actually now putting the government's thumbprint on this.
Yeah, I think that's definitely true.
The implication here is that, you know, Quote, some material is more material than others, right?
So...
Orwellian.
Yeah.
So the implication is that, you know, any exposure to climate risk is, you know, is material, and it's bad, it's negative, and it puts your company in a bad light.
And the fact that they're writing, again, they're writing specific rules just about climate, not the traditional rules which say just, you know, disclose anything that you think is financially relevant.
Is obviously trying to put your thumb on the scale.
And the idea that the government agency should be throttling capital flows, should be stopping people from investing in oil and gas, in hydrocarbon energy, is something that is very popular right now in Washington, D.C., in the Biden administration.
You have people who are saying the Federal Reserve should be trying to somehow, I'm not sure how they would do that given their responsibilities, but should be trying to stop people from investing in oil and gas, should make it more difficult, more expensive, and then we should restrict credit and capital flows to companies like that.
I think we see how that's worked out with record high energy prices.
And that's gone even farther in places like, you know, the EU, the European Central Bank.
So you got a lot of bad energy policy even before the Ukraine invasion.
You had record high gas prices in Europe and in China for that matter.
But this sort of...
One, using the government to restrict investment in politically correct industries is bad and is not part of our constitutional system.
Government should not be part of a market-driven economy.
But it's also having real-world consequences with higher energy prices.
This is absolutely the government trying to step in in ways that Congress would not have allowed them to.
This rule from the SEC, if it had been an act of Congress, if it had been a bill introduced on the floor, it would have gone nowhere, because it would have been wildly unpopular.
Which is why some of this, especially the climate stuff, is really the Green New Deal snuck in the back door.
That kind of stuff, if you look at the actual framework of the Green New Deal that is introduced by AOC and their friends in Congress, it's wildly radical.
It wouldn't have gone anywhere even in a Democrat-controlled Congress, as it hasn't.
Much less, say, if that changes after our next midterm election.
It could only be put in place In this less democratic, roundabout way, where it's enacted by a federal agency, where there's no direct way to challenge it other than just filing our comment letters, which we always do.
Well, and I think it's going to, you know, again, my concern on this, and again, I think the biggest issue you have here is it's going to be cost.
And I think cost not only on the companies for, the bigger companies, again, it just adds another layer to their consultant fees.
They have to pay for the report.
But on smaller companies, you know, and again, I'm not saying that, you know, a company that's publicly listed is a tiny mom and pop in the backyard, that kind of thing.
And the author that I spoke of earlier said, well, they should have went to private companies and made private companies do this.
I'm like saying, okay, number one, they have absolutely no authority over private companies.
So it's just really strange there.
But I think the bigger thing is not only the cost aspect, and you've touched on that, especially with the issues of oil and gas and energy as well.
Why would a listener out there who's saying, look, I don't invest, I don't have this, but they're getting hit with the cost of these issues.
They're getting hit with the restrictions on these issues, whether they invest or not.
But the other thing for me is, and this goes back to something inherently that we could spend a lot of time on, and you've touched on it just now, and that is the inherent power of the executive agency.
Apart from Congress, and I think I have railed for years now about the fact that Congress has given up so much of its authority to blind, undesignated agencies to do what Congress was unwilling to do.
And that it's made the executive sort of the outside spoke in the wheel moving forward.
So my question now would be turn is if this is somehow implemented and it's not stopped by a lawsuit that actually puts it in perspective.
What is the other, I mean, this to me seems to be a slippery slope toward a move away from a market economy, from a free market economy in particular, into one of more, you know, more tight control of government in these economies.
Yeah, that's definitely true.
I mean, the...
You know, what we would call it, you know, like political science terms would be sort of a corporatist system where all the big corporations and all the political leaders all get together and they decide that the economy is going to do one specific thing and everyone has to follow that policy.
Now, in the most extreme versions of that, you get a sort of fascist political system, right?
So, like in...
You know, in Italy, under Benito Mussolini.
They were very proud of the fact that they commanded all of the big industrial corporations to follow a single government, marching in lockstep to a single political authority.
Well, obviously we don't have that system in the United States.
We don't want to have that system in the United States.
The vibrancy of our economy depends upon competition.
If the government is controlling every single company so minutely that they are all going in the same direction, you don't have that creative energy.
That creates wealth and opportunity and innovation.
You mentioned, why should someone who doesn't have a lot of investments care about this?
Well, the increased costs are going to be born In various shares, some by shareholders, but also by customers in the form of higher prices, and by workers in the form of fewer raises, fewer jobs created.
So whether it's a big company or a small company, if they're less profitable and are able to hire fewer people, well that's a problem for everybody, right?
And for every dollar that they spend Paying an outside consultant to write them a climate consulting report, that's a dollar they're not investing in new products, or in training employees, or anything else, or in lowering prices.
So it's taking a chunk of value out of the economy and spending it on reports probably no one will end up reading.
And so Commissioner Peirce, like I said, the one Republican currently on the SEC, said, I'm sort of paraphrasing here, but she said this is basically like a full employment plan for the climate industrial complex.
And there's huge numbers of people who spend all their time at law firms and at consulting firms and accounting firms working on this stuff.
And now that there are going to be binding rules about it, every company is going to have to spend way more money doing this.
Because right now, as some people pointed out, a lot of companies already put out information about their energy use and about their plans about the climate and things like that.
But those are voluntary.
They can't be sued over them, right?
Their CFO is not going to end up in federal court if someone has a problem with them.
Well, that's going to change with this, which means they're going to have to spend a lot more time and energy and mental energy worrying about them and paying someone double, triple, extra to make sure that everything, every T is crossed and every I is dotted.
And you can already see the big consulting and accounting corporations are planning for this.
Even last year, when we knew we were moving in this direction, PwC, one of the big PricewaterhouseCoopers, one of the big, because he used to be five, now there's four, big four accounting firms, they're pretty huge.
They announced last year they were hiring 100,000 new people.
All of them to work on ESG-related issues.
And most of that's climate, some of it's diversity, but over the course of five years.
That's spectacular.
That's like a Fortune 500 company on its own, right?
And that's just accountants and assistants and lawyers to work on climate change compliance and documents.
It's just amazing to see this.
And again, it goes on behind the scenes.
They know that a lot of people will not pay attention to it.
I mean, to make a slight joke, you see a lot of people out there, they see something from the SEC, they think they're talking about the football in the South.
I mean, they don't know what it actually entails and what it actually occurs in.
And so the question I have now is, I think I can easily see that if for some reason this allows to become a rule, allows to become a final rule, that you will see a case within six months or several cases of companies being held and fined for this.
You know, the high profile kind of, you know, we warned you kind of thing.
What can we do now?
The way to stop this is now.
Could this come before Congress in a sense that Congress could specifically outlaw this or could take this rule down?
In that regard, is that something that could happen?
What is the average person out here who says, look, I'm just tired of the government getting in and out of this and expanding the footprint.
What can most people do if they wanted to have a part in this?
Yeah, so with any of these new rules, there's always the opportunity to comment on them, and that's something that's a legal requirement that's built into the process.
All the agencies are required to read.
And take consideration of those comments.
That's why we do them at the Competitive Enterprise Institute.
But you don't have to be an expert to do that.
Anyone, any American can do that.
Write a comment.
You can go to the SEC's website.
If any of your listeners out there want to know how to do that, they can email me at richard.morrison at cei.org, and I'll walk them through it.
So, you know, I'm going to write my comment letter.
It's going to be pretty negative, I'll be honest with you.
And then, you know, lots of other people are going to as well.
And then those will go through and, you know, the staff will read them and digest through them.
But very much, you know, Congress could step in and regulate this as well, right?
Congress created the Securities and Exchange Commission.
They could abolish the little agency tomorrow if they wanted to.
There's nothing, you know, there's no constitutional limit to that.
And the SEC can also absolutely cabin or restrict The authority of the SEC to write rules about things like this.
Again, my argument is that they don't have the authority to do it in the first place.
So it wouldn't even be a restriction.
It would just be asking them to follow the actual law.
So, yeah, if you've got a member of Congress that you are talking to or want to send a message to and, you know, These are your top issues?
If you say, I think the SEC is going too far.
We've got to do something about all these climate rules.
They'll understand what that means.
Would this fall into the Congressional Review Act?
It could.
I mean, any of these rules that come through are subject to a challenge by the Congressional Review Act.
I think if President Biden were still president, he would veto a Congressional Review Act resolution.
But some of these things do actually take quite a long time.
This rule that just came out this week, a lot of people thought it was going to be, you know, the initial version was going to be released in October last year.
So sometimes these timelines drag on longer than people expect, and sometimes political power does change during the course of these proceedings, writing and trying to get these rules published.
So I think it's not getting too political to say that there might be a change of the majority in one or both houses of Congress after the midterm elections at the end of this year.
We're not endorsing any candidates, but that might happen.
So if the Republicans on, say, the Senate Banking Committee and the House Financial Services Committee, those two especially relevant ones, the If those guys are now holding the chairman's gavels of those committees, that's going to change this quite a bit.
And so we might see oversight hearings where a chairman of one of those two committees or both asks someone from the SEC, maybe the chairman himself, to come up and explain this.
And be subject to some probing questions about it.
Personally, I think long term we need congressional action to draw new lines around the SEC's authority.
Or remind them about where the lines actually should be.
Not just because of this, this is a big example, but because politicized investing is a big problem.
And having governments step in, like you said, put their thumb on the scale, For some companies, not others.
For some sectors of the economy, not others.
For some industries.
It's a problem that's probably going to get worse before it gets better, and there will always be the temptation to try and use something like the SEC, which is supposed to be a very kind of straightforward, just the facts, disclose the real numbers kind of agency, and trying to twist that to say, oh, we want to enforce a climate agenda, we want to enforce a diversity agenda, we want to enforce...
Turn it upside down, right?
Instead of enforcing general rules, try and get it to push a specific political and highly controversial political agenda at that.
So we're going to need some reform for that eventually.
I agree, and I think that's the problem that we're seeing so much, and I've dealt with this in the Department of Justice, I've dealt with it everywhere else, but when you get politicized agencies of the government, then we're in trouble, and I think that's the biggest thing.
Folks, this is why we deal with topics like this that you may not want to hear, but this is why sometimes you're Costs go up.
Business is harder to hire jobs.
It's because of things like the SEC is doing right here with these kind of rules that come forward.
That's why we always want to bring those to you.
Richard Morrison, thank you so much for walking us through that, talking how this rule can affect not only the business climate, but also everyday investors.
And I appreciate you being with us today.
Yeah, thank you very much, Doug.
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