I am currently a modest shareholder in Northern Dynasty Minerals Ltd. (NYSE:NAK) a company sitting on a huge copper/gold deposit on the south coast of Alaska that has been stymied from developing it for half a decade through Federal environmental holdups – an incredible waste of resources. Yet mergers that agglomerate businesses into ever larger and less accountable bureaucracies normally go through in a few months with little opposition. The Biden administration’s Lina Khan, who as Federal Trade Commission chair attempted to change this, was reviled by Wall Street and has now been replaced. This differential needs to be reversed. New investments in mining and elsewhere should be expedited as they add new wealth, whereas mergers, which normally subtract value, should be blocked except in special cases.

Everything changed for American business on January 1, 1970, when President Richard M. Nixon signed into law the creation of the Environmental Protection Agency (EPA). After the law had taken effect, the average rate of U.S. productivity growth slowed from 2.8% per annum in the quarter-century 1948-73 to 1.8% per annum in 1973-2007 (it has since slowed even further). That slowing can reasonably be attributed almost entirely to the additional glue that the EPA inserted into the creation of almost all productive investments. Had the EPA never been created, and productivity growth continued at its pre-1973 level, we would all today be more than 50% richer. You may well think that the benefit of missing out on the occasional Cuyahoga River fire was not sufficient compensation for killing that blessed future of almost boundless prosperity.

It is not just mining projects like Northern Dynasty’s that suffer from EPA harassment. When combined with well-funded lawsuits it can slow infrastructure development almost completely to a halt, as in the case of California’s High-Speed Rail project, which has just passed its 30th anniversary without running a single train. Also in the case of New York’s Second Avenue subway, originally proposed in 1920, the Elevated line that it would replace being demolished before 1955, a bond issue of $2.5 billion to complete it carried out in 1967 and the first section of which opened only in 2017 (completion is currently scheduled for the 2040s if ever). Then there is the cost comparison between the Holland Tunnel under the Hudson River, completed in 1927 at a cost of $48 million (less than $1 billion in today’s prices) and the essentially identical Hudson River Tunnel project, currently estimated at $16 billion and everyone thinks that estimate would be much too low if they started to build the thing.

Then there are pipelines, theoretically private sector enterprises. New York has enforced a moratorium on new gas pipelines since 2018, which has endangered the gas and electricity supply of everybody living south of Albany. Notoriously, permission for the Keystone XL pipeline, a beneficial and profitable enterprise, was cancelled by the Biden administration on its first day in office, when $100 million had already been spent on it and it was nearly half complete. That action should have been ruled unconstitutional under the “takings” clause of the Fifth Amendment – it was clearly a “taking” of the money already spent.

The Keystone XL pipeline’s cancellation has added still further to the costs and delays of U.S. infrastructure, because the builders thereof must factor in the possibility that some Marxist nut-job President will force them to cancel the project half-way through or even close it after completion. (The new Democratic candidate for Mayor of New York, elected by a substantial majority of the “best and brightest” with multiple Ivy League college degrees, indicates that Marxist nut-jobs are now an ever-present threat in American political life.)

As for nuclear power, words fail me. The entire construction of nuclear power stations was effectively forbidden from 1979 until very recently because Jane Fonda made a typically dishonest movie about a nuclear meltdown. As a result, the U.S. power grid has increasingly been subjected to technologies that either present massive health risks (coal) or don’t work properly (solar and wind power). As a result of environmentalists’ and lobbyists’ grandstanding it is also likely that some substantial portion of the U.S. will be subjected to a prolonged power blackout within a few years, which if it happens in high summer or the depths of winter, will result in hundreds of thousands of deaths. This huge likely future disaster is the result of environmental bureaucrats listening to the likes of Jane Fonda and Greta Thunberg, the only difference between whom, 40 years apart, is that only woke 2025 Hollywood would cast Greta Thunberg as Barbarella!

The detailed second-guessing of mines, pipelines and other private-sector projects makes no sense at all. In these cases, private shareholders are making a private market decision about whether to go ahead and in almost all cases, that decision is made strictly on the economics of the project, as they are known when the decision is made. Yes, there is an environmental “best practice” as to how to develop a mine, for example, with appropriate best ways of disposing of the “tailings” that a large mine inevitably produces – the same is true of pipelines, etc. However, it would make much more sense for the EPA to produce a “manual” of best practices for mining companies to follow, and by all means send inspectors to check that best practice is being followed, imposing fines if it is not.

It is completely absurd that some idiotic government agency should second-guess every mining project, holding it up for years or even decades as they cogitate, or even rejecting it altogether if an anti-mining political party is in power. By definition, these decisions should be economic, not political, and the cost of making them should be as low as possible. That is best achieved by removing any semblance of a government veto, so that only when inspectors arrive at the mine site is there any niggling. Of course, if the mining company wants to consult EPA “experts” about the choice between methods of environmental protection, it should be free to do so, but there must be no EPA veto. Only by this means will the hugely damaging effect of EPA regulation on the entire U.S. economy be removed and mining projects such as Northern Dynasty go ahead immediately based on market factors such as expected copper prices.

In mergers, on the other hand, the opposite is true. Following Judge Robert Bork’s determination that the Federal Trade Commission should focus solely on consumer welfare in antitrust decisions, almost all mergers have been quickly waved through. This is thoroughly economically unattractive. Increasing the size of companies reduces their level of innovation and increases their contingent of “woke” bureaucracy; they become mere box-ticking exercises whose only “creation of value” lies in the repurchase of their own shares to boost management’s stock options. Countless studies have shown that most mergers destroy value; they also often ruin the lives of ordinary employees who lose their jobs. Conversely, mergers are generally a bonanza for top management with stock options and other incentive payments and for the investment bankers and lawyers involved in generating them.

This points to the central problem with mergers: the incentive system for making decisions on them is completely skewed away from what a rational capitalist would demand. The long-term shareholders either benefit or lose from mergers but they are not consulted until the deal has been decided upon, by which point rejecting it would require them to find new corporate top management, with all the disruption that causes. The ordinary employees of the companies concerned are generally substantial losers from mergers, because every merger requires a damaging “reorganization” after it — often of both buyer and seller as operations are merged – and employee costs in losing their job security are not recompensed. The innovators who are quelled by the company’s increasing size and bureaucracy and the customers who are forced to pay higher prices by market concentration are also not consulted (merger regulation theoretically looks at customers’ interests, but in practice does so ineffectively).

Only the corporate managements and the investment bankers are consulted, but their incentives are skewed by the returns they receive from generating and doing deals. In these circumstances, if we are to have merger regulations at all, they should make mergers very difficult, not facilitate them. Lina Khan was right on this point, if misguided in her general approach to economics.

The ideal economy requires a myriad of small competitors, seeking opportunities in new ideas and new businesses, exploiting new chances for a mine, an energy source or a profitable piece of infrastructure and raising money easily. They should be as unhampered as possible by bureaucracies, either within their own companies or within the government. The current U.S. regulatory model notably misses these objectives.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)