Correct Diagnosis, ...

Monday, November 22, 2010

... Wrong Cure

Via Glenn Reynolds is an article in the Washington Post by entrepreneur Morris Panner that discusses how regulations are crippling the economy through diversion of talent away from the (metaphysical) problem of innovation, and towards the man-made one of getting around regulations.

I reproduce Reynolds's quote from that article:

As a Democrat whose politics are undeniably liberal on social issues, I lamented the outcome of the midterm elections. But as an entrepreneur with two software start-ups under my belt, I couldn't help but celebrate -- and more than a little. As the fall campaigns wore on, I had found myself listening closely to the Tea Party, nursing the hope that its message would push both major parties to change the way they do business.

To understand my motivation, pick up the November issue of Washingtonian magazine. The annual Salary Survey notes on Page 81 that top trade association leaders (industry lobbyists) make multimillion-dollar salaries to "keep tabs on what the federal government was doing or might do."

These outsize earnings are symptomatic of a disease that is slowly killing the American economy. We are creating so much regulation -- over tax policy, health care, financial activity -- that smart people have figured out that they can get rich faster and more easily by manipulating rules on behalf of existing corporations than by creating net new activity and wealth. Gamesmanship pays better than entrepreneurship.
Too bad that that's not the half of it -- although it does mention one of many facets of the problem.

The financial burden of regulation is grossly underappreciated by almost everyone, as I noted some time ago.
The silent killer in this story is federal regulation of the economy. Its estimated annual cost of $1.75 trillion is about two-thirds that of the tax burden. Sam and Karen, although fictional, are based in part on averages obtained from a recent report (PDF) prepared for the Small Business Administration on the impact of federal regulations on the United States economy. Notably omitted from the report are the additional costs of state and local regulations, as well as snowballing effects, such as lost opportunities and a slower pace of innovation.
And I'd call for a different long-term solution than Panner does: "It is up to us, the voting public, to consistently demand that politicians take steps to dismantle the state regulatory apparatus, and hold them to their word at each election cycle."

-- CAV

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