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Guest op/ed: Heavy burden of regulation is weighing economy down

By   /   Friday, October 7th, 2011  /   2 Comments

Destructive government fiscal and monetary policies are clearly hurting the economy, but overregulation is an unnecessarily self-inflicted wound that can quickly be cured.

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By Tom Watson on October 7, 2011

“If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Sadly, that timeless quote from President Ronald Reagan is more appropriate now than ever. Our economy continues to languish with unacceptably slow growth, huge deficits, high unemployment and a general sense of impending doom and unease.

How have we turned our once dynamic economy into such a laggard? Particularly in California, where from 2001-09 we led the country in new business creation but in 2010 we slipped to dead last. California lost over 4600 businesses in 2010.

There are many reasons we find ourselves in this mess, but we can dig our way out of our hole by growing our economy like it’s capable of growing. The question is, why isn’t it growing more?

It’s simple: We won’t let it grow. The natural state of our economy is to grow; businesses exist to conduct business.

Destructive government fiscal and monetary policies are clearly hurting the economy, but overregulation is an unnecessarily self-inflicted wound that can quickly be cured.

A recently completed study by the Small Business Administration on the cost of regulatory compliance in the country produced results that were mind-boggling: The cost is well over $1,700,000,000,000 per year.
That’s $1.7 trillion.

That’s more than 12 percent of the nation’s GDP just for complying with government rules. That is unproductive, non-value-added effort that consumes productive capacity with little benefit. The average American works about 65 days to pay for this regulatory compliance.

We have lost a huge number of manufacturing jobs and had a significant number of businesses move production overseas in large part because the cost of regulatory compliance has driven costs up and made it impossible for U.S.-based manufacturing to compete. The average cost per employee to comply with regulations for a small business is more than $10,000 per year nationally — more in California.

The Environmental Protection Agency has added huge costs to manufacturing including recent rules that will increase electricity costs between 12 and 24 percent and kill more than 1.4 million jobs just in the energy sector. We will not be successful in international competition if we have a higher cost basis for energy than our competitors.

Excessive energy costs are one of the major reasons companies leave California now. California’s energy costs are about twice as high as in many areas of the country.

President Obama recently delayed new emissions rules — until after the election — that would cost about $100  billion a year, with little benefit. In the meantime, the EPA regulation machine continues unabated with a budget that has increased dramatically in the last three years.

New expensive EPA regulations include utility standards, boiler rules, cement requirements, coal ash regulations, farm dust regulations and greenhouse gas requirements, to name a few of the more destructive new rules. Many more are in the works, with little cost-benefit analysis applied.

ObamaCare has accounted for 20 percent of the increases in typical insurance premiums, a little over a year after new mandates were imposed on insurance carriers. Stand by, as the truly expensive provisions have yet to take effect. Thousands of companies have sought temporary waivers, but it’s only going to get worse.

Families will face an expensive mandate to purchase health insurance. Employers will continue to avoid hiring workers due to fines and higher health costs. ObamaCare mandated increases in Medicaid will crush state budgets and funding for education, transportation, and public protection will suffer.

Monthly job creation dropped by 90 percent as soon as ObamaCare was passed in April of 2010. In the year before the law passed the average job creation was 67,000 per month, afterwards it has averaged 6,500 per month. Coincidence?

Financial regulations such as Sarbanes-Oxley and Dodd-Frank have had a particularly pernicious impact on our economy. New business and startups create most of the new wealth in our economy and since the passage of Sarbanes-Oxley, the number of initial public offerings of stock has dropped dramatically, by about two-thirds. Compliance costs for Sarbanes-Oxley can be millions per year, while adding no real benefit.

Poorly considered rules regarding stock options that were targeted at large firms have made it harder for startups to issue incentive stock options. This is self-defeating. That is how startups attract good employees and improve their chances of success. Why take a risk on a startup if your upside potential is limited by ill-considered government regulations?

Believe it or not, Dodd-Frank is even worse. “Too big to fail” is now institutionalized, and the big banks have gotten even bigger. Compliance costs for the over 350 new regulations are huge and will make it more difficult for local and regional banks to compete. Increasing capital requirements are forcing banks to the sidelines. This law has made it harder to lend and borrow money. Have you tried to get a loan lately?

So, what to do? For starters, stop doing what we have been doing the last few years. Sarbanes-Oxley, Dodd-Frank and ObamaCare should be repealed; they are doing far more harm than good. Start over with targeted, specific and more considered legislation. These bills tried to boil the ocean and have poisoned it instead.

Put a moratorium on new regulation for one year and review all regulations currently on the books for cost-effectiveness. Sunset all federal regulations every five to 10 years and force them to be reviewed for cost-effectiveness and reauthorized. The Federal Register of laws has exploded in recent years, and so too have our difficulties.

The key observation to take away is that the bigger the government, the smaller the private sector. Every dollar spent or directed by government is a dollar that can’t be more effectively employed in the private sector. Free business from the burdensome costs of self-defeating regulation and we will grow and be prosperous yet again. We are killing the goose that lays the golden eggs, and doing it voluntarily.

• Tom Watson is a former Republican Congressional candidate from Santa Barbara. Contact him at [email protected]

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2 Comments

  1. Tom says:

    Brian,

    Spending money you don’t have to boost your GDP statistics is not a winning formula, as we can see with our own eyes in Europe and here at home. Spending money on non-productive activities also does not a great economy make.

    All jobs are not created equal. The jobs created to comply with regulations are not value added jobs, they are overhead. Overhead jobs consume wealth, they don’t create it. Increasing the cost of doing business by excessive regulatory compliance adds to the costs of the products/services a business offers. Higher costs = less competitiveness. Less competitive business means less business and less jobs, which is what are experiencing now.

    I’m not aware of any industry or country that has been successful by willfully increasing the costs of doing business when their competitors are not. Do you?

  2. Brian says:

    This is likely one of the dumbest things I have read in a while. Economies rise and fall based GDP/GNP which measures spending. To comply with regulations companies must spend – i.e. improve the economy. An excellent example is Sarbanes Oxley. While you may not understand all of its benefits (there are plenty), its positive impact on the economy and vast number of people hired (high level jobs created!) to comply with the law, is undeniable.

    As a Republican it embarrasses me that so many of our so called leaders are following Rush and promoting this cockamamie theory. We are supposed to be the party of business; we should act like we understand it!

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