12 Mar

Regulation vs. Prosperity… America goes gently into that good night

                                       

Thanks to the Founding Fathers, in 2013 the United States has built the wealthiest nation in history on free markets and the rule of law. (And thanks to their more recent successors, we’re simultaneously the poorest… but that’s another discussion.) While the Founding Fathers were remarkable for much, what is perhaps their greatest legacy is their recognition that Americans, like all men, are imperfect.

In 1787 after almost a decade of the greatly flawed Articles of Confederation, the 2nd Continental Congress was formed and would eventually produce the Constitution we have today. What was so amazing about the document was the fact that it had built into a wide variety of it limitations and strictures intended to both delineate and restrict power. The overarching idea that powered the construct of the Constitution was the fact that an unfettered government would become tyrannical. The founders understood that limited government was supposed to act only in those areas that citizens could not on their own – think national defense, courts, treaties – and, importantly, only based on the powers granted to it under the Constitution.

Fast forward to today where their work has proven itself well placed with a prodigious American prosperity been built on its foundations of free markets and the rule of law. More than any nation in history, we have benefited from the fact that virtually any American citizen or resident has had the opportunity to start a business. Sometimes they invest their money in a neighbor’s plan to start a sandwich shop and other times they roll up their sleeves and start something on their own. More than anything in the world, that freedom of opportunity has set America up for success and driven us to achieve the greatest level of wealth ever created.

Unfortunately, that freedom of opportunity is rapidly disappearing… In an effort to ameliorate every problem that might befall a citizen, the federal government has passed laws and created regulations that touch virtually every aspect of our lives. This Sisyphean exercise has not only failed, but it has laid the foundation for the undermining of the freedom and opportunity that made America the wealthiest nation in the world.

Economic growth comes largely from small businesses. 70% of all new jobs come from small businesses. Small businesses are where innovation begins. Think about it. You’re probably not surprised that the PC revolution was not driven by the behemoth IBM but rather by two upstart companies named Apple and Microsoft. You’d probably not be surprised to discover that ESPN was founded by an unemployed sportscaster rather than one of the three major networks. You’re also probably not surprised that it was Google, a company started by two college students, that figured out how to effectively harness the opportunity in online advertising while America’s mega media companies stumbled from one failed business model to the next. Big companies always start out as small ones.

Small business is where new ideas get to play themselves out and figure out what works. This is because small companies are typically nimble, they don’t have legacy products or services they are concerned with undermining, and perhaps most importantly, owners and investors are usually very close to the action. They normally are right in the mix of where everything is happening so they can observe and react quickly to the needs of markets. Big lumbering, billion dollar companies with tens of thousands of employees and multiple levels of hierarchy rarely have the insights or quickness to see opportunities ahead.

And of course starting a business is risky. You never know if customers are going to like your product or service. Suppliers can be unyielding in their financial terms. Employees can be fickle and unreliable. Competitors abound. And of course it can be incredibly expensive. Nonetheless, some intrepid Americans do venture forth to hang out their shingle and pursue the dream of turning an idea into a flourishing business. They might get rich, but they might go broke too… but to them it’s worth the risk.

And as if it were not hard enough to find success as a small business, it’s becoming far more difficult in one respect that the entrepreneur has very little control over: Regulation.

The nearby chart shows the growth in federal regulations over the last 60 years. That growth is set against a GDP growth chart for the same period – measured by average rate of growth over the decade. The correlation is crystal clear, and painful to behold.

Each page of the Federal Register represents dozens of byzantine regulations that must be administered by millions of bureaucrats, often with draconian consequences for violations. For small businesses such regulations are nothing short of a nightmare. Not only do they have to navigate the equally challenging state and local government regulations, but they must increasingly deal with mandates crafted in Washington by bureaucrats who are professional pencil pushers with no experience in actually running a business, nevermind an awareness of the unique challenges faced by small businesses.

The Federal Register is the catalog of all federal regulations. In 1950 it included 9,745 pages of regulations. During the decade that followed the US economy grew at an average rate of 4.2% a year (inflation adjusted). In 1960 it had 22,877 pages and growth over the next ten years stayed essentially stable at an average of 4.44% per year. That was the last decade of treading water. By 1970 the Federal Register would grow to 54,834 pages and GDP growth over the subsequent decade dropped to an average of 3.75% per year. By the year 2000 the document had ballooned up to 138,049 page and as one might expect, the following decade’s growth was an anemic 1.73% per year on average. Today the Federal Register weighs in with a full 170,000 pages of regulations.

As regulation has increased GDP growth has decreased. That is no coincidence. Perhaps the greatest way regulation cuts growth and hinders prosperity is that it smothers small businesses and benefits large ones. Unlike big businesses, small businesses can’t generally afford lobbyists to influence legislation nor armies of lawyers and accountants to figure out how to minimize its impact. The result is less innovation, fewer jobs and at the end of the day, smaller GDP growth and less prosperity.

And if you think this discussion of the correlation between GDP and regulation is just a game of semantics, think about it this way. Take your income… How would you like to double it? At the 4.4% average annual growth rate the experienced in the 1960’s, it would take you 16 years to double it. Not quick, but not horrible. At the 1.7% rate experienced during the first decade of the 21st century, it would take you 41.6 years. And that’s not an anomaly, it’s 50 year trend. More regulation means less growth, which means less prosperity.

With the regulations spawned by Obamacare only now making their way onto the books we can expect even more slowing to come. This is not a Democrat vs. Republican issue… this is a conservative vs. liberal issue. As the liberal progressives have sought to use the force of government to create a perfect world where everyone lives in a state of bliss unencumbered by the sometimes harsh vagaries of life and protected from the consequences of choices, they have in fact destroyed the fount from which emerged the American prosperity that allowed them to focus on frivolous things in the first place. Here’s an analogy: In order to guarantee every passenger is comfortable and that a plane could never crash, liberals have loaded the plane up with so many pillows and so much safety equipment that it can’t get off of the ground in the first place. As anyone stranded on the tarmac for seven hours inside a JetBlue plane could probably tell you it doesn’t take long for dystopian conditions to begin to emerge.

Just as aerodynamics of flight can’t support a plane that can’t get off the ground, free market economics can’t drive an economy that is so constricted by regulation that it can no longer be called a free market in the first place. Welcome the America of the 21st century, where prosperity becomes but a distant memory and a once great people go gently into that good night…

About Vince

The product of a military family, growing up in Naples, Italy and Guantanamo Bay, Cuba, and being stationed in Germany for two years while in the Army, Vince spent half of his first quarter century seeing the US from outside of its own borders. That perspective, along with a French wife and two decades as a struggling entrepreneur have only fueled an appreciation for freedom and the fundamental greatness of the gifts our forefathers left us.
This entry was posted in Uncategorized and tagged , , , , , , , , . Bookmark the permalink. Tuesday, March 12th, 2013 at 5:12 am
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21 Responses to Regulation vs. Prosperity… America goes gently into that good night

  1. johngalt says: 1

    Excellent piece, Vince. It’s a shame that no one has commented on it up to this point.

    Of course, the progressives believe that a governmental solution is the only solution, and thus, another regulation is born. And on top of that, we, as a people, have “progressed” to the point where we are attempting to address problems that may, or may not, actually happen, depending upon one’s point of view. And, of course, there is always the mega companies, in any industry, who can afford the hordes of lawyers and lobbyists, to ensure that their “share of the pie” remains constant or grows, and ofttimes that happens at the expense of opportunities for the small businesses.

    Mayor Bloomberg’s soda ban comes to mind here. If allowed to stand, new shop entrepreneurs will lose an aspect of their business plan that brings with it a large profit margin. The established companies and businesses in NY, while losing that same aspect, have established themselves in other areas enough to continue to maintain or grow market shares. The small business guy just starting out has another brick in the wall placed in front of him. And all because Bloomberg believes that only a government regulation in that area can lead to lower sugar intake.

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  2. Eben says: 2

    Ever thus; and so it came to pass. I had thought to myself a couple of Sundays ago while at church that in so many ways, life in the U.S. is becoming ever more pointless. On so many levels and for so many reasons. Its certainly become politically pointless as the country slips into a condition resembling a one-party fascist state. That explains dwindling voter turnout. As the gov’t spends far beyond its means, plunging the country into a pit of indebtedness, it assures a future that’s bleak and economically pointless as surely the currency will become ever more worthless. The education system has become a nation wide indoctrination center cranking out little Leftists who can’t read, write, count or hold a conversation, much less think. Killers roam the streets of cities such as Chicago and NY while their local governments crack down on gun ownership to insure a greater number of helpless victims as fodder for the mindless thugs.

    Meanwhile, Bankers, and Wall Street managers rake in billions to send to their offshore accounts courtesy of Ben Bernanke.

    Its all become an exercise in futility.

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  3. Brother Bob says: 3

    …Waiting for one of our lefty friends to leave a drive by comment about how we want total deregulation and chlorine gas in the air and solid waste in our rivers

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  4. James Raider says: 4

    Vince, very well done.

    “Perhaps the greatest way regulation cuts growth and hinders prosperity is that it smothers small businesses and benefits large ones. Unlike big businesses, small businesses can’t generally afford lobbyists to influence legislation nor armies of lawyers and accountants to figure out how to minimize its impact. The result is less innovation, fewer jobs and at the end of the day, smaller GDP growth and less prosperity.”

    Sadly there are few in Congress who can articulate this fact effectively. And you’re absolutely right that this isn’t Democrat/Republican battle. . . . . . It is a liberal/conservative battle.

    The media has sided with the liberals, as have most very large international corporations, and Wall Street.

    The entrepreneurs will get slaughtered. We are about to witness a massacre under the blade of Obamacare which has already begun to enrich an army of lawyers. Other than that, large companies will be the only ones with capacity to distribute costs of compliance over broad revenue bases.

    I doubt that the Framers ever envisioned the level of self-serving stupidity which now permeates Washington. Other than for a very few, the current crop of pols in Washington is a hateful lot.

    For anyone looking for a full-time job? . . . . Good luck but don’t hold your breath. And if you voted for a liberal? Blame the person in the mirror.

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  5. James Raider says: 5

    The natural entrepreneurial spirit is difficult to muffle and suppress, but somehow governments, federal, state, and civic, are doing their best to exterminate it.

    The trends on entrepreneurial efforts are not encouraging, . . . .

    Establishments less than 1 year old:
    http://www.bls.gov/bdm/entrepreneurship/bdm_chart1.png

    Jobs created by establishments less than 1 year old:
    http://www.bls.gov/bdm/entrepreneurship/bdm_chart2.png

    Survival rates:
    http://www.bls.gov/bdm/entrepreneurship/bdm_chart3.png

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  6. MataHarley says: 6

    Vince, tho I may be somewhat “invisible” on FA these days, I did read this. And I agree that not only should this have received attention that it didn’t, but I think it’s one of your best and well constructed points of debate from you.

    Please do not let the lack of attention from those more interested in political venting, than learning or expanding their thinking, deter you from research that results in quality posts such as this.

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  7. Ditto says: 7

    What we need are Constitutional “Get Off My Back” candidates for local, state and federal offices, to return to more limited governments, with statesmen instead of overlords, and start the process to repeal and reduce the insane and inane mountain of laws and regulations by which they control us. I think such a simple platform would garner support from people of both parties who are fed up with the “business-as-usual” oligarchy that currently seeks to enslave us.

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  8. vince says: 8

    Thanks JohnGalt, Mata & James…

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  9. mathman says: 9

    The issue is between believers and unbelievers in Government.
    I have lived too long and seen too many Government programs to believe in Government. Government programs benefit one class: the regulators. Everyone else suffers.
    See Agriculture price supports: now supporting Agribusiness.
    See food stamps: now benefitting overweight America.
    See Social Security: now supporting millionaires.
    See the EPA which sets strict limits for mercury and the regulations requiring mercury-containing CFL’s.
    See the “wetlands” restrictions which keep you from building a house where there is a rain puddle.

    It is not that Government should; it is rather that Government can’t.

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  10. VINCE
    THANK YOU,
    we see an effort by CONSERVATIVES TO COUNTER THEIR
    MULTIPLE REGULATION,
    I’m thinking of PAUL RYAN’S WILL TO FIGHT FOR HIS OWN SELF MADE BUDGET, AND I’M thinking of RAND PAUL EXERCISE OF HIS RIGHT TO PHILIBUSTER SO TO GET AN ANSWER, I’m thinking of the RUBIO
    and CRUZ SHARP TONGUE COMING IN FRONT,
    THE NEW GENERATION OF CONSERVATIVES LIVELY AND WITH THEIR KNOWLEDGE WILL BEAT THEM,
    AND WHAT WILL BE THEIR TASK IS A RECONSTRUCTION OF THE GOVERNMENT,
    TO SEPARATE THE NON USEFUL, HELL THEY DON’T EVEN PAY THEIR INCOME TAX, AND COME TO PREACH TO PEOPLE AS ELECTED REPRESENTATIVES OF AMERICA,
    AND KEEP THE REAL USEFUL PEOPLE WHO’S WISH IS FOR AMERICA
    RETURN TO HER FOUNDATION LAWS, WHICH TODAY IS IN THE ADMINISTRATION WAY
    OF ADVANCING HIS NEFARIOUS AGENDA,
    A BIG THANK YOU TO THE SMART FRAMERS WHO HAD THE GIFT OF PERCEPTION
    NOW LOST IN THE LEADERSHIP BECAUSE HE NEVER SEEK TO FIND IT,
    AND WAS ELECT BY A MOB RULE WHERE ONLY THE UNINFORMED WHERE AND THOSE PAID WITH FOREIGN MONEY COMING IN BY LOAD FULL, THERE FOLLOWING HIS DICTATORYAL ORDER TO PUSH THE VOTES NO MATTER WHAT IT TOOK, OF CORRUPTION
    WHICH THEY HAD NO CLUE WHAT CORRUPTION WAS, AND STILL DON’T BECAUSE THEY BLINDLY FOLLOW A CORRUPT LEADER WHO LIE ARROGANTLY TO THE GOOD AMERICANS BY WAY OF HIS FAITHFULL MEDIA MAKING THEMSELVES RICH BY SUPPORTING HIS LIES,
    GOOD THAT WE HAVE THE FOX NEWS TO RETRACT THEIR LIES, WHICH ARE SO OFTEN DONE, THAT FOX IS FORCE TO HIRE MORE TO LOOK IN IT AND EXPOSE IT TO US.

    IN ANCIENT TIMES THE LEADER WOULD PUT THE PEOPLE ON HARD WORK SLAVERING UNTIL THEY FALL DEAD,
    NOW WITH THIS LEADER HE DOES IT BY MEANS OF GETTING THE PEOPLE ‘S BRAINS ADDICTED TO HIS INTENT
    BY CONSTANTLY CAMPAIGNING ON THE SAME CROWD
    REPEATING HIS NEGATIVES SENTENCES TO TAKE AWAY THE WILL OF THE PEOPLE TO ESCAPE AND START TO CREATE LIKE BEFORE, BUT THE PEOPLE IS DOWN AT THIS POINT IN TIME,
    UNABLE TO TAKE A STAND, THE RULE IS GIVE ME AND I
    WILL GIVE TO THE POOR VIA MY POCKET AND THOSE OF MY FOLLOWERS.

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  11. johngalt says: 11

    Vince, you and JR are absolutely correct in stating that this isn’t a Republican/Democrat issue, but I’d change JR’s conservative/liberal label to conservative and liberal/progressive.

    It’s the progressives of both major parties that continue to demand the passage of laws and laws and laws, much of the time simply for the sake of passing a law. We should never forget that the Patriot Act, although supported by the Democrats, was largely a response to 9/11 from the Republican side of the aisle.

    Bush’s medicare prescription drug plan, the no child left behind plan, and many other laws passed that have added to the mountains of regulations that not only entrepreneurs, but the typical family, have to traverse in their daily lives. You get the feeling that Republicans like McCain, although they might repeat the smaller, limited government rhetoric, don’t actually believe it, particularly when what they suggest the country do would inevitably lead to even higher mountains of federal regulations.

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  12. VINCE
    THE WHITE SMOKE,
    A NEW POPE WAS ELECTED
    MAY GOD BLESS HIM AND HOLD HIM IN THE PALM OF HIS HAND,
    AS LONG AS HE LIVED,

    ReplyReply
  13. “America goes gently into that good night.”

    How far into that darkness has a society been brought by ignorance when a Senator feels a need to drop onto the Senate floor a bill to prohibit the use of drones to kill American citizens on United States soil?

    30 years ago this sort of reactive measure could not possibly have been dreamed of.

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  14. JAMES RAIDER
    WHAT IF IT IS AN AMERICAN POPE TO COUNTERPART THE EVILS
    FROM THE TOP TO DOWN AND RETURN AMERICA TO GOD, SHE IS AFTER ALL THE MOST INFLUENCAL OF THE WORLD AND GAVE SO MUCH BLOOD FOR FREEDOM,

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  15. @ilovebeeswarzone: #14,

    It appears that this Argentinian might provide the W.H. an example of humility.

    ReplyReply
  16. Jaimes Raider
    yes I see him now.
    POPE FRANCIS 1

    ReplyReply
  17. Scott in Oklahoma says: 17

    Well done Vince. There was an example of over-regulation on the evil FOX News this morning. The visual was pretty interesting… on a chair, was the 2600 page Obamacare bill. Next to it, from the floor to the ceiling, was a stack of paper, about eight feet tall, the regulations stemming from Obamacare.

    Obama’s mantra… if you cannot govern through legislation, you must rule by regulation.

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  18. MataHarley says: 18

    @Scott in Oklahoma, truly this can’t be a surprise. I wrote about this regulatory rule back before the 2010 midterms. I don’t consider myself a highly gifted, unique seer. Merely one that can recognize the obvious. Nor is this sort of thing unique to this Admin.

    After midterms, either Obama was going to have a willing Congress to continue a legislative agenda, or he was going to resort to the regulatory motions he and Pelosi/Reid put into power during the first couple of years. That would be sufficient on many levels. The two most notable would be Dodd-Frank and O’healthcare. The third biggie would be a Bush creation… the stimulus. Originally laid out in a 2-3 pg document, but expanded in it’s use by the Dem controlled ultimate legislation. Best laid plans run amok….

    In short… Obama really couldn’t lose anything but political capital. And since he is already on his second term, why would he care?

    Our problem isn’t that damage a two term POTUS does can’t be reversible. It’s that there is no party genuinely willing to reverse that damage because of their own political fall out. Look, for example, at the finger pointing over the sequester spending reductions. They are willing to give the “credit” for any… even if not perfect.. spending reductions to Obama and run and hide from it themselves. This despite the conservative Heritage think tank presented this as an option more than six months prior to the vote, and that both the Dems/GOP were searching for some/any “trigger” that would suit both. Or that they overwhelmingly voted for it while Dems in majority voted against .

    Or the fact that the dreaded “sequester” is actually a conservative/Reagan creation, passed, signed and used circa 1985 originally.

    The short answer is, as a POTUS, if you can lay the groundwork in legislative law, leaving the details up to Admin Branch agencies for implementation, the power is there and Congress is no longer needed. They can only react in the future via defunding, or reversal with future legislation.

    But it’s sure no surprise what is happening. All the asphalt for the road was laid between 2009 and 2010. And all that was left was to decide what color paint the Admin would use to paint the dotted lines.

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  19. Scott in Oklahoma says: 19

    @MataHarley: I wasn’t surprised a bit, I just thought it was an excellent visual display of the horror we have placed in control. I have been saying the same things as you have since before his first election, to no avail. And somehow, he still has supporters, I don’t quite get that…

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  20. MataHarley says: 20

    Scott, the short answer to your reply is, “ya just can’t fix stoooopid”. :0)

    Oh wait… I’m considered a liberal in these circles, no? That can’t be an appropriate reply. LOL

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  21. Scott in Oklahoma says: 21

    @MataHarley: Well ya see Mata, here’s where I differ from some of the others… I do my best not to pigeon hole or paint with a wide brush. Ain’ always successful, but I try.

    And you’re right… stoopid cannot be fixed, although I have been often tempted to try, with a big ball-peen hammer :-)

    ReplyReply

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