Wednesday, February 21 , 2018, 11:29 pm | Fair 40º


Tom Watson: America’s Agonizing Death by Regulation

Government rules are strangling the economy at a time when it needs all the help it can get

“If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
— President Ronald Reagan

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 to 2009 we led the country in new business creation, but in 2010 we slipped to dead last. California lost more than 4,600 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: well over $1,700,000,000,000 per year. That is $1.7 trillion. More than 12 percent of our GDP just for complying with government rules.

That is unproductive, nonvalue-added effort that consumes productive capacity with little benefit. The average American works about 65 days to pay for this enormous cost of 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 up costs and made it impossible to compete with U.S.-based manufacturing. The cost per employee to comply with regulations for a small business is more than $10,000 per year nationally, and more in California.

The Environmental Protection Agency has added huge costs to manufacturing, including recent rules that will increase electricity costs between 12 percent 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 many areas of the country.

President Barack Obama recently delayed new ozone rules, until after the 2012 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 work with little cost-benefit thought applied.

Obamacare has increased typical insurance premiums by more than 20 percent in little over a year as new mandates are 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 about 90 percent as soon as Obamacare was forced through Congress in April 2010. In the year before the law passed, the average job creation was 67,000 per month; afterward, it has averaged about 10 percent of that per month. Coincidence?

Financial regulations like Sarbanes-Oxley (SARBOX) and Dodd-Frank have had a particularly pernicious impact on our economy. New business and start-ups create most of the new wealth in our economy and since the passage of SARBOX the number of IPOs has dropped dramatically, by about two-thirds. Compliance costs for SARBOX can be millions of dollars per year while adding no real benefit.

Poorly considered rules regarding stock options that were targeted at large firms have made it harder to issue incentive stock options in start-ups. This is self-defeating. That is how start-ups attract good employees and improve their chances of success. Why take a risk on a start-up 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 more than 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. Dodd-Frank, Obamacare and provisions in SARBOX that hurt start-ups 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 Santa Barbara businessman and was the 2010 Republican nominee for the 23rd Congressional District seat.

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