Help, I need somebody, Help, not just anybody, Help, you know I need someone, Help! Rang out the Fab Four in this 1965 title song to the film of the same name. Help is just what the US economy needs as it limps its way out of recession, and what politicians on all sides are giving lip service to. Just last week, President Obama asked Congress for authority to combine 6 small agencies in the Commerce Department in an attempt to help make that agency somewhat more efficient. At the same time, his Republican rivals are on the campaign trail suggesting that entire Federal agencies (in the case of Ron Paul: Energy, Education, Housing and Urban Development, Commerce and Interior) be eliminated. While there is no doubt that the Federal government has way too many agencies, departments, boards, czars and commissions, simply eliminating an alphabet soup of agencies – while transferring their regulatory responsibilities to others – simply will not do much to help the economy or American businesses.
In the past, I have discussed how regulations have become a major burden to business, and are hampering the growth of the economy. This does not mean that providing a regulatory structure is not an important and necessary responsibility of government at all levels. It does mean; however, the regulations should be smart, they should be fair, and they should be justifiable.
Governments have always regulated and as our society has become more complex so has the need for more complex regulatory structures. As a resident of a large city, I would hate to see a future where traffic laws are not in place to ensure that people drive on the correct side of the street, or that building codes are not in place to ensure that fires are kept to a minimum, or that the discharge of effluent into the area’s waterways is not controlled. However, it seems that government at all levels has taken the responsibility of providing a regulatory framework for the economy to gross extremes and has finally reached a sort of regulatory tipping point that is now hampering business growth and development.
Rather than blindly merging or cutting agencies (for example the main function of the Energy Department is to maintain the country’s nuclear stockpile) government’s at all levels should be examining their regulatory framework to ensure that they conform to specific criteria – I have broken these down into the Five C’s of Regulation.
First, regulations should be Cost Effective. For example, when the Cuyahoga River caught fire in 1969 (by the way this was one of at least 13 times this river caught on fire beginning in 1868) it was pretty evident that some sort of regulation of effluent was probably a necessary thing. The Clean Water Act helped to eliminate chemical discharges into the nation’s waterways. While this was costly to American business and consumers it has resulted in a remarkable clean-up of the nation’s rivers and waterways. But just because one water pollution regulation was effective does not mean that all are. For example, a number of states have considered or adopted very stringent regulations on a process known as hydraulic fracturing based on a documentary and some limited cases where gas leaked out of improperly drilled wells into nearby drinking water wells. While nobody wants to see people’s water sources contaminated, this sort of “panic policymaking” can put into jeopardy billions of dollars of industry activity and lower energy prices for consumers. While such regulations may be necessary, their need should be based on a thorough analysis of the facts, not an anti-industry documentary.
Second, regulations should be designed in such a way as to encourage Compliance. By this I don’t simply mean inspectors or police officers who may be on the take, as this is a basic criminal act, but rather I mean minimizing the number of anti-market based regulations that encourage otherwise law abiding citizens to evade them. The most obvious example of this is the nation’s draconian quotas on the purchase and use of narcotic substances. Estimates are that 29 million Americans are regular users of marijuana in spite of the Federal ban on the sale and use of the substance. These people are all technically breaking federal law, as are the tens of thousands of people employed in supplying the trade. These massive black market sales not only violate Federal narcotics laws, but also both federal and state tax and licensing laws. Obviously, this regulation leads to widespread corruption, as do abnormally high taxes on alcohol and tobacco products, age restrictions on alcohol sales and use, and bans on adult prostitution.
In addition, government regulations should be Clear and not so complex that they are impossible to comply with. Here, America’s tax code comes into mind. The Federal tax code or more specifically, Title 26 of the US Code of Federal Regulations is 20 volumes in length or 13,458 pages in total. According to the Tax Foundation, American’s spend about $400 billion complying with the code and even the best of accountants cannot get everything correct. Obviously, the income tax regulations are not clear and are nearly impossible to fully comply with.
Government should also ensure that the regulations it enacts are Compatible with one another. A good example of the problem of compatibility can be found in New York City’s landmarks preservation codes and the provisions of the Americans with Disabilities Act (AWDA). There are a group of Trial Lawyers currently circling New York City and suing restaurants located in Landmarks zones that have not installed ramps for handicapped people as per the AWDA. These restaurants have not failed to install ramps because they for some reason don’t want disabled veterans to partake in their fare, but rather because the City’s Landmarks Preservation Board will not allow them to interfere with the historic nature of their storefronts. All this does is keep restaurants from opening – or profiting, expanding and hiring more workers.
Finally, government should ensure that regulations do not interfere with Competition. Large numbers of state and local licensing provisions, minimum pricing laws and price controls do just this. Economists have done a lot of research on quotas (or government restrictions on the number of participants in a given industry) and have found that they do a tremendous amount of harm. These quotas can range of strict licensing for certain occupations to complete bans. This is not to say that licensing is unnecessary. I would hate to live in a world where Doctors are not required to be licensed, but worry little about one where Interior Designers are not subject to state control. Some occupations or industries even face quotas so strict that they result in a complete ban (or prohibition). Refer back to the discussion on Corruption whenever you see government trying to ban something. Price controls (or high excise taxes which serve as de facto price floors) are another way that government unnecessarily interfere with competition. It is difficult to find a reason why government should force stores to sell milk or gasoline at unduly high prices. High excise taxes on cigarettes lead not to less smoking but to smuggling, and the effect of a price floor on apartments in New York City (what is called rent control here) simply eliminates housing options for less well off families.
Officials at all levels of government should keep these Five C’s in mind when considering both new regulations, and any attempts at regulatory reform. A reasoned, sound approach to government regulation will help to ensure that the current recovery continues and improves, while continued growth in an already stifling regulatory burden will surely ensure that economic activity in America will remain sub-par.