Friday, August 12, 2011

Over regulation

Though I tend to be somewhat libertarian minded, I do believe that a minimal degree of smart regulation is beneficial. Unfortunately the words minimal, smart and regulation don't seem to go together in the United States. Our government seems to find red tape aesthetically pleasing and wants to wrap every business in it.

An example of the ever growing nature of government regulation can be understood with this 2009 report from the Mercatus Center which tracks the budgets and staff of federal regulatory agencies. Figure 1 from the report shows budgetary cost of federal regulatory agencies in inflation adjusted dollars.

Figure 3 from the report shows the number of employees working for these regulatory agencies.

It is plain to see that in terms of cost and staffing, regulatory agencies are getting bigger. So what might be the end result of all this regulation and government control? Though history provides us with many examples, India is the first that comes to mind. After World War II, many industries were effectively nationalized while others were subject to harsh regulation and licensing requirements. Though the objectives of these measures were to pool technical and managerial manpower, prevent a concentration of wealth, and the steady expansion of gainful employment, the results were corruption among government regulators and an economy limping along for decades. Finally during the 1990's a policy shift toward deregulation allowed the country to gradually become one of the fasted growing developing nations. The following clip from the documentary Commanding Heights is an excellent summary.

Now I am not suggesting that we have the same level of government control that India had, but I do believe that government regulation has reached a level where it is negatively affecting the economy. If we don't get off this path of ever increasing government control we will become less competitive globally and our standard of living will drop dramatically.

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