Issue link: http://read.dmtmag.com/i/330408
June 2014 | Construction Equipment Distribution | ZZZFHGPDJFRP| 59 View from the Hill Why Our Economy Limps Along Economic stimulus programs aren't working because the regulatory environment is adding nearly $2 trillion in costs to small business. What really caused the U.S. economy's sharp downturn in 2008? –Between housing bubbles and the run-up in energy prices, American busi- nesses took many hits. But regard- less of cause, it has taken the U.S. far longer to recover from this recession than most, if not all, others, despite the best efforts of political leaders on all points on the political spec- trum, and the question becomes one of, "why?" Despite the president's efforts, and both major parties having run houses of Congress, these leaders seem incapable of doing anything mean- ingful in terms of jumpstarting the economy, taking, in turns, the Keynesian method of "priming the pump" through government spending, or the Austrian approach of making targeted, middle- class tax cuts. That neither worked is evident in the fact that our economic growth has been weak, at best, but the fundamental problem is that few under- stand just why both approaches failed. The answer is the little-discussed, and even less-understood problem of the impact of regulation on busi- ness. For the purpose of this column, we will focus on just what govern- ment-measured costs mean in terms of economic growth. Every five years, the federal Small Business Administration's (SBA) Office of Advocacy releases a report on the impact of regulation on the U.S. economy. In 2005, direct regulatory costs on business were concluded to be $1.1 trillion. By 2010, those costs had grown astronomically to $1.75 tril- lion! For America's smallest businesses, those with fewer than 20 employees, this means that the cost grew from $7,700 per employee, per year, to nearly $11,000 per employee, per year, a rise of roughly 40 percent (so much for the myth of an antiregulatory or de-regulatory Bush administration!). Now, those numbers represent data that concluded in 2008, which means that they are exclusive of new regula- tory burdens created by the Obama administration. They also repre- sent a sizable chunk of the American economy, an economy that is roughly $16 trillion in size. Knowing that the Democrats were playing on the myth of an antiregulatory Bush administra- tion, and given that for the first two years of the Obama administration the Democrats were in full control of Congress, the administration (and congressional Democrats) immediately set about to "re-regulate" businesses, advancing new or discarded regulatory initiatives in environmental protection, occupational safety and health, finan- cial services, and a host of other areas where regulatory compliance costs are the most complicated (and therefore the most expensive). Though the next SBA report on regulatory costs is not due out for another year, it is safe to assume that current regulatory burdens are some- where north of $2 trillion (and, in all likelihood, are somewhere close to $2.5 trillion). Recognizing this, the rest becomes simple comparative math – grade school comparisons of "less than," "greater than," or "equal to." When talking about stimulus, President Obama and the Democrats were discussing about $600 billion in direct spending, as well as paltry tax credits to the tune of about $225 billion. While one can debate the relative merits of each (and I do not support Keynesian economics in the slightest), regardless, $750 billion to $850 billion in a combination of infra- structure spending and tax cuts is less than half (or even a third) of the regu- latory weight this nation faces. Even the brilliantly simple concept of giving ever y American a personal income tax "withholding holiday" (which had the merit of short-circuiting the possibility of cronyism and corruption) is dwarfed by this – since it would take approxi- mately two years of such a holiday for that amount to equal the nation's regulatory weight (personal income tax withholding puts about $100 billion per month into the treasury). Is it any wonder that the nation continues to hobble along? Any kind of stimulus is swallowed up by a regu- latory environment that costs three, four, or even 10 times as much as the stimulus we are proposing! Rather than continue to add to these burdens, we must look at ways to reduce them – from engaging in comprehensive regulatory review, removing conflicting or outmoded regulatory regimes, and looking at new ways to simplify and improve compli- ance. We can do this without sacrificing Americans' health, safety, or general welfare, and the gains that could be produced would be enormous. We ignore these costs at our own peril – if we want to thrive, this is the problem that we must address. ANDREW LANGER is president of The Institute for Liberty, a Washington, D.C.- based advocacy organization focusing on the American regulatory state. He has testified before Congress nearly two-dozen times on regulatory issues. BY ANDREW LANGER