Regulations are definitely a factor.
Small businesses, (how most new ones start out), simply can’t keep up with the paperwork required by law today. I would list all the stupid regulations and taxes and filing requirements, but it would bore you, and if you pay attention to this topic, you already know how bad it really is. Just one example, I can’t help it, in Maryland recently, they passed a rain tax, on every business with asphalt parking lots. (Basically.)
This kind of stupidity on the part of government is very dangerous. My 50 year old, little Exxon gas station had nothing to do with the problem, or even the rationale behind fixing it inherent in this law, but bypassed all that reality and tried to put this burden on me, not Exxon, not society, not the government.
The rain tax law would have hurt the one entity in the economy that had a chance to employ somebody new, but had nothing to do with the problem. The government, the big corporations, and the residents of Maryland, all complicit in this pollution problem, put 100% of the solution on businesses with parking lots (that rain fell on, not a joke). The law was so complicated by the way; they actually failed to implement it.
If you don’t live in Maryland and don’t understand nonsense like this, remember we had a town once, Takoma Park, which tried to ban nuclear weapons. To be honest, that makes more sense than taxing the rain. And I do not believe — even if they could have figured out a way to implement the rain tax — that it would not have done a single thing for the Chesapeake Bay.
Lying to the public is now so rampant in the political arena; people are actually becoming desensitized to it. States collect road and bridge tolls, special lane tolls, auto registration and licensing fees, tag fees, road taxes and gasoline taxes and then the state politicians rob the transportation “Trust” funds of the proceeds. Incidentally, it’s called a Transportation Trust Fund here in Maryland because the last time they robbed these transportation revenue centers of badly needed infrastructure and road funds, for money to spend on social priorities, (which mostly hurt marginal productivity,) they got caught, there was a scandal, and they had to pass a law creating an unbreakable Trust Fund .
There was fear a Republican or two might get elected.
Of course it was all smoke and mirrors. Today that “Trust” fund, despite protests to the contrary, is $950 million short of it’s contributions, minus the state budgets definition of transportation spending. It’s probably double that really, if it was narrowed to infrastructure and maintenance.
The Transportation Trust Fund originally was just for infrastructure and road maintenance. That quickly became transportation funding of any kind. This desire to grab transportation-designated money was coupled with a desire to stop the projects the funding was supposed to build. When roads aren’t built and people wait in traffic for hours, marginal productivity plummets. This effect is dramatically underestimated.
How can businesses support additional road taxes (or rain taxes) when they don’t use the existing taxes to build the infrastructure they promised to use the money for when they collected it?
Environmentalists might argue this rain tax was a good law, but they miss the point completely. The government is trying to fix every problem with special taxes aimed at the business community — taxes, fees, regulations and restrictions that they have to monitor, pay, be aware of, and handle or have handled. This costs money, takes time and focus away from the new business, making it that much harder to grow, and starting a new business is already one of the hardest things there is to do, at least, in the economic arena.
Our country will have a much bigger problem than runoff from rain if this keeps up; and that problem is called an economic depression. Most business owners either pay through the nose to learn about and keep up with, file, and pay for, all the fees, taxes and little nonsense items the government insists upon, or they spend a lot of their own personal nights, complying.
Regulations don’t evenly impact the small, medium and large companies.
The tax, regulation and compliance policies of this country aren’t a little broken, they’re very broken. And in ways you may not understand. The effect of a rising statutory regulation driven regulatory environment is like a bell curve with big negatives on the end where the small businesses start out, (Less than 50 employees), has much lessening effects on the medium size businesses with many competitors, (in the middle of the curve), and then dramatic positive effects for the large businesses on the other end of the graph.
This effect stems from two factors, the first is the financial resources of large companies, because they don’t just spend money to comply with regulations, they make sure they spend enough money to change the regulations themselves before they exist. They use lobbyists, lawyers, and PR firms to impact, control, influence, bribe, and mislead through false studies; all with the goal of making the regulations more complex, harder to comply with, so dense, only the regulations authors, or others involved in the center of the issues, have a chance to comply, legally.
The big corporations really are smart, they have figured out a way to use the public appetite for redress against corporate sin, against the public. They use the width, breadth, depth and complexity of the regulatory environment to create regulations which narrow the field of competitors — to one or two possible winners.
These collections of ultra large corporations ($100 Billion+) operate differently than small and medium size businesses. The fewer the number of competitors, the larger the monopoly profit, the less innovation, and most importantly, the corporation is “segmented” from the rest of the economy, capturing wealth in a special enclave where taxes, criminal prosecution even, competition — and therefore hard work — all decline for this one group of companies, their highly paid executives, and their also highly compensated shareholders. Like a trifecta win, for rich people, everyday.
These seemingly small requirements of government have become a giant barrier to entry. Barriers to entry, in any market, destroy wealth creation by stifling innovation.
But what about public safety, you rightly ask? These regulations, beyond the basic safety and obvious hazardous-material restrictions don’t add to pubic safety at all, although this is more of an opinion than a verified fact. I’ve seen studies that show this concluded — both ways — and I didn’t like the methodology in any of them, so this feeling that we are overdoing it, is a gut thing. But, lets examine the recent past. BP submitted an environmental plan that costs millions to author, as a requirement before drilling in the Gulf of Mexico.
After the environmental protection plan was authored by BP’s people, (it hilariously included a rescue plan for polar bears), the government approved the plan, (no one read it, obviously), and of course, when the wellhead did burst, the plan was useless. I doubt it was even consulted. In other words, millions of dollars lost for nothing, nothing at all, in fact, those lost dollars just give us a false sense things are all right, when in fact, they very expensively mask the fact that things definitely are not alright.
I could get into the entire Japanese nuclear industry as another huge example of where regulations, years and years of regulatory work, by thousands of government and private sector employees (here in the U.S. and Japan,) was all for nothing. Zero. Didn’t stop the problem, didn’t protect the people, didn’t even prepare the country for what to do when the plan failed. In fact, all that study and regulation — led to sighting the backup generators designed to prevent a core meltdown, in the worst place possible, for a big wave anyway. Like they get in Japan as a historically recorded fact for a few thousand years now, in other words, an event regulations should have foresaw.
The question becomes, at what point, does the whole struggle to protect society through additional regulation, become such an economic burden, that it drowns wealth creation? The down side of that over regulation imbalance is enormous. The best thing for the health of society, by far, is strong growth rates. If you can accept this idea, then the next question is, can we change the very process itself that we use to regulate business, so that we can control product safety, while not damaging total output?
So what is happening? The existing businesses, with their combination of fewer and fewer up to date and more and more out of date business models, practices, and techniques — both possible and realized elsewhere in the world — are feeding, clothing, and providing all the other services we need, but they aren’t attempting to increase revenue or profit through new businesses. Fewer new models, products, innovations, that’s too risky in this environment. They’re simply modifying those old business models — to continue to wring revenue and profit from their existing consumers and/or market segment. By the way, this has the Federal Reserve worried, They know Secular Stagnation (their fancy term for it) is happening, they’re just clueless about why.
This of course, in the long run, is devastating to the economy. It produces low growth rates, which is really the big disease in our economy today. A (5%) five percent sustained GDP growth rate, as Reagan so perfectly summed it up, is a rising tide that floats all boats. A sinking GDP growth rate is the opposite — even working business models get tangled on the rocks when the GDP tide, goes out.
As it stands, because our wages and wealth haven’t kept pace with our national expenses and debt, we have actually been in a low to no growth state since 2008. But that was the breaking point. This all started in 2001.
From Investopedia, this succinct wrap-up by Manoj Singh:
“To keep recession away, the Federal Reserve lowered the Federal funds rate 11 times – from 6.5% in May 2000 to 1.75% in December 2001 – creating a flood of liquidity in the economy. Cheap money, once out of the bottle, always looks to be taken for a ride. It found easy prey in restless bankers – and even more restless borrowers who had no income, no job and no assets. These subprime borrowers wanted to realize their life’s dream of acquiring a home.
For them, holding the hands of a willing banker was a new ray of hope. More home loans, more home buyers, more appreciation in home prices. It wasn’t long before things started to move just as the cheap money wanted them to. This environment of easy credit and the upward spiral of home prices made investments in higher yielding subprime mortgages look like a new rush for gold.
The Fed continued slashing interest rates, emboldened, perhaps, by continued low inflation despite lower interest rates. In June 2003, the Fed lowered interest rates to 1%, the lowest rate in 45 years.”
This behavior by the Federal Reserve, beginning in 2001, set up the subprime mortgage collapse, which in turn, wrecked the world’s financial system. All this nonsense came to a head at the end of 2007, and the start of 2008. Facing a plunge off a cliff, the government actually did very little to change the fundamentals that set up the first crisis.
Sadly, they simply created more money and began trying to shore up the system piece meal, even adopting the too big to fail principle (after Lehman) that is another huge marginal productivity killer. It’s insidious, but true, moral hazards exist, if you make it easy for people to make money — any other way than working hard and innovating – they’ll take it. As the subprime crisis proved. Entrepreneurship is sacred, give the economy another way to go, and even though it’s taken up vigorously, it won’t produce wealth like new businesses can.
In fact, the world debt splurge, ($10 Trillion and climbing) while helping to soften the blow from that horrible year of 2008, hasn’t completely counter-acted that effect, just staved off a complete worldwide depression. The world, minus China, has lost ground these past six or seven years, if you count growth and debt, all in. This can’t go on. New businesses and entrepreneurs need a different environment to succeed, and we all need them to succeed, badly.