Less is More

As Democrats and Republicans in Congress group hug over their $150 billion
smoke-and-mirrors redistributionist stimulus package, the deficit is projected
to top $400 billion.

Federal spending now straddles the $3 trillion mark, the bulk of it from America’s
entitlements, health, and defense budget bonanzas. The same government that
claims to stimulate spends over 20 percent of this nation’s $13 trillion annual
economic output.

A drop in this big bucket, the stimulus represents a
nervous exercise to avoid blame in November and obscure the fact that a recession, if it
comes, must be ridden out — if not now, then months or years later when
the re-adjustments could be even more painful. But by then, of course, it will
be a problem for other politicians.

Politicians of both parties
opportunistically blame markets for an impending recession while paying no heed
to the real culprit: the leviathan that government has become. Like the presidential working group now contemplating new oversight of
mortgage markets, the "solution" is always to expand that leviathan, to impose
new controls on businesses and entrepreneurs.

Blaming the private sector
makes bipartisanship easy. The stimulus will have little real effect and betrays
no principles when Congress recognizes few boundaries on power anyway. Indeed,
politicians promise even more stimulus if the current go round doesn’t
"work."

The financial markets blamed in the ongoing credit meltdown are
already regulated top to bottom. Politicians rarely mention this or the fact
that the Federal Reserve has manipulated money, credit, and interest rates for
close to a century. (Indeed, any true free market in money and credit is
generations away, but that’s another story.)

But the partially free
financial market we do enjoy should be allowed to function rather than be
subjected to even more political intervention.

THERE IS ONE
potential silver lining here. The call for new regulations highlights the need
to reconsider regulation comprehensively in the context of stimulating
economic growth and wealth creation.

A new Small Business Administration
(SBA) initiative called Regulatory Review and Reform is an example of just the kind of
re-thinking that’s needed now.

Reducing the accumulated impact of 70,000
annual pages of new regulations — in a Washington incapable of cutting spending
— would offer real stimulus opportunities. Pruning the regulatory superstate
can increase returns to investors, and offer struggling entrepreneurs greater
prospects that risky new ventures will succeed.

That assurance would be
welcome. Economist Mark Crain’s research for SBA estimates
compliance costs for health, safety, environmental, and economic regulations
at over $1.1 trillion — over one-third the level of federal spending
itself.

For perspective, consider: Regulatory costs exceed all U.S.
corporate pretax profits ($1.06 trillion in 2004), estimated individual income
taxes ($998 billion in 2006), and corporate income taxes ($277 billion).
Combining regulation and spending, the federal government’s share of the economy
tops 29 percent.

The 60-plus federal departments, agencies, and
commissions are now at work on nearly 4,000 more rules. Of these, agencies
report that well over 100 of those are "economically significant" — that is,
they will cost at least $100 million (often far beyond), while nearly 800 are
expected to affect small businesses.

So much for a national stimulus
policy; we have a ball-and-chain policy.

SBA’S LIST OF THE top 10
rules to reform is a good starting point. But it’s only a start: Recent
regulatory proposals cover everything from trans-fat labeling to the
controversial airline passenger screening system program; from myriad auto and
Labor Department safety standards to energy efficiency mandates for anything
with an exhaust pipe.

A regulatory stimulus package would create a more
favorable environment for business and wealth creation by (1) freezing enactment
of new non-essential rules, (2) reviewing the regulatory state as a whole and
implementing a bipartisan package of cuts, and (3) instituting a permanent
"sunsetting" process of ongoing rule reviews and purges.

Congress could
start by repudiating the slate of crippling energy
regulations already enacted (and those being proposed this election year).

A Deregulatory Stimulus package is a good start. But we also need to
hold Congress accountable for the good and bad that agency rules do. Voters
elect their members of Congress, not the bureaucrats in the implementing
bureaucracies. The latter lack incentives to police themselves, so they rarely
acknowledge that the costs of the regulations they implement could outweigh
their benefits.

By delegating lawmaking power to agencies, Congress is the prime
mover behind regulatory growth. Sound public policy would hand the
responsibility back to Congress and require elected representatives to affirm
new major rules and their costs before they are made effective

Long-term
economic health owes much to minimal regulation, not short-term stimulus. We
badly need better control of the fiscal state–but just as badly we need to
rein in the regulatory state. The federal budget itself didn’t even hit $1
trillion — the regulatory state’s current perch–until 1987. Look at us now.
Stimulus, indeed.