Stimulus without Spendulus: A How-To Guide

This week brought more Subprime Stimulus from an administration attempting to ignite the economy with a burnt-out match.  The Obama proposal to allow the expensing 100 percent of investment in plant and equipment is fine, but something that might’ve occurred to the administration years ago as an obvious first step, in the sense of, you know, just walking through a door before breaking a wall down instead.

Apart from this belated revelation regarding enterprise and the calculus behind why some people might wake up one day and decide to hire other people, Obama’s economic program fundamentally consists of fostering a compulsory “Declaration of Dependence” on the part of America’s wealth-creating sector. Washington is all about the institutionalization of Government Steering While the Market Rows.

Despite bad economic news and Obama’s policy of talking about business like a dog, it’s only 2010, and America’s real wealth is yet to be created if we correct course.

However if policymakers don’t confront regulation as well as spending, they are missing most of the story behind today’s expanding state.

Congressional reformers need to institute massive, unprecedented doses of economic liberalization. America requires massive deregulation in sectors like basic manufacturing, telecommunications, electricity, frontier science, and energy and the elimination of policymakers that stand in the way, regardless of party.  We have to re-appreciate how it was that the U.S.—now only 235 years old—became richer than the rest of the world in a historical eye-blink, and how that remarkable achievement can be recaptured.

Performing this function—and consciously maintaining a sensible wall of separation between state and economics forevermore—must guide the agenda for strengthening private manufacturing, services and R&D, for small and large business alike. Some steps include the obvious, like systematically evaluating and reducing tax burdens that everybody talks about. Here are others:

Liberalize infrastructure:

Fifty billion dollars more on infrastructure and transportation stimulus? Please! Instead, tearing down decades-old regulatory silos separating great network industries like electricity, communications, energy, water, airlines, rail and transportation has great potential for bolstering those industries, rationalizing rights of way, and energizing all the sectors that depends upon them.

Infrastructure can be boosted by rejecting compulsory access mandates (such as “net neutrality” in telecommunications, or “retail wheeling” in electricity) that undermine infrastructure wealth creation. This would create opportunities for grand-scale joint ventures to invest in new power lines, fiber to the home, roads, bridges, airports, satellite and low earth orbit ventures, toll roads and on and on.  America’s infrastructure needs the free enterprise treatment, not the public-utility treatment.

Wind down business subsidies:

Tax breaks are one thing, but conversely, aggressive taxpayer subsidization of scientific and manufacturing research is incompatible with prosperity, wealth creation and a lightly regulated future. Yet this is what Congress is up to with the COMPETE Act. Politics has trouble balancing tradeoffs: When to subsidize nanotech? Or biotech? Or a national broadband plan? Or fuel cells and the hydrogen economy? Or robotics?

Rather than trying to improve speeds by picking the particular economic horses to run on the racetrack, Washington should improve the rutted business and regulatory track so everyone can go faster, and let jockeys keep more of their earnings.

There are other reasons subsidies hurt:

–Government “steering” can create artificial and unsustainable booms;

–Government funding comes with regulatory strings attached;

–Politicians and a pork-barrel process can’t choose projects rationally.

–Subsidies create conflicts over public access to spoils; over merits of basic vs. applied research, government vs. industry science; over who owns the intellectual property.

–Taxpayer funding can wrongly foster a view of technology as a zero sum global race;

–Taxpayer funding can undermine safety since market disciplines like liability and insurance need to evolve alongside technology—or we revert back to heavy-handed and inferior “safety” regulation.

Fundamentally reject all contemporary economic manipulation schemes: A good starting point is repudiating EPA endangerment regulations, the recent slate of crippling energy regulations like cap and trade and renewable mandates, “net neutrality” in the telecom sector, centrally directed “smart grids,” cybersecurity mandates, privacy regulations and so on. Future agency implementation of the fallout from the healthcare and financial services legislation, the hail of major regulations to come, should be subjected to congressional vote.

This is serious: Without re-establishing some economic certainty by getting off the Random-Regulation Railroad, no recovery is possible.

Allow “freer trade” in skilled labor:

Bright foreign students want to stay and create US jobs after graduating here; that’s a better way to address global competition and energize employment.

Recognize and avoid safety regulation that makes us less safe:

One jokester pointed out the number of stair accidents, and the lives potentially saved by banning two-story houses.

We don’t regulate everything just because somebody somewhere can imagine a plausible benefit. On top of cost and the hazards of a nanny state, regulations can make people behave in a more risky manner, or have negative impacts, such as CAFÉ standards that force people into smaller cars to conserve oil, or food labeling regulations that undermine “safety” as an explicitly competitive feature. Many frontier fields like nanotechology can make our environment cleaner. Exaggerating risks overlooks hazards of stagnation.

Privatize: During the 1990s, it was proposed that commercial aspects of federal labs be offered to the industries they benefit, or to allow research employee buyouts. Commercial fields belong in the private sector. Sometimes you have to get rid of NASA in order to have a competitive, vibrant space program, so to speak.

Relax antitrust intervention:

Antitrust is often a highly predatory anti-business and anti-consumer phenomenon.  It often constrains and distorts our most productive firms in ways the market never intended, hobbles entire industry sectors, and undermines the wealth creation process itself by depriving consumers of the otherwise necessary competitive reactions to the supposed monopolistic behavior.

No firm is “larger” than the rivals, upstream suppliers, downstream business customers downstream purchasers, partners, consumers, Wall Street, advertisers, future competitors, global competitors, media watchdogs, trade press, and global capital markets.  All these discipline behavior, arrayed against the firm if it misbehaves.

Reduce over-regulation generally:

Typically, regulations should sunset or expire like a carton of milk unless congress reapproves them. Legislation proposing that should be re-introduced. For now,

(1) Congress should implement a moratorium freezing non-essential new rulemaking;

(2) Congress should implement a bipartisan regulatory reduction commission to review the regulatory state as a whole and enact a non-amendable package of cuts and purges. Phil Gramm created a comprehensive plan for this in the 90s that was ignored.

(3) Delegation of lawmaking power to unelected agencies is out of control. Congress should have to approve all controversial future major business regulations like EPA’s endangerment finding or FCC “net neutrality” shenanigans or energy efficiency rules.

Implementing basic regulatory housekeeping also includes inventorying all regulations and adding flexibility for smaller business; requiring supermajority points of order for unfunded mandates; and creating a basic Regulatory Report Card to accompany the federal fiscal budget.

We’re in a fairly deep hole now. As Friedrich Hayek pointed out, the politicians blamed during an inevitably bumpy transition to something closer to laissez-faire will be the ones who stop interest-group benefits, stop labor union benefits, or stop the inflation, stop the mal-investment created by earlier government interventions and favoritism, and so on—not the ones who started those costly processes decades ago.

Leadership requires making the attempt rather than more spendulus to nowhere that adds to the problem.