October 7, 2011
Senator Johnson and John Allison Write about Effects of Regulation on Economic Growth
This week, I authored an oped in Politico with former BB&T CEO John Allison on how regulations stifle economic growth:
Most people go into business because they want to make the world better by building something -- and, of course, to make money for themselves and the people working with them. Yet business leaders today are routinely treated as guilty until proven innocent by the bureaucrats in our regulatory agencies.
Our regulatory state strangles economic growth. Regulations bar many voluntary agreements and subject businessmen to constant micromanagement.
At the federal level alone, business is subject to tens of thousands of regulations. The federal regulation code, which lists them, currently stands at 160,000 pages. Over the past 15 years, business has been hit with almost 60,000 new federal rules, to say nothing of state-level regulation. Compliance costs alone surpass $1.75 trillion annually, according to the Small Business Administration.
This explosion of new regulations dramatically reduces job creation. The more costly it is for businesses to meet regulatory demands, the fewer workers they can hire. When government ramps up regulations in unpredictable ways -- see Obamacare, Dodd-Frank Wall Street regulations and the Environmental Protection Agency under Lisa Jackson -- businesses are more likely to build cash reserves than they are to invest and hire.
Small-business owners are asking why banks won't make loans to help them expand and create jobs. The answer is simple: The banking regulators have radically tightened lending standards. Ask any community banker.
Regulatory bureaucracies also stifle innovation, which is the key to economic growth but requires defying convention, experimenting, making mistakes and correcting them. That isn't compatible with the regulatory state's demand for obedience to mind-numbing rules. Half the challenge for innovators now is getting past the regulator. As a result, many avenues of exploration just aren't pursued.
Perhaps the regulatory state's toughest burden, however, is that it discourages our best entrepreneurs. Productive individuals face a daily grind of trying to comply with an endless number of rules -- often arcane, arbitrary and contradictory. By treating entrepreneurs as latent criminals, the regulatory state crushes the creative spirit -- and wastes the energy and talents of the job producers and the prosperity producers.
A recent series of studies by the Institute for Justice examined the morass of regulations strangling commerce in many U.S. cities. In Los Angeles, for example, people who want to open a restaurant may spend months, even years, jumping through regulatory hoops before they're able to serve their first customer. There are business licenses, zoning requirements, scores of permits and approvals and a seemingly endless number of taxes and fees.
All told, L.A. restaurateurs have to go through at least a dozen government agencies before opening their doors. The process is so complex, the city published a 147-page handbook to explain it.
Would you be willing to go through that to start a business? When America's businessmen find themselves discouraged and dispirited, we all lose. We lose out on jobs, new products and a rising standard of living.
Building a business is hard work. As retired businessmen, we can attest to the long hours, sleepless nights, overloaded schedules, ongoing setbacks and other daunting challenges that go into creating a successful business.
To persevere, business men and women need the freedom to run their businesses by their own best judgment. They cannot function if they have to spend a quarter, a half or even more of their time taking orders from bureaucrats.
It's time to stop the parade of new regulation until we can begin to roll it back. The new regulation moratorium bill is a good first step. It would block new regulations until unemployment falls below 7.8 percent -- the rate when President Barack Obama took office.
There's a lot of talk today about how to "stimulate" the economy. A free economy does not require "stimulation." It is fueled by the passion and creativity of profit-seeking business leaders.
The problem is not lack of stimulus but the suffocating weight of government intervention. If we want to revive the economy, it's time to liberate the victims of our regulatory state.