The damage caused by excessive regulations

By Kevin Price

Common sense and simple economics tells us that regulations are a cost of doing business. In the eyes of the business owner, regulations are similar to taxation and licensure laws. They are simply a barrier between the company and profits.

Most companies recognize that reasonable regulations make sense. It is in their own self interest to make products that do what is advertised and that are safe. Companies that fail to do such will typically (and quickly) find themselves out of business. Because of that, the vast majority of businesses naturally operate with high standards in order to keep their customers coming back. However, there will also always be companies that operate in an unethical manner. Companies that operate with the intention of being in business for a very short time, but hope to extract large amounts of money.

With that, what are the best ways to regulate businesses? It is interesting that our US Constitution largely does not address this at all. Regulations largely fall under those things in the Tenth Amendment that were to be left to the citizens and the states. Until the 20th century and the Progressive era, the states were in charge of virtually all regulations on business. This approach to regulations made the 19th century the most prosperous of any in the history of the human race up to that time and one of the most rapid expansions of an economy.

In such an economy, states had mandates to make sure the safety and health needs of its people were met, but also had to create an environment where businesses wanted to stay and do business. After all, those safe and healthy people wanted jobs. As a result, regulations tended to be as few, simple, yet effective. It is true, they were not perfect (they still are not as we try to create a risk free utopia in the 21st century) and they were often slow to come into law, but they largely made sense and served the public well.

Before the 20th century, states were slow to add new laws because of the fear of competition of other states. They knew that, if they go too far, they could chase businesses off, which would benefit no one. Furthermore, since legislatures were largely made up of citizens with jobs outside of government, the pace to change was often quite slow. As a result, things did not happen in a time frame that those who wanted the changes desired, but it happened in a very deliberate and cautious fashion, allowing people plenty of time to weigh the costs against the benefits.

Today, US businesses are among the most excessive regulated in the world. Daily we read about companies closing shop in this country to move to other parts of the world where they find more attractive regulatory (as well as labor and tax) environments. From their new home, these companies still produce the things the American people want and, because they are no longer manufactured here our government allows them to be imported and provides exemptions for them. The company still wins, the foreign country wins, but the American people lose jobs and all levels of government lose revenue.

An excellent example of this is the moratorium of oil drilling off the Gulf Coast of the United States, where 50,000 direct jobs are being lost and hundreds of thousands of more dependent on them will fade away. The worse form of regulation is not being able to conduct business at all, forcing companies to move to other parts of the world, where regulations are weaker and taking the jobs elsewhere. Many of those businesses plan on moving to waters just outside of the Gulf, leaving our country just as vulnerable environmentally, but without the benefit of the employment. It is clear, we need to restore sanity when it comes to our approaches to regulations. That begins by changing the federal government's role.

© Kevin Price