Caveman Books

The Caveman Explores Economics & Politics

Thoughts About Economics

Part I.

Part II, THE INVENTORY ... MODEL OF MONEY

Part III, The Overall Model

Part IV How Much Cash Is Needed In An Economy?

Part V, Money Needed ... Determined By Production Increases

Part VI, How Do Profits Impact ... An Economy?

Part VII Assets

Part VIII Summary

Part IX, Money and Fractional ... Reserve Banking

Part X, Government

Caveman Articles

Money

Government and Taxes

Creating Money & Inflation

Tax Rates VS. Tax Receipts

Taxing The Rich

Government Debt

Government Stimulus



 

 

 

 

 

Regulation Stifles Innovation

 

President Obama has vowed to reduce regulations in the US Government. Whether these actions will be substantial is for the jury to decide later, but today we address to what extent regulation is good for the society. Liberals are upset that Obama would even consider reducing the regulatory apparatus while conservative fear he wonít go far enough.

 

What Is Regulation?
Basically, regulation is a law except that generally it was not passed by any legislative body except in some broad sense. For example, Congress gave authority to the EPA to decide what might be polluting the country and, in turn, to devise regulations with the force of law to reduce pollution. If you violated the regulation, you were perhaps sent to jail with no less authority than if the regulation had been passed as a law by Congress.

 

Supposedly the regulatory agency was better equipped with experts to decide what regulations (laws) were needed than Congress was. So Congress gave EPA the authority to pass all the laws needed to have less pollution. One problem is that the EPA is not made up of representatives of the people. First it is in the Executive Branch and thus surely a big step removed from the peopleís desires. Worse, it becomes its own mafia, staying in existence from one President to the next. In that respect, it has little if any accountability to the voters and often little accountability to the President to whom they report.

 

Who Can Abide By All The Regulations?
In the old days, our Congressional representatives wrote most of the laws that were passed. Oh, maybe they had an assistant or two to do the actual writing or to check the constitutionality of a proposed law. Under that case, the representative and his small staff could hardly write more than the affected citizen could read.

 

Today, each Congressperson has a huge staff each of whom can be delegated to write portions of the bill. But that is not enough. They also can access the regulatory agencies for help as well. Soon, you have a cast of thousands writing proposed legislation. No wonder, you have 2200 page bills that probably no single author read and understood. After the bill is passed, it leaves open many more details for the regulatory agencies to write more. The result: You have an army of people writing regulations for which the average citizen cannot possibly understand or abide by. To be safe, that average person needs an army of lawyers just to understand how the regulation affects the citizen in his particular case.

 

What About The Effort To Comply?
Since regulations have the force of law, theoretically no one has a choice but to comply. Fortunately or unfortunately, compliance officers are usually no smarter than the average citizen. So they too have a big problem in making sure all citizens comply with all regulations.

 

One thing we learned about crime fighting in New York City is that enforcement of even the tiniest law was essential in reducing major crimes. With regulations being so extensive it is virtually impossible not to violate some regulation as a citizen and it is virtually impossible for the administrators to catch every violation. So people become lax when it comes to obeying the law. Did we have a Madoff because we had too few regulations or because we didnít enforce those on the books? Probably the latter. Could have the Arizona shooter been stopped with existing laws before the crime? Probably. But law enforcement already has too many laws to enforce, many that society could live without just fine.

 

The income tax is a set of regulations designed and enforced by the IRS based on some general guidelines set down by Congress. We all know that the cost to comply is huge. As many propose, a simple post card should suffice for an income tax return. But because Congress and the IRS over-regulates, Americans are spending weeks this time of the year on maneuvering their way through untold regulations. The cost is enormous; and the IRS is just one bureaucracy. If you manufacture a product, the regulations are equally as extensive and onerous as income tax law. All of these regulations add to the cost of everything we do.

 

How Do Regulations Stifle Innovation?
In the first place, all of the time used to obey the regulations and fill out the paperwork could just as well be used to design a new product or invent a new medical cure. In fact, a manager of a corporation probably spends more time worrying about whether his company abides by all the regulations when instead he/she should be guiding the company to new products and services.

 

Even worse, some regulations tell manufacturers how something is to be built, not what canít be done. Health care regulations including the new ObamaCare are trending toward telling doctors how exactly to treat patients. Yet many of the successful drugs of the last decades became useful for things other than those originally anticipated by the drug manufacturer. How did that happen? Doctors treating patients with multiple problems noticed that using such and such a drug intended to help one problem found that it helped a different problem.

 

If that doctor were told that the only way to treat the second problem was defined by regulation, the new use of the drug might never happen.

 

Summary
Innovation comes about through a free mind. That mind is stifled when time and effort is spent on considering how to obey government imposed regulations. That is not to say that the country doesnít need laws to protect against evil doers. What it does say is that common sense needs to be applied in inventing new laws (and regulations).

 

First any law should be so simple any affected citizen can understand the law. Second Congress should not delegate any law-making to a regulatory agency. If Congress canít write a law that is understandable, then it probably shouldnít be written in the first place. (The Ten Commandments donít take a genius to interpret). Finally, there are always more than one way to skin a cat, as they say. The example of a postcard income tax form is a great example. Just as much revenue (or more) would be gathered with such a simple form as with the humongous set of IRS regulations today. All the social engineering aspects of tax law make the country no more social.

 

All citizens need to elect representatives who write their own laws and do not delegate law-making to the bureaucracy.


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