Regulation Nation

You have to give President Obama credit. It takes major chutzpah to stand before a group of fat-cat Silicon Valley executives and lie to their face.

In my more charitable moments I assume that Obama knows that he is lying and is thrilled to watch the assembled multi-billionaires nod in mindless assent.

The Washington Times reports the story:

Making a pitch for Democratic candidates in 2014, President Obama told big donors in California Thursday night that Democrats favor free-market solutions and less government regulation.

“It turns out we’re pretty common-sense folks,” Mr. Obama said at a fundraiser at a private home in Palo Alto, Calif. “We believe in the free market [and] a light touch when it comes to regulations.”

The Times adds the results of a Heritage Foundation study of the Obama administration track record on regulation:

A report by the Heritage Foundation last year found that the Obama administration in its first three years adopted 106 “major regulations” that increased burdens on the private sector, compared with 28 in the same time frame of President George W. Bush’s administration. A study by the left-leaning OMB Watch found that total regulations adopted by the Obama administration are roughly equal to the number adopted by other administrations over the past 18 years.

Those who would like to get further into the topic will want to read Niall Ferguson’s Wall Street Journal essay on how regulation is stifling the American economy.

It’s a promo for Ferguson’s new book on the topic. One hopes that Obama will have a chance to read it before he explains again that he favors a light regulatory touch. It might not cause him to change his talking points, but it will be good for a few laughs.

In his essay, Ferguson sets out to respond to one of his antagonists, his very own Voldemort, easily recognized as Paul Krugman.

As is well known Voldemort believes that the way out of our economic malaise lies in greater government spending and more Federal Reserve money printing.

To be fair, recent action in the stock market tends to lend credence to his idea. On the other hand, the economy has been seriously trailing the Dow, so one suspects that the market has really gone into levitation mode.

While we are on the topic, we recall that a couple of months ago Voldemort was cheering the new money-printing policies of Japanese Prime Minister Abe. He was delighted to see that the Japanese government had taken his advice. Since then, the Japanese stock market has lost nearly 20%.

We are awaiting Voldemort’s column wherein he will explain that it all proves that he was right.

In today’s America, evidence suggests that the nation is floundering in a sea of regulations and that regulations are choking off economic growth.

Ferguson reports:

Consider the evidence from the annual "Doing Business" reports from the World Bank and International Finance Corporation. Since 2006 the report has published data for most of the world's countries on the total number of days it takes to start a business, get a construction permit, register a property, pay taxes, get an export or import license and enforce a contract. If one simply adds together the total number of days it would take to carry out all seven of these procedures sequentially, it is possible to construct a simple measure of how slowly—or fast—a country's bureaucracy moves.

Seven years of data suggest that most of the world's countries are successfully making it easier to do business: The total number of days it takes to carry out the seven procedures has come down, in some cases very substantially. In only around 20 countries has the total duration of dealing with "red tape" gone up. The sixth-worst case is none other than the U.S., where the total number of days has increased by 18% to 433. Other members of the bottom 10, using this metric, are Zimbabwe, Burundi and Yemen (though their absolute numbers are of course much higher).

Between Dodd-Frank and Obamacare we now have thousands of pages of new regulations that no one really understands. Naturally, companies that have to spend enormous sums of money on compliance cannot afford to invest in productive enterprise. Dare we mention that only the largest companies have the resources to comply.

This is not to say that no one is benefiting from this situation. We have an economy that is increasing being run by and for the lawyers. We have replaced, Ferguson says, the rule of law with the rule of lawyers… and also the rule of bureaucrats and compliance officers.

How many of those people do you suppose voted for President Obama? Never let it be said that the president does not take care of his constituents.

Put it all together and America is losing out to many other countries. The World Economic Forum ranks countries for competitiveness. Lately, America has not been faring very well.

In Ferguson’s words:

Each year, the World Economic Forum publishes its Global Competitiveness Index. Since it introduced its current methodology in 2004, the U.S. score has declined by 6%. (In the same period China's score has improved by 12%.) An important component of the index is provided by 22 different measures of institutional quality, based on the WEF's Executive Opinion Survey. Typical questions are "How would you characterize corporate governance by investors and boards of directors in your country?" and "In your country, how common is diversion of public funds to companies, individuals, or groups due to corruption?" The startling thing about this exercise is how poorly the U.S. fares.

In only one category out of 22 is the U.S. ranked in the global top 20 (the strength of investor protection). In seven categories it does not even make the top 50. For example, the WEF ranks the U.S. 87th in terms of the costs imposed on business by "organized crime (mafia-oriented racketeering, extortion)." In every single category, Hong Kong does better.

At the same time, the U.S. has seen a marked deterioration in its World Governance Indicators. In terms of "voice and accountability," "government effectiveness," "regulatory quality" and especially "control of corruption," the U.S. scores have all gone down since the WGI project began in the mid-1990s. It would be tempting to say that America is turning Latin, were it not for the fact that a number of Latin American countries have been improving their governance scores over the same period.

Of course, America is a complex place. In some parts of the country state and local governments have decreased the regulatory burden on business and have produced outsized economic growth.

You probably know where they are, but, just in case, Ferguson explains:

More imminently, a revolution in the extraction of shale gas and tight oil, via hydraulic fracking, is transforming the U.S. from energy dependence to independence. Not only could the U.S., at least for a time, re-emerge as the world's biggest oil producer; the lower electricity costs resulting from the fossil-fuel boom are already triggering a revival of U.S. manufacturing in the Southeast and elsewhere.

In a functioning federal system, the pace of institutional degeneration is not uniform. America's four "growth corridors"—the Great Plains, the Gulf Coast, the Intermountain West and the Southeast—are growing not just because they have natural resources but also because state governments in those regions are significantly more friendly to business. There are already heartening signs of a great regeneration in states like Texas and North Dakota.

Do these states show us the way to economic growth? Or will the president look at them and conclude that there really isn’t very much regulation, after all?