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Overregulation Leads to Economic Stagnation

February 18, 2012

The Economist laments:

Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future). Far from preventing abuses, complexity creates loopholes that the shrewd can abuse with impunity.

The other force that makes American laws complex is lobbying. The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy. Congress’s last, failed attempt to regulate greenhouse gases was even worse.

Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private. America’s share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.

The anonymous authors offer some weak policy suggestions and exhortations: Republicans and Democrats need to work together; they should replace the regulatory-tsar with an independent body that subjects laws to cost benefit analysis, etc…These suggestions are all well and good, but they’ll never happen. What we need is some ability for regulatory reset. Free cities, free economic zones, charter cities, bootstrapping sovereignty in Native American reservations are all ways of doing this. Good luck cutting through the thicket one branch at a time with any speed. Better, as the man in Concord said, to strike at the root.


  1. Derrick permalink
    March 3, 2012 11:07 pm

    Yep. IMHO, the best component of any Constitution is a mandatory sunset clause for all laws. It’ll keep the legislature so busy debating whether old laws should be renewed, that they won’t have time to pass as many new ones.

  2. M 1 permalink
    February 20, 2012 2:57 am

    For many years I’ve said we need a rule which requires overturning one law when a new law is passed. That will never happen either, and it isn’t nearly as radical as simply wishing we could start over.

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