California reports on excessive regulation

The Cost of California

A report was recently released by the State of California detailing the cost of regulation to the state's economy. The results are damning.

Regulation costs just under half a trillion dollars annually. It costs the state four million jobs. It costs the state twelve billion in taxes.

The cost to the state's economy is equal to what is currently one third of the state's GDP. The twelve billion in taxes would close the existing budget gap without resorting to fancy accounting. The four million jobs would put the state's unemployment rate below, instead of above, the national average.

This report was actually commissioned by the State of California. It was due in 2007, and it was submitted in 2007, but the governor, showing the well-known small-government leanings that are commonly associated with the Republican Party, sat on it for two years until forced to release it.

It is truly a damning report, especially given that it was released by an agency of the state government. Those who see the government as the solution to various problems are faced with the government saying that the government is the cause of problems.

Because the authors are professors of the social sciences at state universities, that gives them all the qualifications a statist would ever need - had this been done privately the criticism would be that because it is done privately there is an agenda that discredits the report. Because the report is printed in the Small Business Administration of the State of California, that gives the report all the credibility a statist would ever need - had this been printed privately the criticism would be that because it is done privately there is an agenda that discredits the report.

The Report

CONCLUSIONS

This study measures and reports the cost of regulation to small business in the State of California. It employs an original and unique approach using a general equilibrium framework to identify and measure the cost of regulation as measured by the loss of economic output to the State’s gross product, after controlling for variables known to influence output. It also measures second order costs resulting from regulatory activity by studying the total impact – direct, indirect, and induced. The study finds that the total cost of regulation to the State of California is $492.994 billion which is almost five times the State’s general fund budget, and almost a third of the State’s gross product. The total cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State’s population. Since small business constitute 99.2% of all employer businesses in California, and all of non-employer business, the regulatory cost is borne almost completely by small business. The general equilibrium framework yields the following results:

• The direct cost of the regulatory environment in California is $176.966 billion in lost gross state output each year. The direct cost does not account for second order costs.

• The total loss of gross state output for California each year due to direct, indirect, and induced impact of the regulatory cost is $492.994 billion.

• In terms of employment this total output loss is equivalent to the loss of 3.8 million jobs for the state each year. A loss of 3.8 million jobs represents 10% of the total population of California. In terms of labor income, the total loss to the state from the regulatory cost is $210.471 billion. Finally the indirect business taxes that would have been generated due to the output lost arising from the regulatory cost is $16.024 billion.

• The total regulatory cost of $492.994 billion is four to four and a half times the total budget for the state of California, and almost five to six times the general fund alone. Further, given the total gross state output of $1.6 trillion for California in 2007, the lost output from regulatory costs is almost a third of the gross state output.

• The indirect business taxes lost could have helped fund many of the state’s departmental budgets. As an example, the indirect business taxes lost are 60 times the budget of the Office of Emergency Services, and would have paid for almost half the budget of the Department of Education.

• The total cost of regulation was $134,122.48 per small business in California in 2007, labor income not created or lost was $57,260.15 per small business, indirect business taxes not generated or lost were $4,359.55 per small business, and finally roughly one job lost per small business.

• The total regulatory cost of $492.994 billion translates into a total cost per household of $38,446.76 per household, or $13,052.05 per resident. The total cost per household comes close to the median household income for California.

This study provides the most comprehensive and complete analysis of the total regulatory burden in California. The study and findings have implications for policymakers and those in charge of the regulatory environment. The results also suggest that future research should attempt to understand how to minimize the intended and unintended costs of regulation. Since small businesses are the lifeblood of California’s economy constituting 99.2% of all employer businesses, efforts to make the regulatory environment more attractive will make California a more attractive state for doing business. This in turn will improve the state’s output, employment, labor income, indirect business taxes, economic climate, quality of life, living standards, and growth prospects.

Government disease

On Lew Rockwell, one of the writers compared government to a drug on the grounds that the more government we have the more people desire yet more government. With any normal product, people eventually get sated and fewer and fewer people desire to have greater and greater quantities of given goods.

On Liberty for All, one of the writers noted that the more chaos the government creates, the more people see it as the only way to avoid chaos, because without government there would be chaos.

Libertarians, whose political philosophy starts with trying to expand the rights of the individual and therefore have less government as a consequence, are accused of having a hatred of government as a starting point.

Whenever a libertarian exercises his right to try to improve the government by reducing the size and scope of the government, those who prefer larger government offer the spurious argument "move to Somalia", although curiously the argument that those who enjoy large government should move to Cuba is never considered. The argument "move to Somalia" is quite spurious since Somalia actually suffers from government just like other countries do - every time the Somalis start to rebuild some country sends in a "peacekeeping force" to destroy everything that was built up and try to impose a government that the Somalis don't recognize. Eventually the "peacekeeping force" leaves, the puppet government collapses, and the rebuilding resumes.

The perverse relationship some people have to the government is revealed in the healthcare debate. The current system in the United States is already largely a government system, as over half the dollars spent on healthcare are spent by the government, and the rest are heavily regulated. Given that state of affairs, and that the current system has serious flaws that are crying out for reform, the only proposals that are considered as part of the debate are those that advance the government. A public option is proposed to allegedly increase compeition, when allowing insurance companies to compete across state lines and forcing states to reconginze medical licenses from other states would actually do the job without increasing the size or scope of government. But when that is mentioned in debates proponents of government medicine fail to notice that it was mentioned. They do not argue against it, they do not say it is wrong, they do not say their plan is better. They simply do not respond to it at all.

There are so many ways in which the government is responsible for the current broken system that it would take many analysts reporting from many different angles to cover them all - the entire libertarian blogosphere. But those who are addicted to government will never see that their own addiction causes the very chaos that they want their drug to cure.

Who is not a libertarian

If an overwhelming majority of the people in an ideological group say that some person is not in that group, odds are that the overwhelming majority is correct. For instance, an overwhelming majority of Christians, in spite of their inter-denominational disputes with each other, would agree that members of other faith groups are not Christians. Even if some member of another faith, say a Hindu, were to say that he was a Christian (without changing any of his Hindu beliefs) he would not be one on his own say-so, but would instead be regarded as someone who is either lying or deluded.

There are cases that are not so clear cut, but an ideological group can be defined by the shared ideology. If one does not fit in, within the natural flexible boundaries of that ideology, then one does not fit in. There can be people who vary one way or another within ideological groups, but there comes a time when someone is actually outside the group. Libertarianism has purists, reformers, radicals, left-libertarians, right-libertarians, anarchists, moderate libertarians, but no socialists or fascists.

But in spite of it being obvious that there are those who are not libertarian, anyone can claim to be one. And sometimes those who oppose libertarianism choose to believe the claims in spite of the evidence otherwise.

Alan Greenspan has not been considered to be a libertarian by libertarians for at least two decades, possibly longer. No action taken during his tenure as Chairman of the Federal Reserve has been one that libertarians would approve of. Yet the fact that he was at one point in the past a member of Ayn Rand's inner circle and he blames the economic downturn on his allegedly free-market actions has given statists great cause to trumpet him not only as a libertarian but as one who has admitted that libertarian ideas do not work. Which libertarian ideas? He hasn't demonstrated any in years, unless the conspiracy theory is true.

He brought the economy of the United States to the Second Great Depression. He was once in Rand's inner circle. He claimed the downturn was the result of his libertarian beliefs. In spite of all the overwhelming evidence against him still being a libertarian, and in spite of the overwhelming majority of libertarians who say he is not one, he is considered one by the statists.

The objective is not to have an honest debate, but to attack libertarians through the failings of Greenspan. If the debate where honest the statist would have to admit Greenspan is not a libertarian.

Then there's Milton Friedman. He wasn't even an advocate of the free market in the first place, starting as a Keynesian before becoming a Monetarist. He was part of the Chicago School of economics, which is not a free market school. Yet many times when libertarians speak in defense of the free market, some statist will challenge libertarians to defend what Friedman did in Chile. Good or bad, his actions with regards to Pinochet cannot reflect for good or ill on libertarianism in any way.

Yet because Monetarism is less interventionist than Keynesianism, and in spite of the overwhelming evidence against it being free market, and in spite of the overwhelming majority of libertarians who say it is not, it is considered so by the statists.

Under Pinochet, people were not allowed to refuse to sell their labor. There's nothing libertarian about that. But the comparison is not made for the intent of honest debate but to shut down honest debate.

It seems that those who advocate most strongly for increased government power are the least willing to honestly engage libertarianism qua libertarianism, arguing against Alan Greenspan and MIlton Friedman instead.

A fully private healthcare system

Although it appears that Obama may be dumping the public option (for now) many of his supporters both in and out of government are still pushing for a taxpayer funded public option. Allegedly this public option would be a Government Sponsored Enterprise, after the fashion of such success stories as FNME or FDMC. It is called "alleged" because no part of the upcoming healthcare bill that will eventually be voted on by either the House or the Senate has actually been finalized.

On a libertarian internet site (probably on Lew Rockwell but the original reference cannot be located), someone suggested that he would support the public option – including a 15% tax increase - in exchange for the private option actually being private.

The private system would be completely private. It would not be regulated in any way. It would be free of all FDA regulations, DEA regulations, and medical licensing. Anybody can be a healthcare practitioner, and can prescribe any medication. But any prescription would be considered nothing more than advice since no medications would be controlled.

So as an experiment, this idea was run by several supporters of socialist medicine.

Theoretically there should be no reason for them to oppose it. They get everything they allegedly want - full government run medicine with all the controls, paid for by those who do not want government medicine. They get free healthcare paid for by their opponents. They get all the controls they say people need. They get all the licencing, all the regulations, and all the restrictions they say people need. And they get to have those who prefer a private system pay for their public system.

The suggestion was greeted with horror.

For some reason, even though the suggestion gave them everything they say they want, they didn't want it.

They were obsessed with the question of how someone in the private system would know which medicines to take. It was suggested that people in the private system would go to any fraud who claims to be a doctor, and only wanted the medicinal freedom in order to "pop pills". Such arguments would indicate that advocates of socialist medicine need the government to prevent them from going to frauds and would need the government in order to not "pop pills".

It seems that the argument in favor of Socialist medicine is more than simply an attempt by the advocates of that system to have "free" healthcare. There is for some strange reason a desire to ensure that everyone else is in a controlled and regulated system as well, a desire to control and regulate everyone else.