Red Tape

Regulations, and the massive bureaucratic that double-checks compliance, are a drain on the economy. For some reason, that I will probably never be able to fathom, most people fear the absence of rules more than they fear the creation of rules. They seem to think that, "if everyone would just follow the rules, then things will turn out fine" but don't realize that they're committing 3 felonies a day doing completely innocent things in everyday activity.

How often will it take for sleazy politicians to campaign on promises of "cleaning up" only to create another book of ineffective rules that add to the ever-growing thicket of regulations. It could be the case that the market needs some kind of reform or other, some small tweaks and improvements, but the heavy hand of government is not the way to bring about these positive changes.

Any new regulation imposes costs. It first generates more paperwork within government, usually resulting in the employment of a few people, and sometimes entire agencies that seem to grow without bound. I'm glaring right at you Homeland Security and TSA. These bean counters do mindless paper shuffling, day in and day out, at taxpayer expense. But somehow, even this direct bureaucratic cost never seems to enter into the analysis of whether the new rules should be created. I'd much rather these people be employed doing productive and interesting work in the private sector. I'm sure they'd rather be too.

But it's not just the shifting of jobs into government paper mills that costs. We also have to factor in the additional hassle that the rules impose on private companies and individuals. It's appalling that the government can justify their need to analyse the private goods of individuals (*cough* TSA *cough*) groping for some misalignment. I'm surprised they find people willing to be employed demeaning others about not filling out all the forms correctly.

These two costs have to be paid somehow. Clearly government regulation isn't producing much of anything. The rules, and enforcement that comes with them, doesn't come for free. It must somehow come out of the profitable parts of the private sector, which means "It's a TAX!"

Regulations form a hidden tax that shows up as inefficiency creeps in due to filling out forms rather than producing the goods and services that people want. Ask any doctor how much of the hospital staff is employed for HIPAA regulation! Ask Peter Schiff why he won't hire more analysts! You don't like filling out IRS forms once a year, corporations have to do that every 3 months!

I really shouldn't have been surprised earlier, about people getting jobs wrapping everyone else in red tape. It's a natural consequence of the regulatory trend: Government regulates, increasing the cost of business. Companies hire less, so more people are desperate to get jobs. They finally resort to becoming a passenger harassment official for the TSA.

And it's not like the regulations really make anything better. The financial industry is the most regulated industry in the economy and still the biggest firms managed to need bail-outs in 2008. Regulations introduce a fragility into the market that causes failures to be more catastrophic, but I'll have to get to that in a future post.