The Small Business Administration released a new study today. “The Impact of Regulatory Costs on Small Firms,” by Nicole V. Crain and W. Mark Crain, updates previous studies of the same title from 2005 and 2001.
From the introduction (p.6):
The findings in this report indicate that in 2008, U.S. federal government regulations cost an estimated $1.75 trillion, an amount equal to 14 percent of U.S. national income. When combined with U.S. federal tax receipts, which equaled 21 percent of national income in 2008, these two costs of federal government programs in 2008 consumed 35 percent of national income.
And keep in mind that those numbers are for 2008. With government spending now closer to 24 percent of GDP, the federal government’s current share of the economy is around 38 percent.
State and local spending and regulations, of course, cost extra.
Yesterday’s NYTimes had a good article on the city of Pittsburgh and its surprising resurgence.
A generation ago, the steel industry that built Pittsburgh and still dominated its economy entered its death throes. In the early 1980s, the city was being talked about the way Detroit is now. Its very survival was in question.
…
Entrepreneurship bloomed in computer software and biotechnology. Two of the biggest sectors are education and health care, among the most resistant to downturns. Prominent companies are doing well. Westinghouse Electric, a builder of nuclear reactors, expects to hire 350 new employees a year for the foreseeable future. And commercial construction, plunging in most places, is still thriving partly because of big projects like a casino and an arena for the Penguins hockey team.
With the recent debates on whether or not to bailout Detroit’s automakers, who’s industry-much like the old steel industry-is in need of major reform, Pittsburgh should serve as an example. Places like Detroit and other cities once buoyed by old line manufacturing industries must adapt and reform to survive what is inevitable. No one is guaranteed a job for life, but if folks are motivated and encouraged to to adapt to an ever-changing world economy, making themselves employable for life–things would work out a lot better.
Unfettered greed is the suspect many point at to explain the current economic crisis. To some extent, they are right, but it isn’t irrational greed on the part of bank managers or fat cat CEOs. It is the unwieldy bank regulations that forced the entire industry to walk the proverbial plank and then blame it for drowning.
Critics have alternately claimed that over-regulation and under-regulation are the causes for the current crisis. I believe one specific regulation, the Community Reinvestment Act (CRA), should shoulder a lot of the blame for creating an environment where a lending institution’s short-term survival hinged on it making the decisions that in the long-term would likely cause its demise.
As I noted in my paper The Community Reinvestment Act’s Harmful Legacy, one of the effects of the CRA was the creation of a weapon that has been effectively utilized to extort money from lenders. When lending institutions wish to open a new branch, expand, or merge, they must apply for permission from one of the four governing bodies (Federal Reserve, Office of Comptroller of the Currency, Federal Deposit Insurance Corporation, and Office of Thrift Supervision). Their request can be postponed or outright denied if any community group files a CRA protest. Lending institutions can of course fight these protests, but CRA investigations can take months and cost large sums of money.
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