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Archive for September 23rd, 2011

Have you ever tried to run in waist-high water? It’s not easy, but it’s a useful exercise if you want to experience what it’s like to comply with government rules, regulation, paperwork, and red tape. Especially if you want to understand why it’s getting harder for American companies to compete against firms from other nations.

The Wall Street Journal reports on some new numbers released by the White House Office of Management and Budget.

The effort needed to comply with federal bureaucracy now has a number. According to new government estimates released this week, Americans spent 8.8 billion hours filling out government forms in fiscal 2010. …In all, the paperwork burden has increased by around 19% over the past decade, up from 7.4 billion hours in fiscal 2000, the White House Office of Management and Budget said.

The article explains that there is plenty of blame to go around, showing that politicians of both parties seem perfectly happy to bury Americans under a mountain of red tape.

Between 2002 and 2005, federal agencies reported significant increases in paperwork demands. Republicans controlled Congress and the White House for almost all that period. In 2005, laws including the Bush administration’s Medicare prescription-drug overhaul, created what is now estimated to be an extra 250 million paperwork hours. At the same time, the biggest single-year jump in the past decade came in 2010, when individuals and businesses spent an extra 352 million hours responding to paperwork requests from agencies prompted by new statutory requirements.

Some of the example will help you understand why the economy is having trouble creating jobs.

Last year, employers needed almost 70 million additional hours to claim a new credit for hiring more workers, and restaurants spent 14.5 million hours to display calorie counts for their menus, according to figures submitted to OMB by the departments of the Treasury and Health and Human Services. In fact, the Treasury was the source of most of the paperwork burden in 2010, hitting 6.4 billion hours, or 73%. …The winner of the largest year-on-year increase was the Securities and Exchange Commission, which decided it actually took twice as long to complete its forms than it previously thought, upping its estimates to 361 million hours from 168 million. A spokesman declined to comment.

The real cost of all this regulation is measured in lost economic output, jobs not created, and mandated inefficiency. According to the Small Business Administration, that amounts to a whopping $1.75 trillion per year.

But if you just want to measure the cost of the man-hours required, the Administration has an estimate.

The OMB said it hadn’t attempted to put a financial cost on the paperwork requests, but noted in its report that “it is clear that the monetary equivalent would be very high. For example, if each hour is valued at $20, the monetary equivalent would be $176 billion.”

Considering much of the compliance burden falls on the business community, the $20 per-hour figure is obviously way too low.

But whatever the actual total, remember that the man-hours are just one small slice of the burden.

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When asked to pick my most frustrating issue, I could list things from my policy field such as class warfare or income redistribution.

But based on all the speeches and media interviews I do, which  periodically venture into other areas, I suspect protectionism vs. free trade is the biggest challenge.

So I want to ask the protectionists (though anybody is free to provide feedback) how they would answer these simple questions.

1. Do you think politicians and bureaucrats should be able to tell you what you’re allowed to buy?

As Walter Williams has explained, this is a simple matter of freedom and liberty. If you want to give the political elite the authority to tell you whether you can buy foreign-produced goods, you have opened the door to endless mischief.

2. If trade barriers between nations are good, then shouldn’t we have trade barriers between states? Or cities?

This is a very straightforward challenge. If protectionism is good, then it shouldn’t be limited to national borders.

3. Why is it bad that foreigners use the dollars they obtain to invest in the American economy instead of buying products?

Little green pieces of paper have little value to foreign companies. They only accept those dollars in exchange for products because they intend to use them, either to buy American products or to invest in the U.S. economy. Indeed, a “capital surplus” is the flip side of a “trade deficit.” This generally is a positive sign for the American economy (though I freely admit this argument is weakened if foreigners use dollars to “invest” in federal government debt).

4. Do you think protectionism would be necessary if America did pro-growth reforms such as a lower corporate tax rate, less wasteful spending, and reduced red tape?

There are thousands of hard-working Americans that have lost jobs because of foreign competition. At some level, this is natural in a dynamic economy, much as candle makers lost jobs when the light bulb was invented. But oftentimes American producers can’t meet the challenge of foreign competition because of bad policy from Washington. When I think of ordinary Americans that have lost jobs, I direct my anger at the politicians in DC, not a foreign company or foreign workers.

5. Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

If we travel down the path of protectionism, politicians will use that as an excuse not to implement pro-growth reforms. This condemns America to a toxic combination of two bad policies – big government and trade distortions. This will destroy far more jobs and opportunity that foreign competition.

6. Do you recognize that, by creating the ability to offer special favors to selected industries, protectionism creates enormous opportunities for corruption?

Most protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with the Washington crowd in a process that is good for the corrupt nexus of interest groups-lobbyists-politicians-bureaucrats.

7. If you don’t like taxes, why would you like taxes on imports?

A tariff is nothing but a tax that politicians impose on selected products. This presumably makes protectionism inconsistent with the principles of low taxes and limited government.

8. Can you point to nations that have prospered with protectionism, particularly when compared to similar nations with free trade?

Some people will be tempted to say that the United States was a successful economy in the 1800s when tariffs financed a significant share of the federal government. That’s largely true, but the nation’s rising prosperity surely was due to the fact that we had no income tax, a tiny federal government, and very little regulation. And I can’t resist pointing out that the 1930 Smoot-Hawley tariff didn’t exactly lead to good results.

We also had internal free trade, as explained in this excellent short video on the benefits of free trade, narrated by Don Boudreaux of George Mason University and produced by the Institute for Humane Studies.

My closing argument is that people who generally favor economic freedom should ask themselves whether it’s legitimate or logical to make an exception in the case of foreign trade.

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