Shutdown #7

Author: David R. Kotok, Post Date: February 20, 2019
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Jim Bianco, my friend and regular fishing buddy at Camp Kotok, penned a note on “a side effect of the government shutdown.” Readers know we have done a six-part series on the shutdown, and we have been hugely critical of the political process, with both Democrats and Republicans equally as our targets. Setting aside that fight, let’s look at a point or two seeded by Jim Bianco.
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Jim notes that the Federal Register is the “chronicle” where every new regulation is posted. He also notes that one of the analytics many people use is the count of the number of pages in the register. The page count peaked under Obama. Trump promised to reduce it, and Trump has delivered on his promise to date: The number of pages has dropped by about a third. Jimmy projects that it will drop again and that the shutdown means the government that creates regulations will be doing less of that because it was out of business for 35 days.

First, we must applaud Jim for calling this technical area to the attention of folks who are busily fighting partisan battles and not looking at more holistic data points.

Secondly, we give Jim a hat tip for referencing the source of his insights: TenThousandCommandments.com. We invite readers to go to this website and surf it. It may open some eyes to the amount of regulation and deregulation we have had and then cause readers to think about that issue.

From our perch as a highly regulated business, we can see the internal costs we must absorb every day. We review nearly everything we do or say for compliance and supervision within our regulatory framework. This commentary had a set of eyes perform a review of it.

Now take that process to a macro level and apply a reduction of the regulatory burden. Result: costs go down. Those costs are not productivity-enhancing. They are burdens that either reduce profitability (less room for growth or new hiring or capital investment) or are passed through to consumers via a supply chain to become price increases. Either way, an ever-enlarging regulatory burden carries a cost.

Some regulations that apply to health and safety, anti-fraud, and other social challenges are absolutely necessary. Others constitute excess and overreach. Judgments as to which are which are idiosyncratic and can come down to political viewpoint. But, on the whole, a more streamlined system is better for a large economy than a more centrally planned approach is.

Here are a few highlights from the 2018 edition of Ten Thousand Commandments, which can be downloaded from the TenThousandCommandments.com website:

  • “The estimate for regulatory compliance and economic effects of federal intervention is $1.9 trillion annually….”
  •  “The estimated burden of regulation is equivalent to nearly half the level of federal spending….”
  •  “When regulatory costs are combined with estimated federal FY 2018 outlays of $4.173 trillion, the federal government’s share of the entire economy reaches 30 percent (not including state and local spending and regulation).”
  •  “The regulatory hidden tax is equivalent to federal individual and corporate income tax receipts combined, which total an estimated $1.884 trillion in 2017….”
  •  “If it were a country, US regulation would be the world’s eighth-largest economy, ranking behind India and ahead of Italy.”

We thank Jim Bianco for calling this important issue to the attention of his readers (of which we are one).

TenThousandCommandments.com – Mobile users, click the “View web version” link at the bottom of the mobile site to see the full array of content.

David R. Kotok
Chairman and Chief Investment Officer
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