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Blame Regulation, Not Capitalism

Stagnant wages and standards of living are the product of too much government, not too little.
Blame Regulation, Not Capitalism

More and more is written arguing that American middle class standards of living have now stagnated for a number of years. Last year there was Frenchman Thomas Piketty’s book Capital in the Twenty-First Century, which using a massive amount of statistics, supposedly proved that free markets were no longer delivering economic growth for vast segments of the European and American populations. French capitalism is hardly anybody’s model of dynamism, opportunity or growth. So it’s only natural that Piketty and his followers find inequality and stagnation. The same can be said for Pope Francis, who with a “capitalist” model of his native Argentina naturally thinks that free markets are unjust, cruel and poverty creating.

To combat this resurgent socialism, conservatives need to understand the reasons real incomes haven’t increased and why and where growth is stymied. Otherwise they will be unable to answer the Left’s clamor for more regulations, government spending and controls in the name of “equality.” It is in fact the allocation of money away from economic growth and proliferating government rules that cause stagnation and prevent the creation of new wealth.

First consider the impact of stymying regulations. When Obama first took office, he wanted to invest in new infrastructure to get the economy moving. But studies of the delays and consequent costs of simply rebuilding a bridge indicate that often these projects suffer from 5 to 10 years of delay and 10,000 pages of government regulation. Blue collar jobs are particularly affected by these holdups in permitting new construction. Very high-paying new mining ventures are virtually shut down by delays, costs, lawsuits and the exposure of investors to retroactive EPA and judicial rulings. The Competitive Enterprise Institute estimates that regulatory compliance costs the American economy $1.8 trillion annually or $15,000 per family. The costs above don’t include all the uncreated jobs that excessive regulations prevent from ever starting up.

Then there are government-created or sanctioned monopolies, particularly in the provision of health care. Just one monopolistic group, health care providers, have taken away what otherwise would have been a substantial increase in income for working and middle classes. It now costs a family of four some $22,000 for health care (with ever increasing co-payments and deductibles); just imagine if we spent half as much (like most European nations) and could see an $11,000 dollar pay increase per family. That alone would substantially change the living standard stagnation statistics. Companies would surely rather pay that money to their workers than have it disappear into the maw of the health care system.

Lack of competition, unnecessary tests and operations, defensive medicine because of lawsuits, an opaque system of pricing (designed to obfuscate and prevent analyses of costs), and monopolistic drug companies all hold back the creation of more efficiency in health care. Recent news about incredible increases in formerly low priced but important medicines has finally instigated some real criticism of drug costs. (A simple solution would be to allow drug imports now prohibited under Obamacare.)

In responding to the resurgence of socialistic ideas, conservatives must also remember that cheap energy has been basis of human progress. When Shell Oil Company announced the ending of its multi-billion dollar Arctic drilling program after only one exploratory well, the Washington Post also reported that Shell was denied permission from the Fish and Wildlife Administration for a one-time variance to allow its second well to be drilled nine miles instead of 15 miles from its first well as originally planned, as the four-month weather window for drilling was closing. The regulators argued that noise from the drilling might “harass” marine mammals. This in 5 million square miles of Arctic Ocean. Now all oil drilling has ended as other companies won’t even bid on new leases.

Socialists are now reinforced by extreme environmentalists whose agenda, using global warming hypotheses, is that America must “decarbonize” its economy by ending “the fossil fuel industry”—oil, coal, and gas—in order to “save the world.” Whatever their stated goals, their plans would put an end to free market capitalism through new government regulations and taxes. Spending hundreds of billions on global warming (now called climate change) will cause a substantial decline in living standards. As burning coal is prohibited, rising electricity prices will result. In Germany, for example, electricity now costs three times as much as in America because of its government subsidies of windmills and solar cells—infrastructure that is built even where the weather is mostly cloudy.

Not all the damage comes from the Left. On the Right there are calls to increase military and security spending beyond its current trillion dollars a year. Most of this money is wasted, when it could be growing our standard of living.  

Economists also discount or ignore what they are unable to measure, and productivity growth is particularly difficult to quantify. The advent of Uber taxis, smartphones, dependable cars that don’t break down, free international telephone calls—all are mostly beyond measurement yet surely reflect a rising standard of living.

When it comes to damaging regulations, there are solutions. To alleviate delays for construction permits, there are reform proposals in Congress to create “one stop regulatory shopping” whereby one lead agency would have responsibility for applications. Deadlines could be established, with agency approvals becoming automatic unless they concluded their objections within a particular time limit.

Americans should understand who and what influences are responsible for our declining growth—not blame our economic system. Rather they should know that it is Washington’s misallocation of resources that causes our problems, not freedom and free markets.

Jon Basil Utley is publisher of The American Conservative.



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