A Further Perspective

Steve Wynn Is Right

Too much government is killing the economy.

By 7.29.11

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Among the long string of bad economic news from the last few years, there is something to celebrate: The political consensus in Washington that government could keep on growing at no cost to the growing economy has finally broken down. The size and scope of government is now the defining issue of our time. It is a welcome debate. However, it has centered on spending, which is only part of what government does. Regulation and tax policy are equally important.

Legendary entrepreneur Steve Wynn (who usually supports Democrats) put it bluntly a few days ago, when he said: "[T]his administration is the greatest wet blanket to business, and progress and job creation in my lifetime. And I can prove it and I could spend the next three hours giving you examples of all of us in this marketplace that are frightened to death about all the new regulations, our health care costs escalate, regulations coming from left and right… And it makes you slow down and not invest your money."

Wynn is right. If we want Americans to get back to work, we must tackle overweening government now. A recent survey by the U.S. Chamber of Commerce found that 64 percent of small businesses will not hire anyone in the next year. The reasons given all concern government: taxation, regulation, and the threat of new legislation.

A sterling example of Wynn's point is the Dodd-Frank law that was supposed to solve the problems that led to the 2008 financial collapse. It empowered regulators to decide which firms are "systemically important" -- too big to fail, in other words. Enshrining this concept into law will only make huge financial losses more likely, as firms deemed too big to fail will have an incentive to take more risks, in the knowledge that the government will bail them out when they get into trouble.

That is bad enough. Even worse is not knowing which firms are "systemically important." Yet the Obama administration has yet to make that determination, which means that many large financial companies don't know whether they will be covered, and so don't know whether they will have to raise capital or reduce their leverage. That means that industries that rely on these companies for funding do not know what their cost of capital will be. As journalist Robert Tracinski points out, this is "the most basic piece of information in a functioning economy." The only thing worse than bad rules is not knowing what the rules are.

Uncertainty is not the only way in which government drags down the economy. It also imposes crushing regulations. The cost of complying with regulations comes to over $10,000 per employee for small businesses and is continually rising -- it's already up from $7,600 in 2008. At a time when companies are reeling from the recession, it is remarkable that the Obama administration has not taken steps to reduce this burden substantially -- offering instead only token efforts that do not even scratch the surface of the problem.

We have dug ourselves into a mighty hole. In the 1990s, federal spending increased by $300 billion. In the 2000s, it increased by over $1 trillion. Since 1995, federal bureaucrats have issued over 60,000 new regulations, all of which carry the force of law. The tax code is now 2.1 million words long. Ample evidence shows that this growth in government hinders growth and fosters unemployment.

Yet we can climb out of it, and we don't need to reinvent the wheel to do so. The laboratories of democracy that are the states offer some possible solutions. In Wisconsin, Governor Scott Walker's labor and fiscal reforms have reduced the power and reach of the state government. As a result, the Badger State added 9,500 net jobs in June -- over half of the nation's total of 18,000 net new jobs that month.

This shows that by shrinking the state, we can spark recovery. As I point out in my new book, Stealing You Blind, there are several ways to do this. For example, reduce the number of federal agencies and re-charter those that remain to better define their mission, reform public sector compensation and work rules, radically simplify the tax code, end labor union privileges, and above all institute genuine regulatory reform.

The current debate over the debt ceiling offers an opportunity to do all of this. It doesn't all have to be done by August 2, but all these proposals should form part of the debate. If policy makers fail to seriously consider these solutions, they will just be kicking the can down the road. Reining in an overgrown and ever-expanding government -- in all its forms -- is the only route to long-term prosperity and national solvency. The time for action is now.


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About the Author
Iain Murray heads the Center for Economic Freedom at the Competitive Enterprise Institute and is the author of Stealing You Blind: How Government Fatcats Are Getting Rich Off of You.