Wednesday, February 1, 2012

An Answer I'd Like to Hear

In the past couple of weeks, I've heard innumerable questions that go something like this:
How can you justify a system where the little guy has to play by one set of rules and the rich get even richer playing by another set?
The typical answer (usually drowned out by applause) involves mumbling about job creation or possibly agreeing that the rules need reform, but the rich are playing by the rules as they're currently set up. Which leads to the inevitable comeback question (more of a semi-triumphant statement, actually) that the rich can afford lobbyists to bend the rules in their favor.

Wrong answer. Here's the right one:
All legislation and regulation attracts big players that seek to influence the rules to their own advantage. This is inevitable. But putting additional rules in place to prevent this is only pouring gasoline on the fire. The more complex the rule structure, and the more overbearing the government becomes in selectively enforcing the rules, the worse the problem becomes.

If you want to help the little guy--especially the small businessperson--then reduce the power of government to compel compliance. Compliance is a fixed cost; it costs close to the same amount for a company with $5 million in sales to comply with the regulations as it does for a company with $50 billion. So the cost per revenue dollar of the regulations is 10,000 times higher for the small company as it is for the large company. It's no wonder that the big guys love the regulations; it's a virtually free way to stifle any upcoming competition.

Of course, this requires arithmetic, and therefore no politician will ever use this argument.

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