Study: Regulation costs California economy almost $500 billion

posted at 5:20 pm on September 25, 2009 by Ed Morrissey

Conservatives and liberals often square off over the proper level of government regulation, but most people agree that some level of oversight is necessary to defend against fraud, waste, and abuse.  But at what level does the regulation itself become waste and abuse, this time by bureaucrats rather than stakeholders in the markets?  Two researchers at California State University Sacramento may not have the answer to that question, but certainly can argue that California has long since passed the threshold (emphases mine):

This study measures and reports the cost of regulation to small business in the State of California. It uses original analyses and a general equilibrium framework to identify and measure the cost of regulation as measured by the loss of economic output to the State’s gross product, after controlling for variables known to influence output. It also measures second order costs resulting from regulatory activity by studying the total impact – direct, indirect, and induced. The study finds that the total cost of regulation to the State of California is $492.994 billion which is almost five times the State’s general fund budget, and almost a third of the State’s gross product. The cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State’s population. Since small business constitute 99.2% of all employer businesses in California, and all of non-employer business, the regulatory cost is borne almost completely by small business. The total cost of regulation was $134,122.48 per small business in California in 2007, labor income not created or lost was $4,359.55 per small business, indirect business taxes not generated or lost were $57,260.15 per small business, and finally roughly one job lost per small business.

Those conclusions are simply stunning, and it’s worth pointing out that the analysis comes from professors at a state-run school, not employees of a private think tank.  California currently has 12.2% unemployment, and its economy has almost fallen off a cliff over the last two years.  A reduction of even half of the regulatory burden on businesses in California could create almost 2 million jobs and kick-start their economy.  Instead, California — like the rest of the US — is focused on increasing taxes and regulation, the opposite of what the Golden State needs.

It would be interesting to see similar analyses on the rest of the states.  I suspect California will rank high among them, but perhaps not the highest on the basis of percentage-of-GDP.  These are the kind of analyses we need to have an informed debate over the nature and reach of the regulatory requirement for a free people.


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Comment pages: 1 2

Buddy, if you’ve got to stake your claim on the rhetorical difference between “could” and “would” then it’s game over man.

If you don’t know the very significant difference, rhetorical or otherwise, between “Could” and “Would”, then you’ve only been successful at proving my point regarding your lack of critical thinking skills/education.

Oh and its Fatal, not “Buddy”, but I guess if you don’t know the difference between “could” and “would”, then Buddy and Fatal probably look pretty similar to you. ::shrugs::

Fatal on September 25, 2009 at 6:10 PM

Ahhh, the power of regulation!

hawksruleva on September 25, 2009 at 6:03 PM

Here’s a perfect example.

If I owned a small business, and had to comply with your post, it would cost me $100 fine and $40 bucks gas money driving to Sacramento to argue the fine, and lose. But my small business would still make $100k.

Thus “regulation” would be a small, negligible total in my expenses and have little impact on whether or not I could expand, or had to lay anyone off, etc.

Something like government provided health care, which would remove 30% off my payroll costs, on the other hand…

e-pirate on September 25, 2009 at 6:10 PM

BillH on September 25, 2009 at 6:03 PM
Thanks for the responce, it has been 10 years since I worked for the auto industry. I have seen a lot of small lawn mowers, riders and push mowers that stated not compliant for CA. emission standards or something to that effect. In any case a lot of the onerous regulations adopted for CA. are passed on to the rest of the states.

fourdeucer on September 25, 2009 at 6:13 PM

But my small business would still make $100k.

Why do you assume that?

Mary in LA on September 25, 2009 at 6:13 PM

I agree that I overstated your case, and you didn’t say $500 billion was unnecessary. But you did say removing “half the regulatory burdern would save 2 million jobs” suggesting that we could wipe away $250 billion without negative consequence, so I am half correct. Beyond that, your suggestion of removing regulatory burden is completely undefined. What would that entail? Halving every industrial fine? De-staffing half of the regulatory agencies and then telling them “you know what, ignore half the violations you see?” It almost seems like you just just tilting at the phantom menace of “regulation” to make cheap political points without any real consideration of the outcomes of your suggestions!

Here’s what I want to know: how high would this total have had to been for you to just dismiss the study? A trillion? 5 trillion?

e-pirate on September 25, 2009 at 5:58 PM

Yeah – because if California didn’t have all the taxes and fees and regulation it does then civilization would come to an end, cats and dogs would live together, mass hysteria. Most products would be lethal, corporations would be ruining the lives of citizens and there wouldn’t be any nature left.

gwelf on September 25, 2009 at 6:13 PM

Oh and its Fatal, not “Buddy”

Fatal on September 25, 2009 at 6:10 PM

If I offended you by not using your username, I apologize.

e-pirate on September 25, 2009 at 6:14 PM

But my small business would still make $100k.

Are you assuming $100K of profit? Why do you assume that?

Mary in LA on September 25, 2009 at 6:15 PM

Something like government provided health care, which would remove 30% off my payroll costs, on the other hand…

e-pirate on September 25, 2009 at 6:10 PM

Actually it wouldn’t remove 30% but you would be paying about 25 to 35% more. I.E. Federal Taxes. And since you have obviously never ran a business.. you pay a portion (half) of the Federal Taxes for your employee.. not including the SS and Medicare that COULD still be a problem WITH the passing of ObamaCare as it won’t be going to SS or Medicare.. but in the Federal Tax.

OPPS you screwed that “stupid” idea up now didn’t you!

upinak on September 25, 2009 at 6:15 PM

Mary in LA on September 25, 2009 at 6:15 PM

I just threw out a number as an example of total revenues for a small business. My point was, in the comment I was replying to, he had suggestion regulation would cost me $100 for a fine, and I meant to imply that would be an insignificantly low amount when it came to closing my books.

I just thought it was telling this is a thread about $500 billion lost to regulation, and when somebody levied a made up “fine” on my, they came up with $100. It supported my argument that $500 billion was way, way too high of a number to be taken seriously.

e-pirate on September 25, 2009 at 6:19 PM

Blake on September 25, 2009 at 6:05 PM

But you can have a bon-fire on the beach. Make any sense to you???? Ya, me neither.

PappaMac on September 25, 2009 at 6:20 PM

I just threw out a number as an example of total revenues for a small business.

So you have no small business experience, then. If you had, you would know that a great many of them operate on much thinner margins than 100K per year.

Mary in LA on September 25, 2009 at 6:21 PM

Just curious, e-pirate: What is it that you pirate?

Mary in LA on September 25, 2009 at 6:22 PM

Actually it wouldn’t remove 30% but you would be paying about 25 to 35% more.

upinak on September 25, 2009 at 6:15 PM

You totally lost me on this one.

e-pirate on September 25, 2009 at 6:22 PM

It supported my argument that $500 billion was way, way too high of a number to be taken seriously.

Is that based on some sort of verfiable facts, or just your “feelings”?

Oh, oh, oh I know – its based on the “e-pirate Big-book of things to take seriously”!

Fatal on September 25, 2009 at 6:23 PM

BillH on September 25, 2009 at 6:03 PM
Thanks for the responce, it has been 10 years since I worked for the auto industry. I have seen a lot of small lawn mowers, riders and push mowers that stated not compliant for CA. emission standards or something to that effect. In any case a lot of the onerous regulations adopted for CA. are passed on to the rest of the states.

fourdeucer on September 25, 2009 at 6:13 PM

Yah, our state has gone off the deep end in regards to emissions. Not only mowers of all types, but motorcycles (naturally) and, get this, BBQ grilles. The one thing we had to be very careful about when building streetrods was the chassis- not for safety, mind you, but the all-important VIN or “build date” of the original car. Emissions could be nightmarish without that. Either that state hasn’t caught on, or, more likely, they’ve decided there isn’t enough money in it to be worth the fight.

BillH on September 25, 2009 at 6:24 PM

Actually, e-pirate, the correct conclusion is either that you’re too stupid to comprehend the post, in which I never endorsed the idea that we could get rid of all regulation (and acknowledged that one has to balance the need for regulation against the cost), or you’re an intellectually dishonest jerk who uses strawman arguments to make himself feel good. I’ll give you the benefit of the doubt and assume that you’re an idiot.

Ed Morrissey on September 25, 2009 at 5:47 PM

You’re too kind, Ed. I don’t mind anyone taking my arguments or opinions on and challenging the hell out of them on the basis of logic and substance. That’s outright fun.

But what offends me, and it’s almost pandemic with the left, is putting words in my mouth that I did not say or ignoring what I specifically said, and then spewing their illogical venom from there.

To me, this shows on the part of the perp a complete absence of character, integrity and wit that drags into the gutter the entire discourse.

So, in this instance, guttersnipe works best for me.

TXUS on September 25, 2009 at 6:24 PM

You totally lost me on this one.

e-pirate on September 25, 2009 at 6:22 PM

I’ll explain: The government produces nothing and has no income of its own. All the money it spends on stuff, it must first take in, in the form of taxes, fees, etc. The Obama administration has said it will not increase taxes on “95% of the population” or anyone making less than $250K per year. Let’s assume (for the moment) that they keep their word. The money has to come from somewhere: if most individuals are not going to be taxed, then businesses must be, because that’s all that’s left. Sales taxes, license fees, etc., will have to go up in order to get the money to fund ObamaCare.

That’s how it works.

Mary in LA on September 25, 2009 at 6:25 PM

If I offended you by not using your username, I apologize.

e-pirate on September 25, 2009 at 6:14 PM

He’s not your buddy, guy…

liquidflorian on September 25, 2009 at 6:26 PM

You totally lost me on this one.

e-pirate on September 25, 2009 at 6:22 PM

I rest my case. You have no clue what you are talking about.

upinak on September 25, 2009 at 6:27 PM

That’s not what makes a fee necessary or unnecessary. The fee for registering my car is not supposed to literally cover the cost of processing my registration!

The idea is that the government does a lot to ensure that I can drive (builds and maintains the roads, enforces safety laws, keeps track of car ownership for all sorts of reasons, etc.), so if I want to drive my car, I need to pay a fee to support what the government does.

In fact, fees can be seen by conservatives as a preferred alternative to taxes. Rather than taxing everyone to pay for a certain government function (for example, transportation), you put more of the burden on the people who actually benefit from that function.

This doesn’t mean that DMV fees, or your permit fee, or fees in general, aren’t too high. But it does mean that deciding whether a given fee is “necessary” requires more than a simply outsider’s analysis.

tneloms on September 25, 2009 at 6:09 PM

And Ed is making the reasonable argument that there is an excessive amount of regulation. Regulation to fund roads, etc isn’t the issue. A lot of regulation is there because it’s a another revenue stream for the government or it’s designed to curtail behavior that isn’t illegal.

gwelf on September 25, 2009 at 6:27 PM

I can easily see where an unfettered free market would put everyone to work. Without the extra expense and barriers to entry caused by regulation, lots more people would be starting businesses.

hawksruleva on September 25, 2009 at 5:58 PM

That unemployment rate (approximately 1.7%) would be lower than any state has ever had in history: http://www.bls.gov/web/lauhsthl.htm.

California is also the most populous state, and you can see that the more populous states (including less regulatory ones) on this list are never the ones with historically low unemployment rates. And yes, like you said, the 12% doesn’t account for certain people, but neither did these historical rates.

So making a claim that California could achieve this rate is pretty outlandish.

I think the problem with the conclusions of this study is that they looked at pieces of regulation in isolation and extrapolated to fully removing all of it. That’s how they achieve such enormous numbers. But it’s sort of a ridiculous situation in the first place — how can anyone know what a state without any regulation would look like?

What would actually be informative is showing the marginal effects of regulation: if you removed some regulation, what effect would it have on jobs and costs? This would help answer, for example, whether Ed’s statement that reducing half the regulatory burden would actually create 2 million jobs. There seem to be some answers to this within the paper, but it’s not gathered into a single conclusion or mentioned in the summary.

tneloms on September 25, 2009 at 6:28 PM

It supported my argument that $500 billion was way, way too high of a number to be taken seriously.

e-pirate on September 25, 2009 at 6:19 PM

Why do you say the figures in this study are “way too high”?

Rod on September 25, 2009 at 6:28 PM

my argument that $500 billion was way, way too high of a number to be taken seriously.

That’s not an argument, it’s an assertion.

Mary in LA on September 25, 2009 at 6:29 PM

You totally lost me on this one.

e-pirate on September 25, 2009 at 6:22 PM

The government produces nothing and has no income of its own. All the money it spends on stuff, it must first take in, in the form of taxes, fees, etc. The Obama administration has said it will not increase taxes on “95% of the population” or anyone making less than $250K per year. Let’s assume (for the moment) that they keep their word. The money has to come from somewhere: if most individuals are not going to be taxed, then businesses must be, because that’s all that’s left. Sales taxes, license fees, etc., will have to go up in order to get the money to fund ObamaCare.

That’s how it works.

Mary in LA on September 25, 2009 at 6:30 PM

Something like government provided health care, which would remove 30% off my payroll costs, on the other hand…

e-pirate on September 25, 2009 at 6:10 PM

So Obama did lie when he said I can keep my insurance if I like it!

gwelf on September 25, 2009 at 6:31 PM

Mary in LA on September 25, 2009 at 6:25 PM

You didn’t mention that the fees, taxes, and licensing shows up in the form of lessened employment, higher prices, or both.

BillH on September 25, 2009 at 6:31 PM

You didn’t mention that the fees, taxes, and licensing shows up in the form of lessened employment, higher prices, or both.

BillH on September 25, 2009 at 6:31 PM

You’re right — I was trying to make the explanation as simple as possible, but perhaps I oversimplified a bit.

Mary in LA on September 25, 2009 at 6:32 PM

Ed’s statement that reducing half the regulatory burden would actually create 2 million jobs . . .

Here we go again, wrong with “would”, doubly wrong with “would actually”. Sheesh!

Don’t you guys get it? Arguing against something that was NEVER said is what is known as a “straw-man” argument and its acknowledged as an illegitimate form of argument.

Fatal on September 25, 2009 at 6:32 PM

And Ed is making the reasonable argument that there is an excessive amount of regulation. Regulation to fund roads, etc isn’t the issue. A lot of regulation is there because it’s a another revenue stream for the government or it’s designed to curtail behavior that isn’t illegal.

gwelf on September 25, 2009 at 6:27 PM

I was responding to commenter’s comment, not to Ed’s post. I probably agree that there’s too much regulation, but my initial reaction is to doubt the conclusions of this study (see my other comment).

That being said, I don’t actually understand why regulation to fund roads doesn’t fit what you’re talking about.

tneloms on September 25, 2009 at 6:33 PM

Something like government provided health care, which would remove 30% off my payroll costs, on the other hand…

And the government is going to make up that loss in ‘revenue’ from payroll taxes how? Oh, I forgot that ObamaCare is going to be fully funded by unicorns and fairy dust.

You’ve got chutzpah though – claiming that more government intrusion and involvement is going to save businesses money.

gwelf on September 25, 2009 at 6:34 PM

The government produces nothing and has no income of its own.
Mary in LA on September 25, 2009 at 6:30 PM

Umm I am assuming you forget Federal Lands that they drill for oil and gas on.

upinak on September 25, 2009 at 6:35 PM

juanito on September 25, 2009 at 6:08 PM

Then it’s all good.

Right?

CPT. Charles on September 25, 2009 at 6:37 PM

SO SO RICH.

marklmail on September 25, 2009 at 6:38 PM

Here we go again, wrong with “would”, doubly wrong with “would actually”. Sheesh!

Don’t you guys get it? Arguing against something that was NEVER said is what is known as a “straw-man” argument and its acknowledged as an illegitimate form of argument.

Fatal on September 25, 2009 at 6:32 PM

I was just being lazy about that because it wasn’t central to my point. Notice that I also said “2 million” instead of “almost 2 million,” which is what Ed said.

My point wasn’t that Ed was wrong, but that the paper should have given us marginal numbers instead of total numbers so that we could evaluate statements *like* the one Ed made (which are the interesting ones).

I guess I accidentally built a straw man, but I didn’t tear it down, so it wasn’t so bad after all. :)

tneloms on September 25, 2009 at 6:39 PM

Something like government provided health care, which would remove 30% off my payroll costs, on the other hand…

e-pirate on September 25, 2009 at 6:10 PM

So, tell me something, e-pirate. That 30%. Do you return that to your employees, do you keep that for your business, or do you pay the government for the increases in taxes, fees, and licensing you just got dunned for? The money for O-Care has to come from somewhere. And let me tell ya, cranking up the printing presses to “make” more money is bad ju-ju. Ask Germany for a historic example, or Zimbabwe for a current one. The lesson to take away is the government has no wealth of it’s own. You WILL pay, one way or the other.

BillH on September 25, 2009 at 6:40 PM

Umm I am assuming you forget Federal Lands that they drill for oil and gas on.

upinak on September 25, 2009 at 6:35 PM

You’re right, I did. I guess that’s the only wealth that the Feds produce. I’m willing to bet, though, that the revenues from oil and gas are not even close to enough to fund the federal government’s obligations now, let alone adding ObamaCare!

Mary in LA on September 25, 2009 at 6:42 PM

That being said, I don’t actually understand why regulation to fund roads doesn’t fit what you’re talking about.

tneloms on September 25, 2009 at 6:33 PM

I’ll try to be more clear this time. I don’t necessarily have a problem with assessing fees to people that go directly to funding some activity associated with the fee. I pay a fee to enter a national park and that money goes to upkeep of the park. I pay a gas tax, car license fee etc and the state builds roads etc. This is fine because my fee is going to pay for something I’m using.

My beef is when regulation and fees veer away from this paradigm and are used to fund things not associated with the supposed purpose of the fee – e.g., if taxes on gas are used for some purpose other than transportation, or the whole idea of sales tax. Another way in which regulation and fees are onerous is if they seek to discourage behavior that isn’t illegal. Part of the problem is that government usually takes ‘responsibilities’ upon itself it has no mandate to (e.g., Social Security) and then comes up with ways to fund itself in order to meet these responsibilities. To many liberals the government is responsible for providing for basic needs and happiness and so there is theoretically no limit to what a liberal government will need in tax revenue.

A perfect example of what I’m talking about is something Biden and Obama mentioned during the campaign: they want to put such a heavy tax on coal production that it makes it impossible for coal plants to stay open or for new ones to go into production.

Cap and Trade is also a perfect example of what I’m taking about.

gwelf on September 25, 2009 at 6:45 PM

You’re right, I did. I guess that’s the only wealth that the Feds produce. I’m willing to bet, though, that the revenues from oil and gas are not even close to enough to fund the federal government’s obligations now, let alone adding ObamaCare!

Mary in LA on September 25, 2009 at 6:42 PM

You also forget the taxes that are put on just about everything we buy. Gasoline/Fuel, food shipped in, clothing shipped in, furniture, houses, etc.

We spend MORE on taxes for the federal government then ANYONE realizes.

upinak on September 25, 2009 at 6:48 PM

Cap and Trade is also a perfect example of what I’m taking about.

gwelf on September 25, 2009 at 6:45 PM

C&T is also a freaking nightmare.

upinak on September 25, 2009 at 6:49 PM

If all regulation were totally removed, would CA’s economy jump by $500 billion? Is that counting all the money lost to lawsuits regarding wrongful deaths by unsafe products and services, etc?

There’s a case to be made that overregulation is bad, and reasonable people would agree, but to posit that $500 billion is needlessly squandered just makes you look hyperbolic and therefore easily ignored.

e-pirate on September 25, 2009 at 5:25 PM

First of all e-pirate, no one not even Ed is suggesting California do away with ALL regulations. In addition even if the California government WANTED to do away with ALL regulations they couldn’t because states cannot be less stringent when it comes to regulations promulgated by such agencies as federal OSHA, EPA, DOT, etc.

Now follow me on this one so you’ll understand. I have made my career in the environmental, health, and safety (EHS) profession and as the corporate EHS Manager for a chemical company that has its corporate operations in Oakland California I can without a doubt tell you from years of experience dealing with regulatory agencies that most states simply adopt the federal standard when it comes to EHS regulations, however those that govern California and are helped into office by special interest groups/lobbies (especially the labor and environmental lobbies) enact even more stringent regulations than what the federal standard requires thus significantly increasing the costs of doing business in California to the point where California has lost much of its economic engine in the last 30 years but with little gained to show for it in regard to improving the people of California’s overall health, safety, and environment.

In fact California regulatory agencies such as CalOSHA, CalEPA (just to name two) basically take the federal standards and add their own requirements thus adding an additional and unneeded layer of bureaucracy that costs businesses more to comply but without any added value for anyone other than California government employees and increased revenue to the state. This is why companies have left the state in droves over the last 30 years and this is why the state has a multi-billion dollar deficit!

As a final and eye-opening example we have a chemical facility in Arizona and we comply with the regulations to store these chemicals (hazardous materials) in order to maintain a hazardous materials storage permit and the fees for maintaining our permits with local, state, and federal agencies in Arizona is approximately $2,000 per year where the same permits at our California facility are in excess of $10,000. Not only is the cost higher in California than our Arizona facility my experience with the regulatory agencies in California are abysmal, they are incompetent and are always underfunded for the myriad of mandates placed on them by the state thus their overall services they provide to regulated businesses are extremely poor if non-existent whereas my experience with regulatory agencies in Arizona are the complete opposite, they are competent, prepared, are not under funded, and they are able to provide the services they are mandated to provide to the regulated community.

Bottom line is California is notoriously over regulated and with no benefit to businesses or the people in general, the only entities benefitting from California’s heavy handed regulations are government employees, special interest groups, and bureaucrats and again this is why companies are moving out of California. What’s ironic to me is (and the irony has become very obvious with California’s financial crises) is that all these bureaucrats, special interest groups, et al are shooting themselves in the foot every time they increase the regulatory burden on businesses because when they increase the regulatory burden on businesses it requires more government and money to administer all of these increased regulations which in turn increases the costs to businesses and tax payers forcing productive taxpaying workers and tax revenue generating businesses to leave the state and that approach is not sustainable and the proof is in California’s multi-billion dollar deficit and continued downward spiral as an economic powerhouse!

Liberty or Death on September 25, 2009 at 6:49 PM

Well, I did at least mention sales taxes… :-)

e-pirate, if you’re still lurking, just read what upinak said, and take it to heart.

Mary in LA on September 25, 2009 at 6:50 PM

just read what upinak said, and take it to heart.

…and gwelf, and Liberty or Death, and BillH, and… basically everybody in this thread… :-)

Mary in LA on September 25, 2009 at 6:52 PM

Umm I am assuming you forget Federal Lands that they drill for oil and gas on.

upinak on September 25, 2009 at 6:35 PM

You’re right, I did. I guess that’s the only wealth that the Feds produce. I’m willing to bet, though, that the revenues from oil and gas are not even close to enough to fund the federal government’s obligations now, let alone adding ObamaCare!

Mary in LA on September 25, 2009 at 6:42 PM

Actually, ladies, the Feds create nothing except an opportunity at a cost. It’s still the private company doing the drilling, and the Feds merely collect lease fees and taxes from that activity. If it weren’t for the oil company, the Feds collect nothing. Yes, the Feds own the land- but it lies fallow until some private company comes in and actually does the work. If the Feds will allow it.

BillH on September 25, 2009 at 6:54 PM

tneloms on September 25, 2009 at 6:39 PM

There are also lots of regulations that are poorly written and/or poorly implemented or are written by legislatures who fancy themselves the caretaker of the people. There are too many regulations which seek to take care of people in ways they really don’t need it.

As an example of this is the somewhat new regulation (enacted by the Democrat Congress) which places unreasonable and in many cases ruinous burdens on businesses which sell toys or any products made for children under 12. These regulations were created by fears after some Chinese produced toys were found to be ‘dangerous’. These regulations will/did drive many small business owners out of business because they don’t have the resources to meet the demands of the regulation which stipulates all sorts of testing needs to be done to ensure it doesn’t contain lead or other dangerous materials etc.

gwelf on September 25, 2009 at 6:55 PM

Actually, ladies, the Feds create nothing except an opportunity at a cost. It’s still the private company doing the drilling, and the Feds merely collect lease fees and taxes from that activity. If it weren’t for the oil company, the Feds collect nothing. Yes, the Feds own the land- but it lies fallow until some private company comes in and actually does the work. If the Feds will allow it.

BillH on September 25, 2009 at 6:54 PM

Which comes back to the original point I was trying to get through e-pirate’s brick-like skull: Without taxes on individuals and businesses and the transactions between them, the government has no money to spend.

Mary in LA on September 25, 2009 at 7:01 PM

gwelf on September 25, 2009 at 6:55 PM

Check with Overlawyered.com. That blog can tell you more about the CPSIA than you could ever possibly want to know. The fact that Waxman was behind this travesty should be no surprise at all.

BillH on September 25, 2009 at 7:03 PM

Which comes back to the original point I was trying to get through e-pirate’s brick-like skull: Without taxes on individuals and businesses and the transactions between them, the government has no money to spend.

Mary in LA on September 25, 2009 at 7:01 PM

Exactermently.

BillH on September 25, 2009 at 7:04 PM

Actually, ladies, the Feds create nothing except an opportunity at a cost. It’s still the private company doing the drilling, and the Feds merely collect lease fees and taxes from that activity. If it weren’t for the oil company, the Feds collect nothing. Yes, the Feds own the land- but it lies fallow until some private company comes in and actually does the work. If the Feds will allow it.

BillH on September 25, 2009 at 6:54 PM

I wish the Feds would lease more of their land for use by private firms. This country is blessed with an overabundance of resources. But we keep ourselves from getting to them.

hawksruleva on September 25, 2009 at 7:08 PM

The several of you who object to the $500 billion number are somewhat justified in doing so, but you miss the point.

You have to start somewhere. This was a couple of researchers and a few slaves grad students pulling together a lot of data, and it was a lot of work.

Somebody pointed out, absolutely correctly, that what’s important is the marginal cost. If you removed some particular regulation or combination of regulations, how much would you get back in economic activity? If you add more regulation(s), what diminution of economic activity should you expect? If you had answers to those questions, you could make reasoned decisions about the balance between laissez faire and regulation.

But in order to determine the marginal cost, you have to know what the base cost is! That’s what this study gives: the base from which the margin is computed.

More analysis is clearly needed, and perhaps more data. That analysis will be much harder than figuring out the base number is, and it isn’t surprising that these folks haven’t done it. No, the $500 billion number doesn’t represent savings that could be immediately realized if regulation went away, and nobody (especially not the researchers, if they want to keep their jobs in the California University system) is saying otherwise. Criticizing the number on the basis of the possibility of immediate savings is criticizing Herschel for not coming up with Einstein’s equations!

Regards,
Ric

warlocketx on September 25, 2009 at 7:08 PM

Criticizing the number on the basis of the possibility of immediate savings is criticizing Herschel for not coming up with Einstein’s equations!

Regards,
Ric

warlocketx on September 25, 2009 at 7:08 PM

Now, now, you’re not playing fair! How do you expect e-pirate to know who Herschel and Einstein are? He probably thinks they’re a new band or something.

Mary in LA on September 25, 2009 at 7:11 PM

Anybody with half a mind knows that excessive regulation leads to unproductiveness and corruption, but it’s nice to see somebody’s at least studying it. What would really be nice for everyone except the enforcing bureaucracy and corrupt officials is if this destructiveness were reformed.

cjk on September 25, 2009 at 7:13 PM

FOR TEH DELTA SMELT!!!
/do I even need a sarc tag?

dglenn on September 25, 2009 at 7:13 PM

So, let me see if understand…if they where able to deregulate/streamline and reduce regulation costs even say 50%, and then got 10% of that savings as additional taxes, they might have a balanced budget right now?

I R A Darth Aggie on September 25, 2009 at 7:14 PM

DELTA SMELT!!!
/do I even need a sarc tag?

dglenn on September 25, 2009 at 7:13 PM

He who smelta, delta? :-)

Mary in LA on September 25, 2009 at 7:17 PM

The several of you who object to the $500 billion number are somewhat justified in doing so, but you miss the point.
warlocketx on September 25, 2009 at 7:08 PM

Respectfully I disagree – I don’t think we have missed the point. We understand that $500 billion won’t materialize in the economy if regulations disappeared or were reduced. But the base cost is 500 BILLION dollars. There is no way that California needs anywhere near that much money in order to fulfill it’s proper responsibilities (this is the real point to me anyway).

gwelf on September 25, 2009 at 7:18 PM

So, let me see if understand…if they where able to deregulate/streamline and reduce regulation costs even say 50%, and then got 10% of that savings as additional taxes, they might have a balanced budget right now?

I R A Darth Aggie on September 25, 2009 at 7:14 PM

Not just a balanced budget, Darth, but likely so little unemployment that the 8 years Before Barry would look like a depression.

BillH on September 25, 2009 at 7:20 PM

If I owned a small business, and had to comply with your post, it would cost me $100 fine and $40 bucks gas money driving to Sacramento to argue the fine, and lose. But my small business would still make $100k.

Thus “regulation” would be a small, negligible total in my expenses and have little impact on whether or not I could expand, or had to lay anyone off, etc.

e-pirate on September 25, 2009 at 6:10 PM

Regulation is death by 1,000 cuts. Your earnings are now down to $99,860. Sure, you’re a few thousand more regulations from being broke, but how many regulations affect you every day? Cost of gas. Cost of electric. Cost of health care. Cost of food transportation. Cost of food preparation. Cost of light bulbs. Cost of fire-retardant chairs in a non-smoking office. I could go on almost forever, between CA and US regulations.

Take an example from my home state of Virginia. I just bought a house, and want to expand the driveway. Right now, I have to back into a busy street. So I go to the city. They don’t know the rule for driveways on my street, so they check the book. Then they make a phone call. Then they tell me I can’t widen my driveway. They say it’s already at the max width. I ask “is this online plot accurate?” They say yes. I ask “then why is my neighbors house showing up on my side?” They said “well, it may be off by a foot or two”. I would also have to do an architectural sketch of my ENTIRE PROPERTY just to widen the driveway.

hawksruleva on September 25, 2009 at 7:23 PM

This also highlights the importance of profits and the free market. A corporation which can’t force people to give it money has to live within it’s means and if it gets too bloated and has departments which do nothing but cost money for little or no benefit they they will be cut or the corporation will lose market share to the company that isn’t bloated.

The California government is rife with corruption and high paying government jobs and an overweening bureaucracy which fights tooth and nail to preserve it’s existence without justifying it’s existence. Whenever budget cuts are brought up California Democrats scream about not being able to provide for the education, healthcare, blah blah blah whatever ‘benefits’ to the people. It’s a system that can’t support itself. As Margaret Thatcher said: The problem with socialism is that eventually you run out of other peoples money.

gwelf on September 25, 2009 at 7:23 PM

Respectfully I disagree – I don’t think we have missed the point. We understand that $500 billion won’t materialize in the economy if regulations disappeared or were reduced. But the base cost is 500 BILLION dollars. There is no way that California needs anywhere near that much money in order to fulfill it’s proper responsibilities (this is the real point to me anyway).

gwelf on September 25, 2009 at 7:18 PM

But not all of that money went to the state in direct cash payment, gwelf. A lot of that is money spent in compliance with rules and regulation. Money that can’t be spent on innovation, on employment, on investment, or even on taxes and fees that actually do add value to the state- i.e. roads, or fire services, or police. I think that 500Bn number is the sum cost of everything. If it were just the state’s cut, I agree- it couldn’t be 500Bn, but you can bet that would be a very large part of it. California is not a cheap state to run, by any means.

BillH on September 25, 2009 at 7:31 PM

There’s a case to be made that overregulation is bad, and reasonable people would agree, but to posit that $500 billion is needlessly squandered just makes you look hyperbolic and therefore easily ignored.

e-pirate on September 25, 2009 at 5:25 PM

Yeah there is a case that OVER-REGULATION is bad.

“but to posit that $500 billion is needlessly squandered”

I didn’t read that $500 Billion was “squandered”. When advancing an argument, it’s first helpful to point out how BIG the problem is (how much does regulation cost?).

Would you be as concerned if regulation only cost $10k a year?

GarandFan on September 25, 2009 at 7:36 PM

gwelf, I would tend to agree that California doesn’t need $500 billion to do the necessary work. They don’t get it, either. The California Summary Budget (ACHTUNG! PDF!) says they only expect to collect a bit under $113 billion, about a quarter of the figure being bruited about here.

The whole point of the post, and of the underlying research, is that the $500 billion is an indirect cost — nobody is actually shelling out any portion of that to an identifiable recipient; it’s money that was never there, but would have been absent regulation.

So in a way, I’m wrong too. This is a marginal cost — a cost added to California’s GDP. We still don’t know what the cost or profit from decreased or increased regulation will be, but it should be based on this amount — marginal cost relative to another marginal cost, perhaps. That’s why the analysis will be tough, and why the researchers didn’t get to it immediately.

Regards,
Ric

warlocketx on September 25, 2009 at 7:42 PM

I’m sure the Governator will get right on this.

edshepp on September 25, 2009 at 7:43 PM

warlocketx on September 25, 2009 at 7:42 PM

Good point.

gwelf on September 25, 2009 at 7:44 PM

gwelf on September 25, 2009 at 6:55 PM

I think I agree with most of what you’re saying. Especially the part about fees going to a fund that is totally general or has nothing to do with the supposed purpose. Then it’s just a way of taxing without people noticing.

But anyway, my more substantive comment (a separate one) had to do with the actual post and the cited study, and that’s why I have serious doubts about the specific conclusions of the study ($500 billion and 3.8 million jobs).

tneloms on September 25, 2009 at 8:23 PM

Something like government provided health care, which would remove 30% off my payroll costs, on the other hand…

e-pirate on September 25, 2009 at 6:10 PM

It would transfer that payroll cost to some other part of your accounting ledger labeled “taxes” and it would cost you more than what you had paid before.

TANSTAAFL – e-dumbhead.

PackerBronco on September 25, 2009 at 8:45 PM

Liberty or Death on September 25, 2009 at 6:49 PM

Thank you very much for that wonderful comparison of the regulatory situations in Arizona and California! That is very eye-opening. Now if only the politicians and others destroying California and the rest of the United States through such regulation would understand this we would all be better off.

MeAlice on September 25, 2009 at 9:33 PM

That’s not what makes a fee necessary or unnecessary. The fee for registering my car is not supposed to literally cover the cost of processing my registration!

The idea is that the government does a lot to ensure that I can drive (builds and maintains the roads, enforces safety laws, keeps track of car ownership for all sorts of reasons, etc.), so if I want to drive my car, I need to pay a fee to support what the government does.

In fact, fees can be seen by conservatives as a preferred alternative to taxes. Rather than taxing everyone to pay for a certain government function (for example, transportation), you put more of the burden on the people who actually benefit from that function.

This doesn’t mean that DMV fees, or your permit fee, or fees in general, aren’t too high. But it does mean that deciding whether a given fee is “necessary” requires more than a simply outsider’s analysis.

tneloms on September 25, 2009 at 6:09 PM

I think the determination as to whether a given fee is “necessary” doesn’t require any more than a disinterested observer’s analysis.

The fee for registering your car should cover nothing more than the cost of processing your registration. It shouldn’t be a recurring tax on the value of your car, which is what it turns into in California.

Any fee should cover only the cost of providing the service for which the fee is charged. The moment they become greater than that, they are a hidden tax, which is exactly what the post on which all these comments are based is addressing.

unclesmrgol on September 25, 2009 at 11:12 PM

Anyone who agrees that a number as high as reported is a good think is either crazy or radically left and hates private industry. There are no other options.

Madness. And the fact bureaucrats will save their jobs over saving their state is another indictment of their entrenched insanity.

archer52 on September 25, 2009 at 11:19 PM

And Ed is making the reasonable argument that there is an excessive amount of regulation. Regulation to fund roads, etc isn’t the issue. A lot of regulation is there because it’s a another revenue stream for the government or it’s designed to curtail behavior that isn’t illegal.

gwelf on September 25, 2009 at 6:27 PM

To add to your argument, a lot of the money that’s collected here for certain things is not even be going to the tasking it’s meant for. For example, the aforementioned roads.

Maintenance for roads doesn’t come out of DMV fees. Here, it’s supposed to be coming from a funding stream provided by gas taxes. About every year without fail however, the CA Legislature raids said funding stream to paper over shortfalls in the General Fund. Said roads don’t get maintained. People complain, then next thing you know a jack@** from Sacramento proposes a new fee to “maintain roads.” Never a dull moment, here in the “City of Pothole,” CA.

Suihei Deloi on September 25, 2009 at 11:21 PM

By the way, if anyone can suggest a good state to move to – I’m considering CO or UT – I’m all ears. Anything to get away from the craziness here next year.

Suihei Deloi on September 25, 2009 at 11:24 PM

Actually, ladies, the Feds create nothing except an opportunity at a cost. It’s still the private company doing the drilling, and the Feds merely collect lease fees and taxes from that activity. If it weren’t for the oil company, the Feds collect nothing. Yes, the Feds own the land- but it lies fallow until some private company comes in and actually does the work. If the Feds will allow it.

BillH on September 25, 2009 at 6:54 PM

Bill I have to respectfully disagree on some things you have mentioned. Yes the lease is a “one time only” but in the contract with the BLM Dept of the Interior (and depending on the State) the Companies do in some realm have to pay a percentage of oil revenue, if the company does find oil or gas. The Feds do not own the gas or oil, but they can get as much as they can from you. I do know this is a real item as I have worked with the BLM, USGS, and such. But that also depends on what areas of the country and if it is offshore in many cases. Trust me.

Now if it is a project via the USGS on certain State lands… the State’s regulations may regulate that the Federal government has to give them a stipen as it is NOT the feds mineral rights. Alaska has such a clause and the Federal Government who let companies drill have to “give back” to the Alaskans. Yes it is weird, but it is the Alaskans who own the land…

There is much more involved in this then I could explain on here. I don’t totally disagree with you, I just know that not everything you said was correct.

upinak on September 25, 2009 at 11:55 PM

By the way, if anyone can suggest a good state to move to – I’m considering CO or UT – I’m all ears. Anything to get away from the craziness here next year.

Suihei Deloi on September 25, 2009 at 11:24 PM

Depending on how conservative you are. CO, Denver is fairly liberal. Utah is pretty conservative in most aspects.

It depends on your job and where you see yourself.

upinak on September 25, 2009 at 11:57 PM

If you can siphon off, say, $50,000 over a few years to enhance your bottom line if you’re a politician or connected to them, that’s well worth it.

We’re so jaded that even $ in the billions goes right through us.

Point is, that money is going somewhere and it sure as hell doesn’t go to the “poor” (because in that case the poor would no longer exist) nor to make society better.

Dr. ZhivBlago on September 26, 2009 at 8:32 AM

It cost me $4,000 to get a building permit from the city to replace my garage (a utility structure). No way did it cost them $4.000 to process the permit

Congratulations, you have demonstrated the utter futility of Proposition 13, indeed any tax measure that restricts one tax without restricting all of them.

aynrandgirl on September 26, 2009 at 9:28 AM

Even Hayek says that the government needs to regulate capitalism somewhat, but the laws must be fair and predictable. So we will always have to watch out for the tension between regulation and chaos, but CA is certainly losing that fight now.

My colleagues were so happy to find a printer that has enviro-approved government-regulated paper but can’t figure out why there is only one of them left in the whole state! D-oh!

PattyJ on September 26, 2009 at 10:21 AM

e-pirate on September 25, 2009 at 6:10 PM

Do you now, or have you ever owned a small business, let alone a small business in California. Since the answer to that is indisputably No you seriously need to STFD and STFU. And yes I have, twice.

doriangrey on September 26, 2009 at 11:07 AM

“It would be interesting to see similar analyses on the rest of the states.” I would love to see that too. In lieu of that, this study on personal and economic freedom in the states is interesting.

http://www.mercatus.org/PublicationDetails.aspx?id=26154

Texas, for example, is one of most free states, and CA is one of least free, and we all know the huge gulf between how TX and CA are doing economically now.

juliesa on September 26, 2009 at 11:12 AM

And, the flight of small business and middle class people from CA to TX and other states is large and growing. CA’s new carbon restrictions will put pedal to the metal on that too.

juliesa on September 26, 2009 at 11:15 AM

Company I do consultant work for, is getting ready to pull out of Sacramento and take 146 jobs with them to Tennessee. They have had it with California and the way that State’s “leadership” does everything they can to make your business impossible to do. The employees do not know it yet, they will Oct 1st. There will be more companies pulling out of CA this year, and if you work in CA, I would be worried about my job.

Vero on September 26, 2009 at 12:39 PM

By the way, if anyone can suggest a good state to move to – I’m considering CO or UT – I’m all ears. Anything to get away from the craziness here next year.

Suihei Deloi on September 25, 2009 at 11:24 PM

I escaped Colorado in 2006 for Texas. I FINALLY got out of there, and it is the best thing my family and I ever did! Colorado is becoming more liberal, especially because Californians are moving in there. The government doesn’t understand about what to do to bring in jobs or encourage growth. Rather they are preoccupied with “no growth” policies and every social engineering idea you can think of while neglecting the proper role of government. Companies are leaving and jobs sent overseas. Nothing new coming in to replace them. Many of my friends from where I use to work are unemployed now and looking for work, but to no avail. I can see Colorado becoming another California shortly unless the people there wake up and realize that the liberal policies are a recipe for disaster.

Utah may be better, but I don’t have personal experience with the situation in Utah.

MeAlice on September 26, 2009 at 5:05 PM

Plain and simple. You want the economy back? It goes back a long ways but start bringing jobs back to the USA FROM CHINA not TO CHINA. Company profit margin will suffer, oh well, but we’ll have jobs and people can start living again.
Its the easiest answer and I have been saying it for mmonths now here. Bring jobs back to america one factory at a time. Screw China. Theyll understand we can’t keep buying their junk (and I mean JUNK) unless we work over here to earn the money to do it. Once again I was in a Walmart on a saturday night and its nothing but plasctic bins and plastic cups for sale. There was nothing without any bulk or meat to it. Its all China junk not made by us. Also, the store was about empty of people except a few folks who were perfectly healthy riding the electric carts when they didnt need to, one being a lady’s 12 year old son.

Seeing even YAHOO (CRAP) NEWS report a spike in early retirements has me repeating this. America can come back. We have to sit and wait three more years and hope there’s something left to put back on the road.

johnnyU on September 27, 2009 at 9:58 AM

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