The Shocking Cost of Regulation

I saw some shocking numbers this week on the costs of regulation by the U.S. government.

An article in the online Wall Street Journal pegs the cost of federal regulations in the U.S. at close to $2 trillion in 2008 – the equivalent of 14 percent of GDP. It works out to roughly $8,000 per private sector employee, and for small employers, the figure is more than $10,500 per employee.

And with new regulatory measures passed during the current administration, that already huge number will be going considerably higher.

The article points out that such high regulatory overhead makes it hard for American businesses to compete with overseas rivals, and thus it affects hiring as well, particularly for small companies.

“As much as it is fashionable to blame China for the demise of small manufacturing in America, the evidence suggests that looking for some reasons closer to home is warranted,” the article says.

The cost of regulatory measures is high but the biggest drag on economic recovery may be the number question marks surrounding the business community. Small businesses have become paralyzed awaiting the result of new healthcare, tax and other reform.

It’s good to hear that a business person may be appointed to one of the administration’s top economic posts – someone who could bring a different perspective to the White House’s internal debate now dominated by academics. A Bloomberg survey reported in an article of The Economist reported that 75 percent of American investors believe the current administration is anti-business.

I might also suggest looking for inspiration at the places where jobs are being created – the large emerging nations whose policies are more focused on social investing than on social welfare.

I did an interview yesterday discussing the hidden cost of overregulation with Yahoo! Finance’s Tech Ticker. I also discuss the role leverage played in the demise of Lehman Brothers and Fannie Mae. You can find it on Yahoo! Finance’s homepage.

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