Google last week set aside $500 million for a potential Department of Justice investigation and the company is facing additional antitrust issues from several states. What will happen to this once mighty company when the regulators are done with it? Then it'll be Facebook's turn. Capitalism used to allow industry determine out winners and losers. Now it's regulators.
Regulation controls behavior by rules and regulations. Sometimes this happens through self-regulation, but usually it’s from governmental decree. This has been true since Biblical times, so nothing’s new. What’s different is the cost and scope.
The cost of regulation is huge. The Small Business Association reported last week that federal regulations (not including state regulations) cost $1.752 trillion in 2008. Passed onto consumers, that represents $15,586 per consumer. Regulatory costs equal 11.9% of GDP (almost twice the burden of the personal income tax).
- According to the Office of the Federal Register, in 1998, the Code of Federal Regulations (CFR), the official listing of all regulations in effect, contained a total of 134,723 pages in 201 volumes that claimed 19 feet of shelf space.
- There have been 38,700 new regulations since.
- President Obama’s Healthcare and the Financial Reform Act by Dodd-Frank will add thousands more pages.
Somebody walks into the local bank and fills out a withdrawal slip for $100. They only have $50 in their account. The teller approves the transaction. The computer alerts the teller there’s a problem. The supervisor comes over and overrides the computer alert and hands the customer $100. The solution to this issue is not to pass a law preventing people from taking out $100 but rather to address the management issue of enforcing the rules already in place that people can’t take out more money than they have in their account.