Dear Friends,
It seems to me, almost everyone undervalues the destruction that regulation causes to the economy. Think of an economy like an onion. Each layer representing an industry. The most profitable ones at the core and the least profitable ones on the outside. Marginal businesses make up the skin. Regulation then sloughs off a layer at a time until only the core is left. As we all know, the core of an onion doesn’t last long in the sun, without layers over it, and a hide protecting the whole. Skinning the onion is what regulation does. No one cares that the rind is pulled off by regulations. Those people are barely making it anyway. Then, layer by layer, regulation peels the economy to its core. Until the core rots and the economy is gone forever. Then regulation will have taken us into the poverty paradigm.
When a firm is barely making a profit, even a tiny amount of regulation or raise in taxes, shifts the budget into the red. Then those businesses fail. Because only corporations with elite backing can lose money for decades and stay open. The employees of the destroyed firms get laid off and are added to the unemployment lines. The firms that sold them products lose a customer and become less profitable. Even if the regulation or increased taxes don’t directly effect them. The space becomes vacant, allowing for a more profitable firm to take up residence… or to add to urban blight. The destruction of that marginal industry makes all other industries less profitable, and therefore, more subject to the destructive effect of additional regulation. Shrinking the onion and allowing rot to enter it.
Regulation disrupts the creative destruction cycle. While it fosters destruction it stifles creation. Each new regulation is a brick added to the wall in the way of business creation. When starting a business is easy many will be started. When business creation is difficult however, few will be started. The paradigm of business failures isn’t changed though… most still fail. There are simply fewer to start with, so fewer exist in five years than would have. Part of how creative destruction works, is that as businesses fail, the infrastructure they owned becomes available cheap. That infrastructure is then bought by an entrepreneur to start his or her business. If regulation increases the cost so much, no matter how cheap stuff can be bought, the cost is so high, they can’t start new firms.
The incentive structure for creating regulations is perverted. The elite who pass regulations aren’t effected by them. They do however profit from passing them. How? By political power, standing and monetarily. Monetarily by the requirement of bribes to get around them. Which is the normal paradigm in highly regulated economies. The regulators standing in society is increased along with the political power they wield. Regulation is the exercise of power over others. Power over others generates respect, if only to keep on the good side of the tyrant. So regulation grows and never shrinks. As does kudzu. Anyone, like Trump, who seeks to cut regulation then is a mortal danger to the regulators. And we see what they do to people they view as threats… the elite wage open lawfare against them.
Because the incentives are perverted, we can’t expect the elite who pass and benefit from regulations… to solve the problem themselves. No one cuts their own pay to help another. Especially psychopaths. Like our elites. Moreover, we know from experience the regulators will go to criminal lengths to crush anyone in their way. Proven by their handling of Trump. That their profit comes at cost to everyone else only makes it more sweet… If creative destruction is obliterated, so be it. If the economy is skinned to its core, all the better, a rotten core is easier to control anyway… So, while the regulators understand their power, the rest of us are ignorant of it. We childishly believe we need regulation, like a dog needs heart worm. Wake up to the evil of regulation, demand it be cut, and your children will be richer for it.
Sincerely,
John Pepin
