Dear Friends,
I wonder, why would a big company spend money on plant, equipment or it’s workforce, when government is all too happy to drive the competitors out of business with regulation? Government regulations protect companies with political favor from any real competition and all large corporations have it. The lack of competition to large firms allows them to concentrate on giant bonuses for top executives, instead of the tedious drudgery of vying with a competitor by improving products, lowering costs or innovating. Now that government has shown all a firm need do is give to the right political campaigns, and their markets will be protected from any real competition by government bureaucrats intent on punishing the “rich,” that is what all self interested CEOs will do. This all leads our economy to stagnation, a stagnation that we see every time a new economic number comes out and is spun by the unbiased press, to make it appear better than it actually is.
People are self interested, some pretend to be altruistic, usually to fool others into giving them something they otherwise wouldn’t. Those in government fall into that category. They seek to appear to be virtuous only to have their need for power and wealth met by manipulative means. That is why the elite vilify the wealthy, while protecting the wealthy’s riches and privilege with regulations that are billed as “fair, protecting the consumer, saving jobs and for the children,” when nothing could be further from the truth. The elite want to appear to be virtuous, because as Thrasymachus inferred in Plato’s Republic, It is better to appear virtuous and be a villain than to be virtuous and be perceived as a villain. Our leaders know this very well and practice it through regulations sold as virtue but in reality are villainous.
The market system is built on innovation. That is one reason it is so dynamic. Ideas are the oxygen to the market but like oxygen they corrode older more politically favored industries and firms. Older businesses, especially very large companies, are less nimble and have a hard time competing with smaller more innovative ones. Efficiency of scale refers to the ability of a large firm to mass produce a product, not to innovate. This is one reason mergers and acquisitions are so touted by the Wall Street press corps. When government seeks to protect their cronies with regulation, innovation is limited to places where older larger firms are not doing business, as such, most innovation is undermined. The buggy whip industry would be alive and well in today’s regulatory environment. As innovation is limited by regulation our economy must necessarily suffer.
Small businesses are the drivers of innovation, and regulations always effects small businesses more than large ones. Small businesses are the drivers of new employment. Every economist worth his stripes will tell you this. Old firms pay more but don’t produce jobs. Job creation comes from innovative small firms. As regulation protects large politically favored firms, at the expense of smaller ones, the engine of job creation in an economy is shut off. Without new jobs created by innovators, aggregate employment stagnates, and since wages are a function of the availability of labor versus demand for it, a stagnant job market puts an inexorable downward pressure on wages, which also benefits the top management of large firms, by driving down labor costs and freeing up money for bonuses and golden parachutes for top management of those firms.
Examples of regulation that does the exact opposite of what it is supposed to are everywhere. Dodd Frank is but one. It has put incredible pressure on banks to grow “Too Big to Fail,” and is driving out smaller banks, due to the huge costs it puts on banks. This has magnified the danger to our economy of banks that are too big to fail. Remember, small banks are the primary source of funds for small business start ups, further limiting the competitive forces of the job market and the market system as a whole.
Innovation is destroyed by regulations, but that effect is acceptable to those who are making a killing from the system as it is, they don’t want to have to face competition and so they give to the political party that will protect their markets, drive down their labor costs and defend their bonuses, the most. The top management of every company understands the rhetoric of class warfare is only a scam the elite use to do just that. One last point is that lawyers, economists, and the elite in politics, media and business, are all members of the New Class. As I have shown, regulation protects the new class, at the expense of every other class in society. The proof is in the fact that the more the elite regulate our economy, and vilify themselves, the richer and more powerful the new class gets, and the poorer the rest of us get, even as they wring their hands at the gap between rich and poor, only to promote more self serving regulation. So I ask you again, why would a company invest in plant, tools and it’s workforce, when all it needs to do to protect itself, is to keep the rigged system going?
Sincerely,
John Pepin
