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Sunday, April 3, 2011

The case for growth -- Regulation

It seems that most politicians touting plans for economic growth focus on tax reduction, but for the most part they omit the many other acts that the government could take to encourage growth. right now, one of the most fruitful areas for improvement is the cutting of regulation. Of course, whenever this subject is raised, the Obamacrats respond with claims that the proponents of such measures want to have the public eat spoiled meat, live in an ecologically despoiled land and suffer from all sorts of maladies that result from inadequate public health. Indeed, almost as if it were planned, uber liberal Robert Reich has a piece in the San Francisco Chronicle in which he lists supposed "lies" told by the GOP about jobs. Here is what he says about regulations:

"Regulations kill jobs. House Republicans are using this whopper to justify their attempts to de-fund regulatory agencies. Regulations whose costs to business exceed their benefits to the public are unwarranted, of course, but reasonable regulation is necessary to avoid everything from nuclear meltdowns to oil spills to mine disasters to food contamination - all of which we've sadly witnessed."

Do you see the trick? Reich says that regulations whose costs to business exceed their benefits to the public should not exist, but then he makes clear that he thinks that there are no regulations that fill this bill. It is the classic attack of the left to protect government power and influence in areas where the government should not operate.

It is because of the nature of these attacks that a Republican program to reduce regulation should have specifics. If there is a proposal to combined five federal programs for worker safety into one with the merger of five sets of regulation into one, it is hard for an opponent to say that there is a plan to make workers less safe. At the same time, such a plan would mean that businesses will only have to spend the time to learn and comply with one set of regulations rather than five. That may be a bad thing for the lawyers (who are a core constituency of the Obamacrats), but it will save business a great amount of money, thereby making more cash available for job and growth creating investment.

Indeed, the GOP should make clear that not all regulation is bad. The libertarian, regulation-free argument may appeal to many on the right, but it will never carry the day with the American people. Even good regulations need to be pared back and organized, however.

Here is a good example from my own experience. A few years ago, I headed the effort to construct a new building at a local independent school. The project had a total budget in the neighborhood of ten million dollars. Well and water use regulations were particularly troubling. Since the school had just over 300 students, it could no longer rely on a septic field for its sewage disposal; the regulations required that a sewage treatment plant be built. This plant cost just under two million dollars or about 20% of the total budget. We contracted to get the smallest plant possible, but it was still three times larger than we actually needed. The wastewater that came out of the plant was recycled back into the toilets in the building.

Because of the recycling, the water usage of the building was cut by over 50%. When we went to get a well permit, we were required by the regulations, however, to drill a big enough well to meet all of the building requirements as if none of the water were recycled. Likewise, the well water purification plant had to be large enough to treat the amount of well water that would have been used had there been no sewage treatment plant. This requirement added about one hundred thousand dollars to the cost of the project.

Because there were times when the treated waste water exceeded the amount that would be recycled into the toilets, we needed a septic field to receive the excess. We wanted to use the existing septic system which met the needs of the entire school before the construction. The regulations, however, required us to put in a new and larger system. That's right, the amount of waste water going into the field was greatly reduced, but the regulations required us to install a larger system. We were required to put in a septic field large enough to handle all of the needs of the school as if there were no sewage treatment plant. This cost over an additional half million dollars. We were up to the point where we had nearly 30% of the budget devoted to unnecessary water systems.

At this point, I realized that we had more than enough excess capacity in the sewage treatment plant to handle the wastewater of the public school next door. I asked the school's lawyer if we could approach the local school board to see if they would like to hook up to our plant. I just wanted them to share the annual plant operating cost of about $70,000. The answer was a quick one: in order to have the other school hook into our plant, we would have to file an application to become a public utility. The approval process would probably take two to three years and would cost over a quarter million dollars. Needless to say, we abandoned the idea.

So here were a myriad of state and federal water and land use regulations. Each one had been established with a good purpose; they were designed to save the environment, keep drinking water pure, assure no one skimped on the septic systems and the like. Because each regulation was enforced by a different agency, however, none of these agencies would consider anything that was required by their sister agencies. As a result, the school was compelled to install grossly oversized and unnecessary water and sewage systems that added about an extra 15% to the project cost. Then, the regulatory hurdles made it impossible to spread the benefit of these new facilities to neighbors.

It is important to note that all of these water/sewage regulations applied to new commercial and industrial buildings as well as school facilities. that means that every proposed new plant in Connecticut had all of these unnecessary costs added onto its budget. No matter what Robert Reich thinks or says, these were costs that surely made the likelihood of new investments in my state less likely, a fact that makes economic and job growth less robust. And remember, none of the regulations were evil, or inappropriate when viewed individually. In the aggregate, however, particularly when enforced by narrow minded government bureaucrats, the regulations were growth and job killers.

There ought to be an effort undertaken at once to identify similar types of federal regulations that function with the same negative effects. Surely, there are industry groups that know the pitfalls of the federal regulatory structure and could come forth with candidates from removal. The battle should not just be about defunding the regulators.

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