One of the front pages stories in this Sunday’s New York
Times concerned the feelings of dread among employees in the federal
bureaucracy. The arrival of Donald
Trump has “spread anxiety, frustration, fear and resistance” among the federal
workforce. Last week, the press
reported that EPA employees were showing up to work in tears.
I don’t mean to be unsympathetic, and I certainly don’t want
to convey any schadenfreude over someone that worries about job loss, but my
immediate reaction was, “now you know how the rest of us have felt –more or
less constantly---over the past 8 or 9 years.”
The uncontrolled Bureaucratic State was partly to blame for our anxiety
and fear. Under Obama, this Bureaucratic State flourished. The election of Donald Trump is, in part, a
response to its growth.
There are four
principal sources of resentment that began to boil up due the explosive growth
of the Bureaucratic State:
- Growth of regulations, period. They were especially pronounced in financial services, health care and the environment. More and more business owners were complaining that a larger proportion of their time was being unproductively consumed by trying to satisfy the whims of their local regulator rather than innovating and providing goods and services to their customers. Worse, the regulations sometimes had the perverse effect on segments of the population that government purports to help. For example, when the Department of Labor promulgated regulations that consolidated franchisees, making them subject to federal wage and overtime regulations, those regulations threatened the viability of the entire industry. Franchisees are disproportionately minority and therefore, the consequence of these regulations is to threaten to deprive these entrepreneurially minded people of the opportunity to run their own businesses.
- Safety and security of these jobs vis-à-vis the
private sector. The conventional wisdom
used to be that government workers were trading off income for security. But as the power of government unions grew
and politicians learned that they could compensate them with health and pension
benefits that remained largely out of the public eye. In addition, many government workers can
retire 10 years or more ahead of the normal retirement age. This unholy alliance is exactly why Illinois
is insolvent. If you measure the TOTAL
adjusted compensation of a government worker and take into account all forms of
compensation and risk adjust the income because a government worker has a much
lower risk of pay interruption, you’d see that government has been overpaying
for its labor and paying more for comparable skill than the private sector…and
citizens are now figuring that out.
- Targeted industries. The Obama administration initiated Operation
Choke Point, under which banks that did business with certain disfavored
industries were subject to additional scrutiny.
Payday lenders, e-cigarette companies, and –you guessed it—manufacturers
of arms and ammo could have their liquidity crimped because banks were simply
not going to open themselves up to even more headaches from regulators. Through Operation Choke Point, denying arms
to those who could not show themselves to be financially self-sufficient under
Social Security, or who ended up by mistake on a no-fly list, Obama tried to
curtail 2nd Amendment rights as much as possible through regulatory
action and executive orders. Without any
legislative action at all, the Obama administration waged war on certain
industries by raising their costs so dramatically or so impairing their access
to capital that it became uneconomical to compete.
- Contributor to income inequality. Progressives have been beating their drums about pay inequality for nearly a decade now, with Thomas Piketty (Capital in the Twenty-First Century) as their intellectual standard bearer. Income inequality is THE social and economic problem to be solved (never mind education, innovation, productivity, infrastructure, government debt) and that argument is used to justify government taking MORE resources from individuals. But economists have established that firm size is related to income inequality---big companies pay better. And the growth of the Regulatory State is driving consolidation in many industries. As is often the case, Progressives are complaining about the consequences that result from enacting THEIR policies. The Regulatory State is a contributor to the growth of income inequality.
I knew something was out of whack when the most sought after
talent in corporate America ceased to be “marketing executive,” “strategist,”
or “operations officer,” but rather “chief compliance officer.” Many CEO’s intimated to me that they were
considering selling their businesses because they just couldn’t afford to hire additional
overhead in nonincome producing staff jobs just to comply with government
regulations. The ACA was particularly
painful and costly to small employers….especially companies with unions where
the union contract required the employer to pick up most or all of the tab
related to premium increases. I was
involved in sale of one in particular last year that was a direct consequence
of these costs. The acquiring company
bought the assets and terminated each and every employee. Likewise,
Dodd-Frank has been devastating
to community banks. Only one new bank
has been chartered nationwide since its passage and the number of community
banks has been reduced by about 14% and has driven, and will continue to drive,
consolidation in finance. Small banks simply cannot afford the
compliance costs.
What irks me most about the New York Times article is that
the paper was blithely unconcerned about business owners and their employees
during the past eight years. From 2009
to 2014, I worked in the workout or “distressed asset” area of a regional
bank. This bank made business loans
principally to small and medium sized businesses. The four years of 2009 to 2013 were perhaps
the worst I have ever seen in business.
For some manufacturers and distributors, volume drops of 20-25% were not
uncommon. Several CEO’s were reduced to
tears in my presence and, understandably, some responded with anger. Businesses that took a lifetime to build were
sometimes forced to be sold, liquidated or had to make painful choices. More than one business owner reached into
his or her personal retirement funds to make a payroll. So many of these owners worked tirelessly,
endured many sleepless nights, came up
with creative alternatives, often
swallowed their pride, and demonstrated great creativity and resourcefulness to
keep their businesses afloat and many of the families of their employees
solvent.
When the maelstrom hit in ’08, several economists advocated
a regulatory freeze for 5 years to let the economy heal. Business—particularly small businesses and
small banks could not withstand the additional costs. The Obama administration ignored those pleas
and doubled down. Regulations exploded
under the Obama administration with the Federal Register reaching almost 97,000
pages under Obama’s aegis. A financial
institution I know quintupled the number of people in their compliance
department. It was estimated that
regulations added $100 billion in annual costs to an already staggered economy
that was suffering from inadequate demand.
Under the Obama administration, light bulbs, microwave ovens, and school
lunches came under the federal government’s regulatory thumb.
The power and unaccountability of the Regulatory State has
grown unabated and more lawless. Charles
Murray, in his incisive book By the People: Rebuilding Liberty Without
Permission lays out just how the
Regulatory State ossifies our society.
Probably the most egregious examples are the EPA, which has not only
failed to comply with the law itself by failing to deliver required
cost/benefit analyses, but famously polluted the Animas River in Colorado. The CFPB was structured to be out of the
reach of Congress and to be run by a single individual. That’s per se tyranny—government completely
unresponsive and unaccountable to the people.
There are certainly dedicated individuals within those
regulatory bodies. But they have had a
safe, unperturbed existence and for decades were at little risk of losing their
jobs. For once, they are feeling a taste
of the anxiety, frustration and fear that their brothers and sisters in the
private sector have been feeling. No
U.S. president has been able to reverse the growth of the Regulatory State—not
even Ronald Reagan. By putting people in
charge of these agencies that will challenge these departments to justify their
existences and by forcing them to take out 2 regulations for each one they put
in, the new administration is imposing a form of accountability and
prioritizing that the private sector has to deal with every day. The REINS Act (Regulations From the
Executive in Need of Scrutiny), which requires “major rules” and rules that
have impact of $100 million or more on the economy to be voted on by Congress.
So yes, people working in government agencies will be
anxious and frustrated. Welcome to real
life, boys and girls. The salad days
for unaccountable and all powerful regulators may be over. It would be a welcome reallocation of human
capital to move some of these people back to the private sector.
We’ll see if Trump will ultimately be successful in trimming
the sales of the federal bureaucracy. No
other president has been able to arrest the growth of the Bureaucratic State—not
even Ronald Reagan.
People do not give up power and influence easily.
Ask Michael Flynn.
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