Size Matters

Posted on: December 9th, 2011 by
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by Joel Miller

Of “Life, Liberty, and the Pursuit of Happiness,” it’s the last that’s come under the most sustained ideological attack over the last half-century. And while modern conservatism has always included an element of deregulation and tax cuts, it’s also fair to say that only recently has it developed popular intellectual defenses of free markets and property rights.

Size Matters fits squarely in this genre. Joel Miller makes the pragmatic case for smaller government, and basing it on two principles. First, it’s fundamentally unfair and undemocratic to expect citizens to live by laws they can’t understand and had no hand in making.

Secondly, it’s extremely expensive, in both the direct and opportunity costs of compliance. Remember that every dollar spent on compliance represents a dollar inefficiently allocated. Yet while the burdern of proof should lie on the regulators, I can personally testify that in Washington, the burnder on proof inevitably lies on the regulated. And since small business suffers disproportionately from regulation, the effect of that regulation falls disproportionately on the innovators and entrepreneurs.

The problem is that these costs are usually hidden, meaning that while there’s a constituency for every program, there’s rarely a constituency against it. It’s easy to justify their diffuse costs in light of their noble goals, and the marginal savings from any one program seems trivial. Part of the service of the book is to aggregate the costs, and then break them down again on a per-family basis, to see the cumulative effects. For too long, the cost-benefit analysis of new programs has ignored many of costs, and any honest public debate on the issue requires a fair accounting.

And the effects are staggering. Thousands of dollars per year per family. Thousands added to the cost of a car. Tens of thousands added to the cost of a house. And some of the proof is at the state level. If the states are the laboratories of democracy, then people (and capital) are fleeing the Frankenstein monsters of the northeast and California.

Miller notes that the growth of lobbying mirrors the growth of government largess. While the book was written before the current Abramoff scandals, many have pointed out since that a (not “the”) root cause of those scandals isn’t the right to petition, but the centrality of government in redistributing wealth. We’ve seen this here in Colorado on a somewhat smaller scale. This year’s large tax increase has led to more intense lobbying for those funds.

This dynamic sets up self-reinforcing cycles: few politicians will vote to make themselves less important. Moreover, new programs not only fail to deliver, but introduce market distortions that, according to inexorable logic, requite more market interference. The result may not be the old Soviet Union. but right now, even the European Social Model isn’t looking too good, either, especially to the non-parents option not to bring children into it.

It’s a pragmatic case, but grounded in theory, and Miller does a nice job of tying the two together. He makes a somewhat familiar, intellectually coherent case that government restrictions and higher taxes fail, and beget calls for more of the same. By using specific examples of how regulation and restrictions increase costs, he makes the subject easier to grasp. At the same time, he throws in enough theory to show how these costs and the activities that spawn them flow from a flawed conception of government’s role.

Size Matters perhaps relies too heavily on studies. Now, they are all publicly available and footnoted. And yet, as Miller points out, because so many effects are local – because there are so many jurisdictions at work – aggregating the effect on your mortgage is harder than it looks. If Miller’s goal is to get the average citizen to see hidden regulatory costs as he goes through his day, more specific examples would have helped.

To his credit, Miller resists the temptation to spend time on the Constitutional issues involved here. The Commerce Clause makes an appearance, but Miller never loses sight of his main theme: how regulation wastes money degrades our standard of living.

Miller winds up with a realistic conclusion: things are going to change slowly, if at all. He bases his short-term pessimism on the fact that while there’s always a constituency for continuing a program, there’s almost never a constituency for ending one. But in the long run, there’s some evidence that the success of 401(k)s, combined with the failure of mini welfare-state corporations such as the car makers and airlines are affecting our expectations for the grandaddy of entitlements, Social Security.

Size Matters is by no means the last word on the subject. Policy journals will be debating these issues for a long time to come. The book is more likely to appeal to conservatives and libertarians looking for ammunition than to open-minded liberals. But it may also help free-marketeers-by-instinct, who’ve never given much thought to the underlying principles. By outlining the case and giving it a structure, Miller is helping to build support from the ground up.

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