Category Archives: Development Economics

Regulation of the Day 64: Starting a Business in Sacramento, California

assembly-line
Sit back and think for a minute about what man has the potential to create. Think about the magnitude of our achievements in just the last century. Life expectancy has doubled. Population has sextupled. For the first time in history, famine is primarily a political phenomenon, not a natural one. The human mind is capable of creating limitless, endless wealth.

Unfortunately, the human mind is nearly as adept at preventing that wealth from being created. Sacramento, California is home to some of the experts.

Katy Grimes researched what it would take to open a small factory there. “By the time I discovered that 22 government agencies would be involved in permitting and licensing, I realized that Sacramento is not an easy place to do business,” she writes.

She’s right. And when doing business is difficult, there is less of it. That means less wealth is created. Opportunities vanish into thin air. One of the tragedies of over-regulation is the amount of wealth, opportunity, and prosperity that never come to pass. Think of how many plants are never opened because of over-regulation. How many jobs are never created. How many products are never invented.

Supporters of strict business regulations say the rules keep people safe. Maybe that’s true. Maybe it isn’t. But they do keep us poorer.

Seems Obvious, Doesn’t It?

Bill Easterly on Afghanistan:

Transitionland had a thoughtful response to my cri de coeur on Afghanistan yesterday. Among her recommendations for improving things:(1) Stop the air strikes that are killing civilians,
(2) Crack down on corrupt contractors to USAID,
(3) Stop supporting Afghan warlords who are homicidal and/or corrupt.

So, after years of experimentation, we can now start applying these subtle, complex lessons:

(1) Don’t kill,
(2) Don’t steal,
(3) Don’t give aid to those who do.

Government, Technology, and Growth

I’m reading Bill Easterly’s The Elusive Quest for Growth for a class right now. It asks and answers the question of how to make poor countries rich. It’s a good read. I find I disagree with many details, but the core message is simple and true: people respond to incentives.

As I said, there are parts that I don’t buy into. Here’s an example:

Brazil moved more slowly into the computer revolution than necessary because of a government ban on PC imports, a misguided attempt to promote the domestic PC industry, a classic attempt by vested interests to hijack technological progress. (p. 186)

What does he conclude from this experience? “The government should subsidize technological imitation.” (ibid)

He ignores his own advice that incentives matter. As Brazil showed us, government’s incentives often hurt growth. Ask any public choice theorist.

Quibbles aside, it’s a good book. I recommend it.

And if any of my classmates read this, I’m interested in your thoughts.