The Cost of Regulation and Corporate Structure

I have come close to getting kicked out of one or two places, almost none of which involved alcohol.  Among them, is the time we were touring the site of a huge earthen, “saddle” dam in Hemet, California.  The series of dams being constructed would eventually create Diamond Valley Lake.  This reservoir almost doubles the surface storage area of Southern California and provides a six month emergency supply in case of an earthquake. At the time we were on tour we were being apprised of the efforts being made to preserve a particular, obscure species of ground squirrel. 

            While it was assumed that everyone present was squarely in the squirrel’s camp, I was taking an economist’s view of things.  It turns out that this particular type of squirrel was so picky about its breeding parameters (I can only wish that some of people had the same instincts.) that it was well on the road to extinction.  For hundreds of years, this species had been dwindling in both numbers and territory.  By the time the Diamond Valley Lake dams were being built, it was, quite literally, decades away from natural extinction.  After hearing what was being done in time, money and effort to preserve the remaining years of this, “dam” squirrel, I asked an obvious question.  Since nature itself has marked this rodent for extinction, was it not foolish for us to spent precious resources to extend its time by what would probably be only a matter of years?  People in the group literally backed away from me.  Oh, well.  That was my version of an inconvenient truth. 

            There has been much discussion of governmental regulations and what they do to job creation.  Since my last column dealt with corporate structure and equitable pay scales, I wanted to expand that theme to the subject of regulation.  Republicans tend to believe that regulations cost jobs, and Democrats are intent on keeping—indeed expanding--regulations to protect Americans (especially lawyers, unions and people who distrust Capitalism).  I am the kind of person who sees both sides (which is how you get kicked out of places).  And I don’t believe in complaining about something without offering a solution for discussion.  So here it is. 

            Some regulations are absolutely essential for the proper function of a free-market economy.  There are certain structures and institutions which the market place does not properly reward or punish for their natural behavior.   For example, if you have a logging operation pouring effluent into a river upstream, and a nuclear power plant having to filter out the effluent for its cooling tower downstream you are artificially raising the cost of energy.  There is no mechanism that will keep the loggers from polluting the river, other than regulation.  If they voluntarily clean the effluent, their product will cost more than their competitors and they will go out of business—costing jobs.  But the cost of regulation, even if shared by all loggers, might also cost jobs, unless, the cost of the regulation is deductible.  Why not have the cost of all government regulations, from equipment to personnel, be deductible from a companies bottom line—its net income?

            The government gets its regulations so they are happy.  The companies get 100% tax relief for all of their efforts so they are happy.  It is now profitable for companies to hire people to be in compliance so the labor force is happy.  The only people who don’t like this are the socialists, so I am happy. 

            You can regulate and still keep the faith.