The American Dream is on life support. It has been mugged and beaten by the mentality that says anything you do that I don’t like, I will sue you for. It has been crushed by a government bureaucracy that passes rule after rule, expecting small businesses as well as large to comply, or suffer the consequences. A 2010 report by the Small Business Administration titled The Impact of Regulatory Costs on Small Firms found that; “As of 2008, small businesses face an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees).”[1]

Such costs are killing the economic engine that creates small businesses. To understand the mentality behind this increasing burden of regulations, one can turn to the issue of product liability and frivolous law suits. The famous case of Liebeck vs. McDonalds, also known as the “McDonalds Coffee Case,” is the “poster child” for frivolous law suits which, in turn, generate more and more regulations to “protect” us from ourselves.

Introducing the Stella Awards

In 1994, an elderly woman by the name of Stella Liebeck sued McDonalds when she experienced third degree burns as a result of spilling McDonalds coffee on herself. In her case, it was pointed out that at least 700 other people had suffered burns from similar accidents, thereby justifying the notion that McDonalds coffee is hot – and that people needed to be warned of that fact.

Surprisingly, without the benefit of the suit, most people know that coffee can create such burns. When I was in High School, my father once burned himself from spilt coffee brewed by my mother in our home. Yet, he did not sue my mother. Why didn’t he sue my mother, his wife? Because he had the common sense to understand that coffee is hot, and that there are consequences for spilling hot coffee in one’s lap. He did not need to see 700 other people burned by my Mother’s coffee to reach that conclusion.

One consequence of the Liebeck case was the creation of the Stella Award[2], named in honor of the woman who brought the law suit. Some claim that the award is fictional, but its focus strikes a resounding cord in Amercia: That we have lost our ability to apply common sense in everyday matters of life. One man, Phillip K. Howad, even wrote a book titled “The Death of Common Sense” in 1994.

Columnists and pundits around the country have used that metaphor to comment on this issue. In her editorial piece titled “The Death of Common Sense,” columnist Lori Borgman wrote in 1998:[3]

Finally, Common Sense lost his will to live as the Ten Commandments became contraband, churches became businesses, criminals received better treatment than victims, and federal judges stuck their noses in everything from the Boy Scouts to professional sports. Finally, when a woman, too stupid to realize that a steaming cup of coffee was hot, was awarded a huge settlement, Common Sense threw in the towel.

The McDonalds Coffee Case and the Stella Awards provide a compelling story that most Americans can understand. It is the idea that “common sense and logic will not be tolerated anymore,” and that government laws and regulations have tied us in knots.

I am reminded of the story of Alexander the Great and the Gordian Knot. For over one hundred years, a knot tied by a king of Phrygia named Gordius was left on display by the temple of Zeus in the town of Gordium. An oracle foretold that whomever untied the knot would rule all of Asia. In 333 B.C. Alexander the Great came to the town, drawn by the legend of the knot which had defied many who had attempted to untie it over the years. Frustrated by the knot, Alexander drew his sword and crying, "What does it matter how I loose it?" and severed the famous knot.[4]

While most Americans do not know the details of why and how the increasing regulatory burden is crushing America, they recognize its effects. They understand that the notion of “Common Sense” has been abandoned and replaced by a “Nanny State” mentality. They want a President with 2020 vision who will seize this “Alexander the Great” moment and sever the Gordian Knot of regulatory red tape that is squeezing the life out of this nation.

The Regulatory Juggernaut is Out of Control

The Federal Register is the federal government’s publication of record, documenting all proposed and final regulations promulgated by the federal bureaucracy. In 1936, the first year of its publication, Washington printed 2,620 pages. In 2010, the nation’s regulators published 82,590 pages.

In 1970, nearly 31 percent of Americans employed in the private sector worked in manufacturing. Today, less than 11 percent of private sector employees work in manufacturing. Only 20,036 pages were printed in the Federal Register in 1970. But the next year, the Congress created the Environmental Protection Agency, and the Nixon Administration embarked on its “New Economic Poilcy,” imposing wage and price controls. Regulations, as reflected in the number of pages printed in the Federal Register, skyrocketed. This information is provided in the graph below:[5]

        Notice that the number of pages in the Federal Register exploded in the 1970s, fell during the Reagan Presidency in the 1980s, and then once again increased during Presidents George H. W. Bush and Bill Clinton Administrations, but remained fairly flat from 2002 to 2008. However, from 2001 – 2008, the regulatory compliance cost to industry grew by $60 billion. Under President Obama, the growth of new, costly regulations has accelerated. Just 75 regulations passed in the first 26 months of the Obama administration are estimated to have cost private business $40 billion annually. [6] As a consequence, employment in federal regulatory agencies since 2008 has grown 13%, compared to a decline in private sector jobs of 5.6% during the same time.[7]

Clearly, as in the case of the Stella Awards, the Nanny State has run amuck in the federal government. Government employment expands in order to regulate a shrinking private sector. This is contrary to common sense, for instead of the government being the servant of the people, it has become their master.

The Three Pillars of a 2020 Vision for Unshackling America from Regulatory Masters

America needs a President with 2020 vision to cut through the red tape that is strangling this nation. He or she must apply three pillars of common sense logic to achieve an “Alexander the Great” moment to sever the Gordian Knot of regulation. These three pillars are:

1. Restore Common Sense and Sever the Gordian Knot via a “Stella Award” method of shaming those who strangle our economy.

2. Transparency has expanded as the Internet has exploded, so regulate via greater reliance on contestable markets.

3. Require Congressional authorization of costly regulations, and subject government bureaucracies to Sunset Review.

1. Restore Common Sense and Root Out the Stella Award Winners of Government Bureaucracy.

Our existing regulatory model is predicated on a 1970s mindset. It’s a mindset that still thinks we are a manufacturing, blue-collar driven society instead of a services-oriented, knowledge driven economy. We take the attitude that since a new product, service or software innovation might hurt someone, it will hurt someone. Therefore, we must create a regulation to make sure someone won’t get hurt. This is the “precautionary principle.”

One example of the precautionary principle and how a new technology might hurt us is the irradiation of food. For years, the Food and Drug Administration (FDA) has prohibited the free use of irradiated food. In one 1997 report, it was reported that the FDA required the packaging label contain a statement “Treated with Radiation” or “Treated by Irradiation.”[8]

Since 2004, the FDA has regulated irradiation as an “additive,” even though there is nothing added to food in the process. Irradiation is often used for food that has already been packaged. This causes a concern that the packaging, when subjected to the irradiation process, might lead to the creation of “radiolysis products (RP) generated in the packaging materials under the conditions at which prepackaged foods are irradiated.” While study after study has found that RPs are NOT created by irradiation, one study justified continued caution, stating:[9]

These RPs and others with higher exposures have been evaluated and determined to be safe. Although RPs from the currently regulated materials are not of concern, new polymers might yield RPs of toxicological concern (emphasis added).

Though some changes have been made to increase the use of this process, a 2010 General Accounting Office report, Food Irradiation: FDA Could Improve Its Documentation and Communication of Key Decisions on Food Irradiation Petitions stated the FDA’s labeling requirements greatly reduce the use of irradiation. The FDA’s regulatory confusion hurts those businesses trying to introduce this new process, while protecting established food processing companies.

The Mercatus Center of Georgetown University, in their 2009 report, 21^st Century Regulation: Discovering Better Solutions for Enduring Problems, says that we must reject the “precautionary principle” which “opens the door to regulation based on subjective and arbitrary political bias.” On page 13 of their report, they state:

The intent of regulation is almost always to protect consumers, society, or some other subgroup of the population from harm. However, a side effect of regulation is often that incumbent and well-connected firms use it to drive out competitors. For decades, firms have lobbied for regulations that raise competitors’ costs and create an uneven playing field.

Some have taken steps to fight back. Philip Howard, the author of “The Death of Common Sense,” is making an effort to start a nation-wide movement to “start over” and get rid of the regulatory quagmire which has entrapped us. In defining the problem facing our nation, Howard writes on his wesite, www.commongood.org :

Modern law is based on the false premise that law is self-executing. So regulators organized society like an assembly line—trying to avoid human error by millions of words of regulation that eliminate human judgment. We don’t trust judges either—so we allow lawsuits over almost anything. But determining what’s right or fair always requires a value judgment. To take responsibility, people must be free to make responsible choices. Society can’t work unless everyone, at every level of responsibility, has freedom to use their common sense.[10]

We must re-assess the role of common sense, which has been replaced by a nanny state regulatory mindset. American businesses live in fear of being sued, and are reluctant to take any action which may expose them to frivolous lawsuits. Using the idea of the Stella Awards, the next President of the United States should have the courage to distribute “Gordian Knot Awards” to government agencies that create regulations that defy economic common sense, and then work to reduce or eliminate such regulations.

2. Transparency Has Expanded as the Internet Has Exploded, So Regulate via Greater Reliance on Contestable Markets.

In 1970, Americans got their news from three TV stations and the local newspaper. Those like Ralph Nader, who sought to champion consumer rights, were few and far between. As a consequence, only a handful of people knew the dangers of asbestos, hazardous waste dumps, or that coffee from McDonalds was so hot, it could burn you if spilled in your lap.

Today, not only do we have hundreds of TV stations, we also have the Internet. Information on product quality, customer service, and competitor pricing has never been more plentiful. Applying the concept of contestable markets, businesses will naturally seek to offer the best product at the best price with the best service, or suffer the loss of market share to competitors who do. How do consumers find out which companies should receive the vote of their dollars, and which should not? The Internet. This tool did not exist in 1970 when the current regulatory mindset began to take hold.

But the Internet exists now.

Let’s use the car buying process to illustrate how the Internet is making it easier to use contestable markets to weed out “lemons” in the car sales industry.

Imagine the year is 1995, and you want to purchase a car. Chances are, you go to the library to access the Readers Guide to Periodical Literature, a green colored booklet published by the H. W. Wilson Company that compiled information on articles published in major magazines and journals. You look up Consumer Reports and find the most recent issue in which they rated various major car models.

Unless you were a loan officer at a bank, a licensed car action merchant or worked in a car dealership, you did not have access to the manufacturer’s Blue Book, listing the value of each car model. The Blue Book was the “bible” for professionals in the car industry for assessing a car’s value. The typical customer did not have access to this document. This monopoly on the access to information allowed the auto industry to earn a decent profit margin on cars sold. They also knew that if they could influence the publishers of Consumer Reports, they could receive a favorable rating, thus boosting car sales.

The introduction of the Internet broke the monopoly over information. By 2005, the information found in the Blue Book was fairly wide spread. Owners of different model cars could post their own reviews on the cars they owned, thus breaking the monopoly of consumer information that had built Consumer Reports’ subscription base.

The result: Profit margins earned by car dealerships fell. Car manufacturers were forced to reduce costs, increase quality, and improve service – or suffer the loss of market share to those manufacturers and sales organizations that were willing to do so. In economics, this is known as “the theory of contestable markets”. It is the idea that market forces will self-regulate a product, service, or industry. So long as information is free flowing, and the consumer has access to the information he or she needs to make a good decision, consumers as a group will “vote with their dollars.” Those companies that do a good job will survive and thrive. Those that fail to do so will go out of business.

In 1996, the Congress passed the Telecommunications Deregulation Act, which accelerated the growth of the Internet. Today, anyone with computer and internet access can surf the Internet, post information, and evaluate good and bad products. With the help of the Internet, consumers could now make informed votes with their dollars. In many cases, as we saw earlier with the example of irradiated food, those industries threatened with the loss of market share used their PAC dollars and lobbyists to pass regulations, insulating themselves from competition. At the same time information exploded, informing personal decisions, Washington created an explosion in regulations intended to “protect” a society that, increasingly, could protect itself via the “invisible hand” of prudently exercised self interest.

If you were to take a political science course in college today, you would be introduced to the term “cozy triangle,” also sometimes called an “iron triangle.” It is the idea that a power constituency group might partner with a powerful bureaucracy to enact regulations that favor one group over another. All that is needed is a powerful politician who benefits in political contributions, stock ownership, or other forms of financial and non-financial remuneration. Some, such as John Stossell and Rush Limbaugh, have called this practice “Crony Capitalism”.

The Republican Presidential Candidate in 2012 must have a vision to use the forces of contestable markets to condemn Crony Capitalism by Democrats and Republicans alike. He or she must focus on ways to strengthen the free flow of information so that consumers can make sound choices, and be given incentives to use their money in the most economical means possible. In that way, we will implement the concept of contestable markets, and award companies based on merit, not government rigged regulations that favor one outcome over another.

3. Require Congressional Authorization of Costly Regulations, and Subject Government Bureaucracies to Sunset Review.

We must hold the President and the Congress accountable for abdicating their responsibility to govern this nation and leaving it in the hands of faceless bureaucrats. The next President must employ 2020 vision to require Congress to vote directly on proposed regulations which increases compliance costs. Furthermore, all existing government agencies not specifically created by the Constitution should become subject to Sunset Legislation and review by the General Accounting Office. Only those agencies that merit continued existence should be re-authorized.

On August 3, 1993, the Congress passed, and President Bill Clinton Signed, the Government Performance and Results Act (GPRA). The Act focused on the results of regulation, requiring government agencies to produce annual reports on how well the regulations they created were working. The Office of Management and Budget prepared a rating tool to measure how well these regulations did, and at what cost.

However, the government has never used this tool. Only recently, the Obama Administration began to implement a “modernized” version of the GPRA, and has established a website to review this at http://www.govexec.com/dailyfed/0811/082511cc1.htm. However, there has never been anything preventing the President from implementing this 1993 law by executive order. Therefore, the next President of the United States must insure the implementation the GPRA – not as PR window dressing, but as real fat-cutting spending reductions.

But, we shouldn’t stop there. Congress should be required to vote up or down on proposed regulations that are estimated to cost over a certain dollar amount; say, $100,000,000 million in annual compliance costs. Furthermore, the President should send a bill to Congress requiring that the review criteria already established in this 1993 GPRA be used to evaluate all regulations. Those that don’t measure up should be terminated under what is called “sunset” legislation. The Heritage Foundation has made a similar recommendation in it’s July 25, 2011 report, Red Tape Rising:[11]

The natural bureaucratic tendency is to leave old rules and regulations in place, even if they have outlived their usefulness. To ensure that substantive review occurs, regulations should automatically expire if not explicitly reaffirmed by the agency through a notice and comment rulemaking.

Conclusion

Not all regulations are bad. Certainly, when Upton Sinclair wrote The Jungle in 1906, regulations were desperately needed in the meat packing industry. But just as we lived through the extreme of no regulation over a century ago, we have replaced it with an equally bad extreme of oppressive regulation.

We must restore the rule of common sense and sever the Gordian Knot of regulation that is strangling the life out of the American economy. One way to highlight the costly regulations is to hand out Gordian Knot Awards, recognizing the worst in government overreaching. Franklin Delano Roosevelt used a similar practice, establishing the Federal Writers’ Project. This project employed writers who helped to promote the policies of the New Deal. Web sites like Common Good, which seeks to promote a movement based on the book The Death of Common Sense, Stupid Government Waste on Facebook, and the government’s own website, www.performance.gov are just three of many sites people can access to learn about destructive regulations and submit for the suggested Gordian Knot Awards.

We must leverage a movement of people who wish to restore Constitutional order and Common Sense once again to the governance of this nation. The next President of the United States can rise to this “Alexander the Great” moment, sweep away Obama’s Botched moment, and tear down this wall of regulation that restrains our freedom and restricts our economy.