Legally Destroying the Economy
#800000;">Originally posted at: CapitalistExploits.at
Over-burdensome regulation and massive liability exposure is stifling business and creativity, slowing the flow of capital globally and stagnating economic growth.
Let's look at the facts...
The IMF has downgraded its forecasts for global economic growth from its July World Economic Outlook Update. The world economy is now expected to grow at 2.9 percent in 2013, down from 3.1 per cent in the IMF's July Update. The forecast for 2014 has been downgraded to 3.6 per cent from 3.8 per cent.
Here's how the IMF expects major economies to perform this year and next year:
- United States 1.6%, then 2.6%
- Euro Area –0.4%, then 1.0%
- Germany 0.5%, then 1.4%
- France 0.2%, then 1.0%
- Italy –1.8%, then 0.7%
- Spain –1.3%, then 0.2%
- Japan 2.0%, then 1.2%
- United Kingdom 1.4%, then 1.%
- Canada 1.6% ,then 2.2%
Not surprisingly, The IMF further notes that emerging market economies will still continue to account for the bulk of global growth in 2013 and 2014. (We've recently backed a new website that covers the emerging and frontier markets)
What's causing this slowdown? One of the culprits is burdensome and incomprehensible regulation.
In the US over-regulation and the fear of "guilty until proven innocent" has had a devastating effect on small business. A recent survey showed that 75% of Americans said they associate regulations most with unnecessary red tape, restrictions that lack common sense, or higher costs for American goods.
Where does all this red tape come from?
According to the American Bar Association, in the United States there are currently over 1,268,011 million licensed attorneys. The ABA says that approximately 8% of them work in private industry. That's over 100,000 attorneys working in US businesses.
For those wondering why the US government is shut down, mired in pointless stalemate again, and again, and again, I submit the following:
More than twice that percentage, roughly 18%, or over 228,000 work in government! The split is roughly 1/3 each for
federal, state and local government according to the US Bureau of Labor Statistics (BLS). These are 2010 numbers by the way, so it's likely only gotten worse!
In regards to elected officials in the United States, according to the Congressional Research Service 170 members of the House and 60 Senators are attorneys.
Out of a total of 435 U.S. Representatives and 100 Senators (535 total), attorneys comprise the biggest voting block of one type, making up 43% of Congress. Sixty percent of the U.S. Senate is attorneys. 37.2% of the House of Representatives are attorneys.
There are 81 Republican attorneys in Congress who list "lawyer" as their profession. There are 123 Democrat attorneys in Congress that list "lawyer" as their profession.
One could argue that those that make the laws should be versed in the law. Fair enough. But, on the flip side this has resulted in monstrosities like The Patriot Act. It's 342 pages long.
Then there is the IRS tax code. According to the CCH Standard Federal Tax Reporter, as of 2013, it now takes 73,954 regular 8-1/2" x 11" sheets of paper to explain the complexity of the U.S. federal tax code!
"The most recent estimate of the current paperwork burden generated by the Treasury Department, nearly all accounted for by the Internal Revenue Service (IRS), now totals 6.7 billion hours, according to data from the Office of Management and Budget (OMB). That is the equivalent of about 3.35 million employees working 40-hour weeks year-round with just two weeks off. Incredibly, that is more than the number of workers at the
four biggest retailers among Fortune 500 companies – more than all the workers at Wal-Mart Stores, McDonald’s, Target, and Kroger combined! It’s more than triple the number of workers employed at the top four banks – Bank of America Corp., Wells Fargo, Citigroup, and J.P. Morgan Chase & Co."
It's no wonder that economic growth has ground to a virtual halt!
We have friends and colleagues in all corners of the world...London, Hong Kong, Singapore, Tripoli, Dubai, Athens, Taipei, Perth, Manila, Ulaanbaatar and even Washington DC. Most of them are entrepreneurs, freelancers, or business leaders in some shape or form.
They contact us regularly to keep us abreast of what they're up to, and provide us perspective on what's happening in their neighbourhood. Most of the time it's fairly normal stuff, but once in a while we hear of something that's just too ridiculous, and to relevant not to shine a light on.
First, apologies to our attorney friends. We're not blaming you for all our ills, but certainly the profession in general plays a large role in suppressing creativity and slowing business down.
In speaking to one of our colleagues recently, who shall remain anonymous, they relayed the following example to us:
"I can barely even give property by property data for my investors any longer. I've been working with lawyers all week on how to provide data. We wasted 5 hours discussing what footnotes are needed to accompany a phrase in our corporate presentation, "unlock substantial value in our development assets."
They hit me with the following:
- is there value there?
- is it substantial?
- is there a 3rd party that we can pay to prove that?
- what are the risks to the company if the value is only moderate and not substantial?
- how will we unlock it?
- if it will not be immediately unlocked, maybe we shouldn't use the active
tense and instead say "we hope to one day potentially unlock some of the latent proposed value that may be in property assets that we believe we control, assuming the following set of circumstances and conditions are
- are development assets really what we claim?
- can you call them development assets if you don't yet have the permits to develop them?"
Our colleague then commented, "You should do an article on how the meaning of one 8 word sentence wasted my whole afternoon!" GREAT idea!
Now some of the questions posed by the attorneys in the above example are reasonable. As investors we want to know the companies we are invested in are doing their homework and reporting accurately. But, this should clearly illustrate the inefficiency of our current system.
I've cited US statistics in this post, but most western governments are suffocating their citizens with needless regulation and oversight, much of which is really just a direct result of the fact that all of those attorneys NEED SOMETHING TO DO!
As a point of law, all people are presumed to know the law and ignorance of the law is not a valid defence. I challenge anyone reading this, attorneys included, to explain to us HOW society is supposed to function under this growing and needless repression?
"Law and order exist for the purpose of establishing justice and when they fail in this purpose they become the dangerously structured dams that block the flow of social progress." - Martin Luther King, Jr.
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