Writing in the Wall Street Journal, Michael S. Malone has an excellent column which provides an overview of some of the disastrous wealth-killing regulations implemented over the past decade (all under the Bush Administration). These regulations, when combined with proposed increases in capital gains taxes, will mean that, once the recession finally does bottom out, we will likely be in for a generation in which there will be very little wealth creation and non-governmental job growth.
“From the beginning of this decade, the process of new company creation has been under assault by legislators and regulators. They treat it as if it is a natural phenomenon that can be manipulated and exploited, rather than the fragile creation of several generations of hard work, risk-taking and inventiveness. In the name of “fairness,” preventing future Enrons, and increased oversight, Congress, the SEC and the Financial Accounting Standards Board (FASB) have piled burdens onto the economy that put entrepreneurship at risk.
The new laws and regulations have neither prevented frauds nor instituted fairness. But they have managed to kill the creation of new public companies in the U.S., cripple the venture capital business, and damage entrepreneurship. According to the National Venture Capital Association, in all of 2008 there have been just six companies that have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986.”
Malone blames this on Sarbanes-Oxley which has also had the unintended consequence of transferring the world’s financial capital from New York to London.
Regarding other regulations, Malone writes:
“FASB’s biggest crime against the economy and the American people came when it decided to measure the impossible: options expensing. Given that most stock options in new start-up companies are never worth anything, this would seem a fool’s errand. But FASB went ahead — thereby drying up options as an incentive for people to take the risk of joining a young company and guaranteeing that the legendary millionaire secretaries would never be seen again.
Not to be outdone, the SEC has, through the minefield of “full disclosure” requirements and other regulations, made sure that corporate directors would never again have financial privacy and would be personally culpable for malfeasance anywhere in the company. This has led to a mass exodus of talented people from boards of directors in places like Silicon Valley. Full disclosure was supposed to make boards more responsible. Instead, it has made them less competent.”
The article is not very long and is worth taking a moment to check out.
Obviously there is little chance that any of this will be reversed under an Obama Administration with strong Democrat majorities in Congress. The only good thing is that such nonsense will at least no longer be coming from a Republican Administration which means there is at least a chance for principled opposition to perhaps eventually exploit the disastrous consequences which will follow in order to gain a hearing.
Malone concludes by saying:
” If Mr. Obama is serious about getting the country out of this recession using something more than public make-work projects, he should restore the integrity of the new company creation cycle: rewrite full disclosure, throw out options expensing, make compliance with Sarbanes-Oxley rules voluntary, and if he won’t cut it, then at least leave the capital gains tax rate alone.
Otherwise, Mr. Obama might end up being remembered as the second Herbert Hoover, not the next FDR.”
Fat chance of Obama doing any of that. But if the stigma of being the next Herbert Hoover can somehow be transferred to Obama and the Democrats from the person who has certainly earned it, George Bush, that would be a good thing.