The world is watching as President Donald Trump lurches into motion. For many, the early signs suggest a blend of hubris and incompetence as he creates chaos in the nation’s highest executive office.
For those inclined to panic, I would ask to what halcyon days are you yearning to return? The resuscitation of our nation’s economy may, in fact, require the knockabout approaches of our bumptious new leadership. Many in Trump’s Cabinet have little or no government experience — but they bring a business skill set that will translate into income and jobs for many people.
The challenges they face have been years — and many administrations — in the making.
In a world of Keynesian thinking, in vogue for more than 60 years, moving an economy to higher output requires spending in excess of income, usually financed by lending to the private sector.
Borrowing costs are reduced to encourage more borrowing and more spending on investment products that yield positive returns. But if the private sector doesn’t snap up the bait, governments can step in to be both the borrower and spender. And step in they did.
To motivate that higher output when the Great Recession hit in 2008, borrowing rates were pushed down to a minimal level in the U.S. and a negative rate in the Euro zone. We (the lender) will pay you (the borrower) to borrow. So please do so, and please spend the funds on something to create output and jobs.
It’s a tempting offer, but it didn’t have the intended effect. Corporate borrowing did occur, but the spending on physical or intellectual property did not. Instead, corporations have been stockpiling cash.
Alas, the funds have been primarily used to support corporate stock prices via dividends or stock buybacks. Another use has been corporate buyouts to reduce competitive pressures on prices and profits.
Businesses’ muted response to cheap money suggests there are impediments to putting that money to work. For Trump’s CEO-oriented administration, regulatory barriers are the cause, and this view is buttressed by the accumulating data on the cost of regulation. For example, the Competitive Enterprise Institute puts the annual cost of regulatory barriers at $14,678 per household, or 23 percent of the average household income.
Reduction in regulation has therefore become a top agenda item for the Trump administration, which has instituted a two-for-one rule. Each new regulation requires jettisoning two others for a net of minus one. Currently, there are 178,277 pages of federal regulations with which American businesses, workers and consumers must comply. The Trump administration is aiming for a 75 percent reduction of that amount.
We can track the number of rules but more important are the effects of those rules on business entry and growth. To that end, the Census Bureau keeps statistics on death and birth rates of enterprises in America. Not surprisingly, albeit alarmingly, the birth rate of enterprises has been falling for 40 years and has especially nosedived since 2008.
In absolute terms, the birth of business enterprises is not just declining but has sunk to a level below the death rate. The number of businesses in America has been on the absolute decline since 2008.
For an actual startup, it takes thousands of hours of billable attorney’s fees to properly navigate all the relevant regulations. For most, this is unaffordable. In their case, starting a business requires an article of faith that what they’re doing is somehow not illegal.
In my mind, I have a vision of Michael Dell producing computers in his dormitory room and delivering them from the trunk of his car. From there, he went on to become an industrial giant. You have to start somewhere, but it seems innovation like his is no longer an innocent opportunity — and without it we are left in a withering state as far as enterprise is concerned.
So yes, the Trump nominees will have missteps, but I will take their government on-the-job training any day as compared with those steeped in how to promulgate regulations. Indeed, Trump’s administration has a far clearer understanding of what it takes to succeed and what barriers need to be eliminated to achieve noble goals while not impeding business, jobs and growth.
Spellman is professor of finance in the McCombs School of Business at the University of Texas.