Economics 101: the government is no friend, and certainly no help, to business.

From CNBC:

Subway ‘Wouldn’t Exist’ If Started Today Due to Regulations: Founder Deluca

Published: Wednesday, 27 Feb 2013 | 11:53 AM ET
By: Producer,

Fred Deluca, the founder of privately-held Subway Restaurants, said government regulations are hurting small businesses and that this environment has prevented entrepreneurs from creating value in the market. “If I started Subway today, Subway would not exist,” Deluca told CNBC’s “Squawk on the Street” Wednesday. Deluca said the environment for entrepreneurs in the U.S. has “continuously gotten worse because there are more and more regulations. It’s tough for people to get into business, especially a small business.”

Effects of Obamacare

The Subway founder pointed to a number of government regulations that are degrading the business environment for entrepreneurs. Examples include the Affordable Care Act, an increase in the minimum wages and the end of the payroll tax holiday.

The Affordable Care Act, often referred to as “Obamacare,” is “the biggest concern of our franchisees,” Deluca said. “They don’t know what to expect. It’s causing a lot of concern, but that too will be passed on to the consumer.”

More at the link.

The Democrats under President Barack Hussein Obama aren’t the only ones to pile more and more regulations on businesses; the Republicans haven’t been quite as bad, but they, too, have added plenty of regulations. But the Patient Protection and Affordable Care Act has really ratcheted up concern and uncertainty, and even though it has not come into full effect yet, businesses are already taking steps to minimize their exposure to it.

The Federal Reserve has been attempting to help businesses get started and expand, but, as we have previously noted, the Fed does not have the tools it needs to do the job: the Fed’s tools are supply-side, while the problems of a slow economy are demand-side.  The Obama Administration tried a traditional demand-side stimulus program, but it failed, because, after all of these years and years of stimulus — continually importing money into our economy from foreign sources, enabling us to spend more than what we produce — we have virtually inoculated our economy against stimulus.  And we’re pretty much the economic equivalent of a heroin addict: we are deathly afraid of the withdrawal symptoms of stopping the continual stimulus.

There isn’t much that either the Fed or the Obama Administration — or even the Romney Administration, had the voters been wiser last November — can do about improving the economy.  Our economy is adjusting to a new reality, a reality that we have been spending more than has been justified by our production, for decades, and that such cannot continue for much longer.  That adjustment will be, and has been, painful, and that is simply unavoidable.

But there is one thing that the government can do: it can make things easier on businesses.  Mr Deluca didn’t complain about demand, and he didn’t complain about interest rates, but he did complain about the ever-increasing costs of government regulations.  Businessmen and entrepreneurs try to calculate — not always accurately — what the potential costs and returns on either opening or expanding a business.  As the government continually increases the costs of labor, whether through forced minimum wage increases or added tax burdens or imposed costs such as ObaminableCare, those increased costs have to be factored into total cost considerations, and, at the margins, such added costs must swing some business decisions to the negative: projected costs are simply to large vis a vis projected revenue.  And those are the decisions taken which we rarely see specifically, but the evidence of which is all around us in the aggregate: jobs are not being created at a rate sufficient to bring down unemployment.

President Obama’s 2009 stimulus program sought to attack the sluggish economy from the demand side, by artificially increasing demand through government purchases and contracts.  It didn’t work, in part because it was poorly designed, but also because it was always a temporary program: businesses always knew that it would be temporary, and much of it simply accelerated projects which would have been done anyway, just a couple of years further into the future; it, in effect, tried to keep some contractors going by taking future projects away and doing them early, without any reasonable hope that other projects would be moved ahead.

But if some businesses got a bit of temporary help through the stimulus program, all businesses have seen their costs increased due to the added regulatory burdens imposed by the Obama Administration.  Much has been written about the decision to require businesses to include no-copay artificial contraception coverage as part of their health insurance plans, but, even if you ignore the political aspects of the Administration trying to force its morality down other people’s throats, such a regulation increases the costs borne by the health insurance programs, and must, therefore, increase the costs of buying health insurance.  Politics aside, this is an increased financial burden on businesses, the kind of thing which cuts into profit, and the kind of thing which, at the margins, turns some positive job creation decisions into decisions against adding new jobs.

Unfortunately, the highly-educated, professional economists who work for the Obama Administration just can’t seem to understand that very simple concept. Or, perhaps some of them do, but the political decisions have simply been taken without regard to the economic consequences, and the economists have no chance of reversing them. Either way, Mr Deluca’s point is right on: the government is no friend, and certainly no help, to business.

One Comment

  1. The very first rule of business Mr. Editor, is to maximize profit and minimize loss. In the day to day operation of a business that translates to maximize gross income and minimize total expenses. I’d like to point out here that labor, taxes, mandates, compliance costs and now the PPAC are all expenses. I’d also like to point out that the Obama administration has raised taxes, is talking about raising labor costs, has instituted thousands of new regulations and mandates and passed the PPAC. They have in effect increased all business expenses across the board for every business in America and they’ve done it in a slow economy. With their idiotic support of green energy and willfull ignorance of our own gas and oil resources they have added to the expense of every single product and service delivered to every consumer in this country.

    This administration seems to be under the impression the object is to Maximize costs And Minimize profit. Profit now seemingly a dirty word. But without profit there is no expansion, investment, invention, R&D or return on risk. In short if they keep demonizing profit everything will come to a screeching halt.

    Mr. DeLuca is spot-on. He’s spot on because there is not just the new mandates of this admin that hinders growth, there are layer after layer of taxes, mandates rules of compliance etc. from local, state and federal regulators. Most of which are redundant but each varies in implementation so as to require different compliance toward the same goals. In short, DeLuca couldn’t succeed in Subway today just like thousands of other potential entrepreneurs can’t and won’t be able to develop their product and get it to market. We have created a system wherein only those who are already big enough to afford the lawyers and accountants and lobbyests can succeed, the new guy is screwed.

    As a businessman it’s frustrating. But what really frustrates me are those “experts” and those people who follow Obama and guys like The One We Won’t Mention who cannot understand we can’t force people do do business “your” way from either the supply or demand side. All 320 million of us have to be free to do business in the best way for our own self interest. Because nobody knows our own self interest better than we do, and that includes all those mentioned above.

    Right now every single small businessman I know (and I know a shit load) are moving employees off the books, into part time positions, into 1099′s as contractors or eliminating them altogether. That can’t be good for anyone. A guy I know who owns a Temp Agency is awash in requests for employees. Owners don’t have to buy health insurance for temps. Looks to me like part time and temp employees could be the wave of the future neither of which get paid sick days, promotions, vacations, pay raises, retirement beni’s or health insurqnce. Wow! Those damn unintended consequences again.

    Oh, and BTW, even with these adaptions in business since energy costs are being screwed with by an uncaring group of elitists, all consumer prices will rise.

Comments are closed.