I’ll be the first to admit, I’m the least entrepreneurially-minded member of my family.
Both my parents have started a business, as has my sister. Extended family members have started their own businesses as well. I have business ideas myself, and may start my own someday, but investing has worked out well so far.
That’s because most business started by family members have failed. A few have succeeded, but nothing that became some big, huge business. No Ubers, not even a fad craze like the pet rock. That’s okay. That’s capitalism. There was a good idea, risk was taken, and the market decided.
To be fair, each of my family members who went into business had a partner along the way. And in many of those cases where the business didn’t work out, I’m somewhat inclined to say that the partner did their part to ensure failure. More than their fair share, even.
Sure, it’s tempting to think I’m just being biased towards my family. But we’re not talking about some other flesh and blood person here. This partner is the flesh and blood humans acting under the title of the government.
It’s hard not to think of the government as a partner in every business. Think about it. They start off asking for licenses, fees, and other costs at the startup level. Should the business manage to be profitable, they’ll collect taxes on your profits as well. And they’ll ask you to collect taxes on their behalf along the way if you’re in the retail gig. It’s like they have a stake in the business, despite doing none of the work.
Doesn’t sound like much of a partnership, does it? You might be able to get a small business loan thanks to the government, but that still needs to be paid back. No favor there.
It’s easy to see why successful companies get bigger—they’re able to succeed in spite of this business partner and the hurdles directly placed in your way.
Let’s move this idea to the bigger picture and look at the biggest, publicly-traded companies.
Why are shares of these companies still going up? After all, they’re historically expensive — at levels that, in the past, have looked like the start of bubbles in hindsight.
Some point to political changes. Stocks are up about 20 percent, on average, since the November election. And while some pre-election uncertainty was weighing on stocks immediately before, the subsequent rally has far exceeded where stocks traded before.
But you can’t point at the obvious political culprits. Tax reform hasn’t been seriously discussed yet. And after seven years of promising to repeal and replace Obamacare, Congressional Republicans who run the show haven’t been able to send a bill to President Trump yet — they couldn’t even dust off one of the myriad laws they did pass that was then vetoed by President Obama!
Healthcare is a huge issue, given employer requirements. It’s keeping small businesses that could be bigger from getting bigger. It’s raising costs in a big way, and in sectors like retail, it’s even forced employers to cut back on hours to avoid having to pay out healthcare in the first place.
What a mess! While these two issues can’t get any traction, it seems like a challenge for the economy to grow at a faster rate. The government has simply taken its partnership too far.
But there is one area where things are moving in a big, but so far off-the-radar way.
I’m talking about regulatory reform.
One component of your partnership with the government before you even get up and running with a business is to comply with a myriad of regulations. There are tens of thousands of regulations at the federal level, with state and local ones added for good measure as well. Nobody can know them all, and many of them are subject to interpretation and lax enforcement — so long as you stay on your business partner’s good graces.
Regulations can be just as important as taxes — perhaps even more so. If there are too many regulations, you won’t have a successful business to pay taxes on, making the tax rate irrelevant.
Enter the Trump administration. Trump’s early executive orders undid those written by his predecessor that acted as a regulatory burden. The biggest headline rollback involved reining in the power of the Environmental Protection Agency (EPA) to regulate emissions — after being able to first define emissions. He also signed an order that requires the elimination of two federal rules for every new one introduced.
As Barry Goldwater once quipped, “My aim is not to pass laws, but to repeal them.” Change laws to regulations, where the president has considerable leeway, and you can see the power that the Trump administration is having in unusual ways.
In the first six months of the Trump presidency, we’ve seen 860 regulatory actions withdrawn or flagged for further review. A report released in July estimates that it will produce annualized savings of $22 million for the economy. That’s on top of the regulations halted by Trump on his first day in office before they could take effect—with an estimated savings of $181 billion that would otherwise drag on the economy.
To be sure, it’s chump change as far as government spending goes. But it’s a brisk pace as far as government changes go, in stark contrast to the stalled legislative branch. All in all, it’s a step in the right direction. There will be more.
The power to tax has rightly been held as the power to destroy. But the power to regulate is just as insidious, if not more so. It strangles opportunities before they can be fully tested in the marketplace. It stifles innovation, and gives a big leg up to established players.
Regulatory growth has stalled since the start of the year—at least at the Federal level. We have a long way to go before we can see real declines in regulations. It’s a quiet, off-the-radar improvement for now. But any big changes will lead to the usual howling, gnashing of teeth, and frivolous, time-consuming lawsuits. Isn’t the government just a grand business partner?
But without the threat of new, and potentially big regulations impacting businesses, those that made it should continue to fare well. That’s one huge reason why stocks are still in rally mode — and will likely continue to grind higher in spite of the other potential risks out there.
Fewer regulations means more opportunities, higher profitability, and a chance to better improve the lives of consumers. It might also mean that it’s quietly becoming a great time to start that business you’ve always dreamed of.
Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.
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