State of Innovation

Patents and Innovation Economics

Regulatory Reform: REINS Legislation

Federal regulations take up 81,000 pages and annual compliance costs are now $1.75 Trillion or 12% of U.S. GDP.  This is enough money to hire a quarter of the U.S. workforce.  (For more information see Episode Two: Economic Freedom in America Today).  Note that this does not include the cost of tax compliance, which is estimated at $431 Billion per year.  There is now a very modest proposal to put a halt to excessive and unnecessary and unconstitutional regulations called the REINS ACT, introduced by Congressman Geoff Davis.  This piece of legislation requires an up-or-down vote on all new proposed rules with an economic impact of over $100 million by both the House and the Senate and the signature of the President before they can be enforced on the American public.

I have written on this issue before, see Regulatory Bill of Rights.  Regulatory rules are used to circumvent not only Congress’ rights under the Constitution, but used to circumvent your rights under the Bill of Rights.  The penalties for regulatory infractions can include severe financial penalties and jail time.  Our Founding Fathers did not intend that the Bill of Rights to only apply to so called criminal laws.  Our government circumvents the Bill of Rights by pretending they are enforcing a civil law instead of a criminal law.  The only true civil law in the U.S. is between private citizens not a law between the government and the people – those are criminal laws.

The REINS Act is a very modest piece of legislation and does not go nearly far enough in curtailing the power or regulatory agencies, but it’s a start.


October 24, 2011 Posted by | Regulatory bill of Rights | , , , , | Leave a comment

Welcome to the Global Financial Meltdown

With the roller coaster ride of the stock market as well as the S&P downgrade of U.S. government debt there are a variety of pundits weighing in on the direction of our economy and the stock market.  For instance, Steve Forbes on FOX news suggested that U.S. economy and stock market is poised to explode, especially after the 2012 elections.  There have been a number of pundits suggesting or speculating whether the present situation is analogous to the market crash in 1987.  Others have suggested that since the debt crisis of 2008 we have just kicked the can down the line.  They use the analogy of a hurricane and suggest 2008 was the leading edge of the storm and that we have been in the eye of the storm recently, but we are about to enter the trailing edge of the storm.  Most of these pessimists see this trailing edge of the storm as likely being worse than the leading edge.  So who is right, the bulls or the bears?

First, it is clear that we have not dealt with our debt problems.  The initial solution to the 2008 debt crisis in most countries was to nationalize the debts of major banks and provide no cost loans to multinational companies from the central bank.  The follow up solution in the U.S. was to increase government spending by 50% in a single year and use this as the new baseline.  As the debt crisis spread to the PIGS of Europe, the solution has been to provide more debt to struggling countries.  This debt has really been used to shore up German and French banks that loaned money to the PIGS.  So far all this spending has failed to result in meaningful economic growth or job creation.             Second, it is clear that the U.S. does not have the political will to cut spending or entitlements that are driving spending.  Optimists point to the fact that the U.S. had a similar debt to GDP ratio in 1946.  However, in 1946 we did not have eight decades of increasing entitlement programs and unfunded liabilities.  Our unfunded liabilities exceed our assets.  Total U.S. government spending as a percentage of GDP has grown from around 21% at the end of World War II to almost 40% today.  No country has been able to spend this much of their GDP and have sustained, vigorous growth.

Third, the proposed solutions by the present political leaders is based on Keynesian ideas of spending more government money and additional loans to prop up failing governments/banks.  These ideas have been tried not only for the last three years in the U.S., they have been tried around the world at least since the 1930s and they have failed every time they are tried.  Keynesians point to World War II, but the reality is that Roosevelt changed course on his economic policies when he saw WWII coming.  He appointed pro-business advisors and quit attacking businesses.

In order to achieve sustained growth, we need to not only cut government spending, but we need serious regulatory reform.  The present regulatory structure is completely biased towards more regulation and more intrusive regulation.  We need a mechanism that changes this bias if we are going to have sustained growth.  One potential solution would be a Regulatory Bill of Rights.

All real per capita growth is the result of increases in our level of technology.  In the U.S. this means we have to create new technologies.  There are a number of things inhibiting start-ups that created new technologies.  First Sarbanes Oxley and Dodd Frank make it almost impossible to go public today.  It is easier to gamble away your money in Vegas than invest in a technology start-up company.  Second, we have consistently weakened our patent laws, which are property rights in technology.  As a result, it takes years to obtain a patent and then your rights are much less secure than 15 years ago.  As a result, the major asset of technology start-ups has been weakened.  Third, we have one of the highest marginal and effective corporate tax rates in the world.

Last, we have a completely dysfunctional tax system.  The total federal revenues being collected from all sources at the federal level is about 14% of GDP.  We have over 3000 pages of tax laws with mind numbing complexity to collect this small percentage of GDP.  Clearly, a number of politically favored people pay almost nothing, while the rest of us are taxed at exorbitant rates.  Arthur Laffer has proposed that a 12.1% flat tax would bring in the same revenue as all our federal taxes.  This would save trillions in compliance costs.


1987 or 1930?

Is the better analogy for today 1987 or 1930?  Well our fate is not foreordained, but we have huge number of problems to overcome.  In 1987 the U.S. was following basically sound economic policies.  Warren Buffet made a fortune buying stocks in companies in the late 70’s and early 80’s, but if Reagan and the country had not changed course, Buffet might have just as easily looked to be the biggest sucker instead of a brilliant investor.

The odds are much more likely that 1930 is the better analogy for where we are today.  A global financial meltdown is likely to start in Europe or Japan and spread to the U.S.  The U.S. is in no position to weather this storm and is unlikely to take serious measures to withstand the meltdown even if fiscal conservatives were to have majorities in all branches of the federal government.  The most likely situation is a global financial meltdown before the U.S. can get its act together.

Welcome to Global Financial Meltdown!


August 13, 2011 Posted by | -Economics | , , , , | Leave a comment

Regulatory Bill of Rights

As the regulatory state has increased the rights of citizens have been ignored.  The regulatory state avoids the limitations of the Bill of Rights by categorizing the regulations as civil laws, as opposed to criminal laws. Notice and hearing provisions of the Administrative Procedure Act do not provide protection for individual citizens who cannot monitor all areas of the government and who do not have the budget to engage in these activities. Thus, there exists a need for a regulatory bill of rights for citizens.


Regulatory Bill of Rights[1]

A) It shall be a defense to any regulatory action that the goal of the regulation can be achieved in a less intrusive manner or in a more cost efficient manner.

1) The relevant regulatory agency shall not define more than two non-contradictory goals for every regulation.

2) Any person subject to a regulatory action in which the regulatory agency has failed to undertake a reasonable analysis for less intrusive manners or more cost efficient manners of achieving the goals of the regulation shall be entitled to attorney fees.

3) Any person subject to a regulatory action can appeal to either a state court in which the alleged action occurred or federal court.  They shall have to the right to a trial by a jury of their peers and shall not be required to post a bond to appeal.


B) No person shall be subject to any regulation or law that is contradictory to any other regulation or law of the United States.


C) All regulations shall be interpreted strictly against the regulatory agency, any indefiniteness shall be interpreted in favor of the public.


D) Any person shall have the right to petition any regulatory agency to consider an alternative, less intrusive or less costly version of any given regulation to achieve the stated goal(s) of a regulation.

(1) Any person who prevails under this section shall receive 10% of any savings for the government for the next ten years.

(2) Any person who prevails under this section shall receive 2% in any increase in tax revenues above the growth in GDP from companies’ affected by the regulation for 7 years.

(3) The regulatory agency shall have six months to act on any such petition.  Failure to review a petition within six months by the regulatory agency shall be interpreted by a court of review as a presumption that the petition is correct.

(4) Any person’s petition that is rejected by the regulatory agency shall have the right of review by any federal court.


E) Any person shall have the right to petition any regulatory agency to consider an alternative, less costly manner of conducting the regulatory agency’s business.  The petition must show at least a 20% saving in regulatory agency’s manner of doing business, without reducing the work force of the regulatory agency, the salaries and benefits of the work force, and without reducing the effectiveness of the regulatory agency’s state goals.

(1) Any person who prevails under this section shall receive 10% of any savings for the government for the next ten years.

(2) The regulatory agency shall have six months to act on any such petition.  Failure to review a petition within six months by the regulatory agency shall be interpreted by a court of review as a presumption that the petition is correct.

(3) Any person’s petition that is rejected by the regulatory agency and shall have the right of review by any federal of state court.


F) No regulation shall be valid or enforceable that Congress, or the federal government do not have to comply with the regulation in question, with the exception that Congress or the federal government do not have to comply with the regulation in question during a National Emergency.


(G) Any regulation, law, or spending provision that does not have a clear national purpose or disproportionately favors or disfavors a particular sector of the country shall be invalid.

(1) Private citizens shall have a right to enforce this Right in State or Federal court.

(2) All taxpaying citizens of the United States shall have the have standing to enforce this Right.

(3) Any private citizen that prevails in an action to enforce this Right shall have the right to 1% of all monies that would have been spent under the regulation, law, or spending provision plus attorney fees.


Why is this needed?

There is almost nothing that a regulatory agency cannot do to you and for most cases you are not protected by the Bill of Rights.

Although criminal penalties tend to be more severe than civil and regulatory remedies, perhaps only the death penalty is unique to the criminal law. Property is taken by taxation, civil fines, civil forfeitures, and compensatory or punitive damages; individual liberty may be denied by such civil procedures as quarantine, involuntary civil commitment, and the military draft. Thus, what principally distinguishes the criminal sanction is its peculiar stigmatizing quality, even when sentence is suspended and no specific punishment follows conviction. (Emphasis added) Read more

This article then points out that in criminal cases strict subject to strict standards under which the government may act.  It has to comply with strict due process, search and seizure rules, and issued of unconstitutionally vague statues.  None of these is true if the agency characterizes the penalty as a civil penalty.[2] As the article explains

The U.S. Supreme Court has had some difficulty in determining which of these various civil-criminal hybrids (in particular, involuntary civil commitment of dangerous persons, civil fines, civil forfeitures, and occupational disqualifications) are subject to constitutional criminal procedures. After some vacillation, the Court, in a series of cases decided in the late 1990s, seemingly held that constitutional criminal procedures are either fully applicable or do not apply at all; such procedures will be deemed applicable only to offenses that are labeled as criminal or which are overwhelmingly punitive in purpose or effect (Klein).  (Emphasis added)
Read more

This means that government can avoid constitutional protections in most cases just by “deeming” then civil instead of criminal.  Clearly, the regulatory state has made most constitution protection irrelevant.


History of Citizens Demanding Government Respect Their Rights

England and it colonies have a history of demanding that their government respect their rights.  This excellent article, A Brief History of the Bill of Rights,traces the history of our Bill of Rights.[3]

The Bill of Rights, ratified in 1791, was the result of more than a century of experience with rights in America and many centuries before that in England. The major British precursors to the Bill of Rights are:

The Magna Carta (1215) In 1215, a group of English barons, tired of heavy taxes and arbitrary actions by the king, forced King John to sign the Magna Carta (Latin for “great charter”). It guaranteed such fundamental rights as trial by jury and due process of law, a requirement that government be fair in its actions. Originally, these rights applied only to noblemen, but over time they were extended to all English people. The Magna Carta established the principle that the monarch’s power is not absolute.

Petition of Right (1628).The monarchs of England did not always respect the Magna Carta in the 400 years that followed its signing. Parliament, the English legislature, gradually grew in influence. In 1628, Parliament refused to approve more taxes until King Charles I signed the Petition of Right, which prohibited the monarch from arresting people unlawfully and housing troops in private homes without the owners’ consent.

Bill of Rights (1689).Before William and Mary could take the British throne, a condition of their rule was agreement to an act of Parliament in 1689 known as the Bill of Rights. It guaranteed the right of British subjects to petition the king and to bear arms. It prohibited excessive bails and fines and cruel and unusual punishment. This British Bill of Rights protected far fewer individual rights than the American Bill of Rights adopted a century later. Also, the British Bill of Rights was a statute, part of everyday lawmaking — and could be changed easily — rather than America’s constitutional amendments, part of the most important, most fundamental legal document of the land.

It is time for all common law countries to remind their governments that their power is not absolute and governments work for the citizens not the other way around.  This regulatory bill of rights is a step in changing the balance of power between governments and their citizens.  It demands, at the least, government regulations not be contradictory and that they be effective, efficient, and as in obtrusive as possible.



I would appreciate any input in improving the Regulatory Bill of Rights.

[1] My good friend, entrepreneur, and economist Rodney Preisser provided me the inspiration for this idea.

[2] This article points out that a few rare exceptions, such as regulatory takings.

[3] There is no such thing as “positive rights” and “negative rights.”  Positive rights are an attempt to require slavery and are complete nonsense.


December 2, 2010 Posted by | Regulatory bill of Rights | , , , | 2 Comments



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