While our political and cultural elite like to pretend that there is a settled science that supports the notion that government creates "revenue” by Acts of Congress and the generosity of the Executive Office, once again they have it exactly backwards: All public revenues first start out as private money in the economy. When that money is missing from the private sector, it can never afterward make its way to the public sector.
Now here's the bad news: Labor participation rates, and the effect they have on GDP, are just long spring showers that someday will end compared to the storm created by the regulatory burden in the country. According to a report in 2011 by the Heritage Foundation, the government's own Small Business Administration estimates that compliance with various federal regulatory structures cost the economy another $1.75 trillion every year. And that's before we even account for the costs of Obamacare and Dodd-Frank financial "reform" - both of which appear to have higher price tags than originally touted.
While we will never have a regulation-free government- nor should we- it bears asking how long we can afford to pay 13 percent of our GDP to comply with federal mandates, over and above taxes that we pay to support basic services like the common defense.
Because doing my own back-of-the-envelope calculation says that by cutting regulatory costs to half of what they are currently means we can add another $9.8 trillion in GDP as well. If we combine that growth with policies that encourage employment, we can add $19 trillion to GDP over ten years.
$19 trillion could go very far toward righting our fiscal ship even as the fiscal storm continues.
Because the fiscal storm that we see happening in western, industrialized counties isn't just fiscal, it's also demographic. With aging populations and near zero internal birth rates, we can no longer rely, as we once did, on a riding tide of population to lift all boats in our economy.
We need to get back the private GDP that politicians today are so happily squandering through myriad government schemes like Sarbanes-Oxley or emergency unemployment benefits. Since it’s unrealistic to expect politicians to make meaningful cuts in government spending, we have to reduce the burden of government- over 40 percent of our GDP in 2013- by growing the private sector more rapidly.
Or we risk being swamped in the face of this man-caused, government sponsored super storm.
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