Economic Capital Punishment

Capital punishment as it relates to punishment of criminals is a widely debated topic.  The ethics of it are unclear and there is room to argue from either side.  The fundamental argument in favour is that some crimes are so heinous as to put the person who committed them outside the protection of society.  The argument opposed is that every person is unique and special and deserving of continuing in society.

There is another version  of capital punishment that applies to some who have committed no crime at all.  How much does it cost to comply with various governmental regulations?  No one knows.  But it is a large number.  Then their is the cost to pay for the bureaucracy.

Some of the money is well spent and some is acceptable, not because the regulation makes sense for your business, but because it makes sense for the industry as a whole.  The rest is wasted.

Wasteful regulation punishes the capital of those who are busy trying to make more.  Useless information requests.  Incomprehensible forms.  Fines. Blundering and self-important bureaucrats.  Ideologically driven rules.  Narrowly defined and poorly conceived compliance methods are supremely costly.  Worse, some government agency does it and charges the business.

Common sense says that regulation is required and useful and it should be achieved at the lowest possible cost.

How many regulators have actual experience in the businesses they regulate?  Almost none, and you can see that when you ask them a question about one of their blunders or unintended consequences.  Most of business does not work in the theoretical sphere.

Income taxation, at the corporate level, in Canada is at a generally acceptable rate.  It is not intrusive.  While no one likes paying taxes, it has come down to the point where few are taking heroic actions to avoid it.  That is good for everyone.

Payroll taxes and other burdens could use some reflection.

Taxation and regulation punish capital formation when they divert resources, time and skill to areas that have no net advantage to society as a whole.  The processes must strive to minimize the amount of tax, , the precision of regulation and the cost to get the result or we are all worse off for it.

Perfect regulation and perfect compliance are impossible.  The strategic plan should be to get most of the desired result at minimal cost.

Economist Joseph Schumpeter has claimed that the capitalist system will fail because it so good at what it does.  It permits people who do not contribute to the building of wealth to get along.  They can minimize the effectiveness of the system while not contributing and eventually we all suffer.

More regulation, more taxation and more policing add no value.   Recall Pareto’s Law.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: 

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