It has been said that the heart and soul of the American economy is the small business. To that point it has been argued that excessive taxation, fees and regulations have provided barriers to the creation and growth of small business. The mantra from conservative radio and many business periodicals is that if the government would just get out of the way of the small business owner, said business would prosper, create jobs and add to the overall growth of the economy. The mantra of the Right, beginning with Reagan is, “Government is not a solution to our problem, government is the problem.”

Now let’s look at the other side. “The Jungle” by Upton Sinclair is as good as any place to start with regards to government regulations. Sinclair wrote the book to illustrate what he considered to be the horrible conditions of the workplace by focusing on the meatpacking industry. Part of his assertion was that due to the conditions of the plants, the public was being sold tainted meat, which resulted in people getting seriously ill or possibly dying. His answer to this dilemma was that the federal government should enact legislation protecting the public from poisonous food. In 1906 the Meat Inspection Act was passed and with it decades of government regulations enacted to protect American citizens from poisons, discrimination, shoddy architecture, usury, etc.

There is this philosophical dichotomy in politics and economics that centers on how the free market should operate. One side wants no restrictions and if somebody gets killed, discriminated against, or ripped off, well God will provide and the market will respond to said assailant. The other side doesn’t accept death, illness, injury, bigotry and flimflam as collateral damage in economic freedom and wants those consequences of bad business practices minimized if possible. In many cases government regulation goes overboard and delivers a knockout blow to common sense. However, in many more cases government regulation has probably saved lives and added to the overall quality of life of most Americans.

Meet Julie Murphy, a 7-year-old from Oregon who set up a lemonade stand on July 29 at an art fair in northeast Portland. This young entrepreneur’s venture didn’t last long when County health inspectors shut her down, telling Julie and her mother, Maria Fife, that they needed a temporary restaurant license. This license costs $120 and the penalty for selling food without a permit, they warned, was $500. Now she was only selling lemonade for 50 cents a cup so it may go without saying that being $120 in the red before you’ve sold your first cup makes the idea prohibitively unprofitable. All kidding aside, here we have a rather vivid illustration of the bigger debate over how much regulation is proper regulation and when does it harm the public.

Paul Craig Roberts is an economist and former US Assistant Secretary of the Treasury under Ronald Reagan. He is considered a co-founder of Reaganomics. He is also an ardent critic of the modern Republican Party with regards to his perceived notion of their trashing of the US Constitution. Roberts wrote for Creators Syndicate probably the most evenhanded article on the debate over regulation versus deregulation that I have ever read.

One example of the consequences of over-regulation is, “…fleet mileage standards that regulation imposes on carmakers. These regulations destroyed the family station wagon. Families needing carrying capacity turned to vans and panel trucks. Carmakers saw a new market and invented the SUV, which as a “light truck” was exempt from the fleet mileage regulations. The effort to impose fuel economy resulted in cars being replaced by overweight fuel-guzzling SUVs.”

In the very same article he cites an example against the virtue of deregulation. “Consider the fallout from trucking deregulation. As in the case of the airlines, the claim was that more communities would be served and costs would decline. But which costs? Deregulation made every minute a bottom-line item. Trucks became bigger and heavier, and travel at higher speeds. Highway safety suffers, and highway maintenance costs rise. The courtesy of truck drivers declined. When trucking was regulated, truckers would stop to help people whose cars had broken down. Today, that would throw off the schedule and threaten the bottom line.

Economists dismiss costs that aren’t included in price. For them, the cost that matters is the price paid by consumers. The truck that gets there faster delivers cheaper to the consumer. The myriad ways in which people pay the price of deregulation are not part of the price paid at the checkout counter.”

His answer to the debate over regulation versus deregulation is that neither work particularly well. This is a sentiment I agree with. I believe there is a role for government regulation in the lives of Americans, but then the question becomes which government are we talking about? I think the view from the federal government is too high, too removed from the nuances of local society and too influenced by lobbying groups and political party orthodoxy. Clearly there are moments in time when the federal government must step in because the issue is universal and as such so should the law be. The 14th amendment comes to mind here. However, for the most part the states and local communities should have more of a legislative role in how they operate rather than being tyrannized by the federal government.

The best example I can give of the federal government overreaching is “No Child Left Behind.” One of the aspects of No Child Left Behind is that 100% percent of all students will read on grade level by the year 2014. The problem is that includes students with cognitive disabilities including but not limited to mental retardation. Children with severe cognitive disabilities may never be able to read at grade level regardless of how much the world’s greatest teacher with all the resources money can buy, tries. It is also statistically impossible for all children in the US, regardless of any number of other variables that would affect their education, to read at grade level. The result of this fairly massive oversight in the legislation is that districts and ultimately teachers are penalized unfairly because for being unable to reach an unattainable goal. It is true that they can technically opt out of NCLB but doing so will cost them federal funding. The states that choose not to receive funding will have their taxes used in another state instead. At the end of the day, a regulation written in good faith with good intentions can often result in unfair consequences being too widely disseminated while still putting the goal out of reach.

So what about lemonade stands? The rules and fees regarding setting up lemonade stands are there for a reason. We don’t want people poisoning us. It’s not likely that a little girl and her mother will, but you can’t make rules for one entity and not the other. Exceptions can be made given certain circumstances and Jeff Cogen, the Multnomah County chairman, even agrees that the inspectors should have used a bit more discretion but that doesn’t mean the regulation itself is unjust. If you turn this situation around and suppose the lemonade was tainted in some way you can bet the first question somebody would have asked is, “Why weren’t we protected?” I think the argument needs to be reframed. It should not be regulation versus de-regulation but regulation versus over-regulation. The debate should also center on what the limits of the federal government are and what constitutional responsibility it has to share powers with the states. No regulation whatsoever is as unrealistic a goal as the idea that we will some day roll back the entire New Deal; it’s never going to happen nor should it.

Finally, not all lemonade stands are subjected to the whippings of the harsh mistress that is government regulation. Take the case of eleven-year-old Damon Rodefer, who raised thousands of dollars for hungry families in East Tennessee recently by handing out cold lemonade and snacks.

I’m guessing he had his paperwork in order before the first cup was served.

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