How Regulations killed American entrepreneurship

The Sarbanes-Oxley Act of 2002 has devastated new business creation in the United States.

The Wall Street Journal notes:

According to the National Venture Capital Association, in all of 2008 there have been just six companies that have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986. Faced with crushing reporting costs if they go public, new companies are instead selling themselves to big, existing corporations. For the last four years it has seemed that every new business plan in Silicon Valley has ended with the statement 'And then we sell to Google.' The venture capital industry is now underwater, paying out less than it is taking in. Small potential shareholders are denied access to future gains. Power is being ever more centralized in big, established companies. For all of this, we can first thank Sarbanes-Oxley. Cooked up in the wake of accounting scandals earlier this decade, it has essentially killed the creation of new public companies in America, hamstrung the NYSE and Nasdaq (while making the London Stock Exchange rich), and cost U.S. industry more than $200 billion by some estimates.
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An advisory committee to the SEC found that:

beyond the aggregate costs involved with Section 404 compliance, costs in relation to revenue have been disproportionately borne by smaller public companies. The lack of proportionality of the cost and amount of resources devoted to Section 404 compliance for smaller public companies is evidenced by data which shows that the expected cost of Section 404 implementation, as a percentage of revenue, is dramatically higher for smaller public companies than it is for larger public companies.
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The committee found that compliance with Sarbanes-Oxley costs small companies, defined as those with a market capitalization of less than $100 million, an average of 2.55% of revenues. For large companies on the other hand, compliance only costs an average of 0.06% of revenues.

That's a 42.5 times greater relative cost that this regulation imposes on small companies versus large ones.

The situation is absolutely intolerable and needs to be reformed, given how important new business creation is for the US economy. Many of the most dynamic companies today, companies like Google, Ebay, and Yahoo, began in the last 10-15 years. How many future Googles and Ebays has Sarbanes-Oxley prevented from emerging? How many jobs and billions in revenues have been lost to this misguided intervention in the financial sector?

As Ron Paul pointed out following the Madoff scandal, the idea of regulating away financial scandals with regulations enforced by an SEC cannot work, and only imposes more costs on the US economy:

Administration "open-minded" about GM bailout

Forget the Constitution, forget the enumerated powers of the federal government, when it comes to the economy, the Obama administration is "open-minded" about the prospect of using tax payer dollars to bailout GM and Chrysler. From Bloomberg:

Task Force Open to Auto Aid, Avoiding Bankruptcy, Rattner Says

By John Hughes

March 17 (Bloomberg) -- The Obama administration is “open minded” about giving General Motors Corp. and Chrysler LLC more aid and will use “all the resources” of the federal government to avoid bankruptcy for the automakers, said Steven Rattner, chief adviser to the U.S. Treasury’s autos task force.

U.S. auto suppliers may get some aid, and the task force plans to meet a March 31 deadline for assessing GM and Chrysler viability, Rattner said yesterday in an interview. “We are open minded about committing additional resources to ensuring a viable domestic car industry,” he said.

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Gone are the days when politicians looked upon the Constitution as their rulebook, and with a sense of duty to their Constituents, strove to limit the power of the federal government in the spirit of Constitutional Republicanism.

There is now no limit to what the politicians will consider as a justifiable exercise of power by the federal government. The federal government of the United States is no longer a limited government as setup by the framers of the Constitution. It is an all-powerful central government that decides how much freedom to afford the people. It can interfere and intervene in any sector of the society. The Constitution is merely a relic of a distant past, with no bearing in political decisions.

In times like this, a review of James Madison's quote expounding his fears of an all powerful federal government seems fitting:

"If Congress can employ money indefinitely to the general welfare, and are the sole and supreme judges of the general welfare, they may take the care of religion into their own hands; they may appoint teachers in every State, county and parish and pay them out of their public treasury; they may take into their own hands the education of children, establishing in like manner schools throughout the Union; they may assume the provision of the poor; they may undertake the regulation of all roads other than post-roads; in short, every thing, from the highest object of state legislation down to the most minute object of police, would be thrown under the power of Congress.... Were the power of Congress to be established in the latitude contended for, it would subvert the very foundations, and transmute the very nature of the limited Government established by the people of America."

-James Madison, the father of the Constitution

New Episode of Freedom Watch with Judge Napolitano, Ron Paul et al!

New episode, with Judge Napolitano, Ron Paul, RAND PAUL, Peter Schiff and Cody Willard!

Part 1:



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Part 6:

Ron Paul video: "What if.."