Saturday, January 17, 2009

More on Feedback-Free Regulatory Structures

Reader reports illustrate just how deep the Feedback-Free regulatory rot goes in the U.S. economy and culture.

The main point of The U.S. Economy: Increasingly Marginal Returns (January 15, 2009) was to describe how feedback-free regulatory structures in the U.S. have become nonsensical taxes on the economy and disincentives to productivity.

While I am occasionally accused by readers of reveling in the implosion of the global "bogus credit-bubble prosperity" for quasi-spiritual reasons--i.e. we deserve this, suck it up and like it--I would suggest that the pervasive, insidious rot caused by feedback-free regulatory structures is not a spiritual decline but a completely practical decline.

Spiritual declines tend to meander into squishy debates and diatribes, but practical declines can be addressed with policies and intellectual frameworks which do what my little book Weblogs & New Media: Marketing in Crisis covers: add a feedback loop.

In terms of governmental regulations, we need to add three feedback loops: one for price (what will this regulation cost the economy as a whole, and what is the price-value of the supposed benefits?); one for energy (how much energy will this require which could be otherwise be deployed to do things like grow and transport food, etc.) and a third which addresses the incentives and disincentives to the actual engine of the U.S. economy, entrepreneurs and small business.

I received two cogent comments from readers on this topic which illustrate the absolute insanity of feedback-free, price-is-no-object regulatory structures. Please note I keep saying "structures," because this isn't a "problem" of tweaking one regulation overstep here and there--it's fundamentally a system running out of control bexcause there are no feedback loops to control the craziness.

Here is correspondent Trey S. (North Carolina) on the absurd waste of mindless/feedback-free regulation and the disincentives to entrepreneurship:

"My dad loves this topic because he hates local regulations. He owns granite countertop/flooring company in downtown Charlotte. He doesn't make any money and is only staying open because his monthly loss is less than the cost of medical insurance for a 57 y.o. with a pacemaker. That's a whole nother story.

Anyhow, point is he's barely hanging on to pay 20 people and contribute to the tax base. Recently, the city noticed that a minute amount of granite dust makes its way 200 yards from the stone mill to a creek. That's pieces of rock entering a creek. They're making him pay for a filtrations system, fining him for damage to a creek in downtown Charlotte, and forcing him to replace the topsoil on the 200 yards from mill to creek. The city has no sympathy for the situation and have said, point blank, they're not particulary upset about him closing over this and having 20 more people become unemployed.

My editorial comment would be this: what's the point of taking any risks? By day, I'm a state employed statistician/economist with the pension and benefits. It's kinda boring. By night, I'm a carpenter and make furniture out of my house's mud room. I love that and dream of doing it but see no point in dong that as a career even though I'm 31 and very motivated. To do that I 1) lose my heath insurance and 2) pension while operating furniture factory that 3) OSHA will regulate the hell out of and I 4) become vulnerable to a giant lawsuit if a bookshelf fell on a kid and would 5) personally guarentee all my wealth (I inherited a farm) to get the small business loan. Also, I'd have to 7) deal with customers and 8) employees. My upside is 1) joy and 2) becoming a hugely profitable company.

Tell me why I should take all the risks for the unlikely upside that I'm the next Ethen Allen?"

Next up, correspondent Dan K. (Washington state) filed this report on that supposedly encouraged activity known as farming/growing food and the buzzsaw of mindless regulations which chews up entrepreneural dreams without regard for the eventual costs to our society and economy:

"I live in King County, WA. Seattle is the major city here. At one time the county was primarily agricultural, but that was a long time ago. Now there are still a few 'protected' farms, but nothing like there used to be in the past.

Just last week I was looking at farmland in the neighboring counties, and was simply astounded at the land prices -- more than prime Iowa/Nebraska farmland. Turns out it is a current anomoly based on blueberry farmers coming in from Canada.

So I am speaking with a realtor who specializes in larger land tracts, farmland, etc and we get on the subject of farmland in King County. He tells me that I can pretty much get good deals on farmland in King County but -- I may never get to farm it. When I tell him the county has a whole website dedicated to sustaining small farms in King County he tells me it is all a joke. As soon as you try to plant anything you will end up with inspectors hanging all over you requiring permits, looking for puddles thay can call wetlands (to effectively 'take' your land) etc. In the end, he says that if you are not long established as a farm there, any attempt at re-starting a farm will be met with failure. And clearing land? Fugetaboutit.

Here in King County they passed a 'growth ordinance' back in 1993. People who had owned 5 acre tracts of land to the east of the Seattle suburbs suddenly found that all they could do was build ONE house on those five acre tracts. No more subdividing the land. The tree-huggers in Seattle were all full of glee about it -- though they will never even visit these areas in their lifetime. The idea was to 'protect' this area from too much growth and 'save' it. The end result was to significantly drive up home prices in the County, drive gowth MUCH further out, and either make housing less affordable or commutes longer and more expensive.

But it gets worse. I have friends who own some of these now minimum 5 acre tracts. Want to cut a tree down? Good luck. The county takes aerial photos (in detail) and compares them periodically. Cut a few trees and find yourself facing stiff fines. Fill in a puddle larger than 5 feet across and you may be cited for wetland destruction.

And forget about cutting invasive weeds like blackberry, since that is now considered 'natural habitat'. Of your five acres, you really get to use no more than 1/3 of it, and the rest has to stay they way it is/was. What sense does all this make? One of them has tried to get a permit to do a little work on their property. The county has neither denied it nor approved it -- a common occurance.

The county follows a path of passive-aggresive response to growth. Do nothing. In the meantime my friends have spent many thousands of doallars in submission fees seeking approval that may never come as there is no downside to doing nothing. I told them to start showing up in person EVERY DAY at the permit offices demanding either approval or denail. This way they can either get going, or sue for lack of approval on no real basis.

It all makes no sense to me. Growth (that is managed) is a good thing. It pays for all the stupid county programs they want around here. And farms actually feed people. Don't we want to feed people?

There will come a time when we will WANT to have those close-in community farms to offset the costs of high oil prices on food transport. What the heck will they do with all those regs then?"

So here is what we have from Washington state to the mid-Atlantic states and everywhere in between: a governmental regulatory system which doesn't care if companies close down and fire all the employees and which doesn't care if food is grown near cities or not.

Once we're going hungry and there are no jobs to be had at any wage, then maybe we'll add some desperately needed feedback loops to the governmental structures which have run amok. Or the Depression (made worse by the very regulatory structures illustrated above) will bankrupt all local and state government and the regulatory system will in effect destroy itself much like cancer kills the body it inhabits.


Some housekeeping notes: I totally blew it on Bank of America, and as one astute reader put it, "I hope this teaches you to stay away from zombie banks." And how!

I am again way behind on responding to email--thank you for your patience. I have concluded (painfully) that my time management is horribly deficient. As a consequence, please excuse the occasional miss, and the tardiness and brevity of my replies; I do read each email carefully but time constraints will likely limit the length/consistency of my responses.

Ironically, perhaps, the growing readership of this site threatens to cave in the entire structure, as the feedback loops of data, reader queries and comments are overwhelming the host.

Many readers have suggested I set up a forum. I have explored the idea and concluded I have zero time to manage that feature and the fact is that any forum requires significant oversight/management to maintain its quality. My savvy colleague Karl Denninger, whom I greatly respect and admire, has kindly shared his experience in what it takes to maintain his very successful forum over at the Market Ticker: several hours a day. I don't have even several minutes a day for another project, never mind hours.

So here's my conclusion: if a reader of this site wants to start and maintain a third-party hosted forum for oftwominds.com readers, then I will post a prominent link to the forum as long as the quality remains high, i.e. it is monitored and managed to the same level as The Market Ticker or theoildrum.com.

There are already thousands of other forums and I really don't think oftwominds would add anything of value by being open forum 1,000,001.

I note that another of my respected and admired blogger colleagues, Jesse over at Jesse's Cafe Americain has no forum or comments, and his site does not seem to suffer whatsoever from this deficiency. Thus it seems some of us prefer to host sites without comments or forums, as frustrating as this may be to some readers. I apologize for this inability to host a forum but "me only pawn in game of life" and given that my livelihood comes from doing several other jobs, some prioritizing of my limited time/energy is necessary.

I am also seeking a Web-tech expert in the San Francisco Bay Area (where I reside) who can help me make a realistic assessment of the pros and cons of site management software, specifically, WordPress and Serendipity. I would pay for the consultation at a non-corporate rate. (Feel free to refer a friend who charges a reasonable rate and who isn't an evangelist for any one system. I am not seeking a new religion, just objective, experienced advice on basic web management software.)

I have begun analyzing my actual time management of this site and discovered that the vast majority of time is spent in research/writing and reader correspondence, neither of which would benefit from software, at least software from this planet. (Those with extra-terrestrial sources of software, please share your secrets! I need a clone or self-programming A.I. avatar!)

Thank you to everyone who has offered me advice and insight, especially Don E. and Harun I. Thank you, those readers who have generously contributed recently-- there is no superior form of encouragement than your support. I can only promise to do my best with whatever time and energy is available to me.

What's for dinner at your house? has been updated with four new recipes.

New chapter in Operation SERF: Chris Sullins' "Strategic Action Thriller" is fiction, and contains graphic combat scenes.
Operation SERF, Part 7.


Thank you, Jennifer F. ($15) for your much-appreciated generous donation to this site. I am greatly honored by your support and readership.

Thank you, Douglas K. ($20) for your most generous contribution to this site. I am greatly honored by your support and readership.

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