The Superpower of Coping with Government Stupidity

Whenever I’m in Europe, my friends tell me about the insane economic policies they endure. In Spain, for example, I heard multiple tales of new businesses that took years to open. Why? Because the business creator needed a bunch of different hard-to-obtain permits. Mi amigo bueno Gabriel Calzada tells me that opening the Universidad de las Hespérides, his new university in the Canary Islands, took 17 years in total — almost entirely driven by regulation.

Given all this insanity, you might expect Spain to be an economic wasteland. But it’s obviously not. I’ve been to almost every major region of Spain, and wherever I go, the country is bursting with high-quality commerce. Apologists for the status quo could jubilantly declare, “See, making businesses wait years to open is actually good!”

But that’s absurd, so what’s really afoot? Simple: Businesses have an unsung superpower. They aren’t just awesome at producing and marketing goods and services. They are also awesome at coping with government stupidity — rule by people that my good friend Scott Aaronson aptly describes as “blankfaces”:

What exactly is a blankface? He or she is often a mid-level bureaucrat, but not every bureaucrat is a blankface, and not every blankface is a bureaucrat. A blankface is anyone who enjoys wielding the power entrusted in them to make others miserable by acting like a cog in a broken machine, rather than like a human being with courage, judgment, and responsibility for their actions. A blankface meets every appeal to facts, logic, and plain compassion with the same repetition of rules and regulations and the same blank stare—a blank stare that, more often than not, conceals a contemptuous smile.

Suppose you know that opening a new grocery store requires three years of bureaucratic hell. A mediocre entrepreneur will start filling out the paperwork on the day that consumer demand makes a new store profitable. A good entrepreneur, in contrast, will start filling out the paperwork three years before consumer demand makes a new store profitable, so the doors can open on the first day there’s money to be made.

Thanks to competition, consumers ultimately pay the price of wasteful government policies. This is Econ 1: As long as prices remain free, government stupidity reduces supply and raises prices, allowing businesses to remain profitable despite their hostile economic environment.

Crucially, however, the process of complying with sheer idiocy is itself competitive! Suppose firms can figure out how to streamline the compliance process. There’s learning by doing, or economies of scale in compliance. Then thanks to competition, businesses ultimately pass these compliance savings on to consumers.

Imagine, for example, that Spanish licensing requirements raise business costs by an average of 20%. You might think that prices would have to rise 20% to pay for these burdens. But in reality, some firms will be much better at coping with licensing requirements than others. Their costs “only” rise by, say, 10%. What happens? “Average” firms go out of business, and get replaced by firms with superior coping skills. Firms that contemplate the blankfaces and quietly tell themselves, “Here’s how we’ll handle these morons” rather than “Poor me, this is hopeless.”

If you have a deontological objection to negligent coercion — as you should — you might consider my superpower story to be bad news. After all, if government stupidity had devastating economic effects, governments would be under a lot of pressure to avoid stupidity. But whatever your meta-ethics, the fact remains: In a business environment with lots of stupid government policies, businesses that survive tend to be very good at coping with government stupidity.

Some stupidity, granted, is so egregious that no one can figure out how to cheaply defuse it: See immigration restrictions and housing regulation. Some countries are so short on entrepreneurial talent — and so hostile to multinational business — that government stupidity keeps them mired in poverty. But in most industries and most countries, businesses merrily chug along despite rule by blankfaces. If your business leaders are smart enough, massive government stupidity could be quite livable. And if you travel the EU — or California for that matter — I must confess that this is largely what you see.