The Main Reason We’re Entering A Golden Age

In the early 1990s, the European Union (EU) had a larger Gross Domestic Product (GDP) than the United States.

Today, the EU has a GDP of about $18.5 trillion while the U.S. has a GDP of almost $29.5 trillion – a full 60% larger than the EU’s.

There are numerous reasons for this astonishing delta, but there is one main reason that I will discuss below before sharing a few more vignettes and factoids.

• It costs about $11,000, on average, to produce a single mortgage loan, according to the Mortgage Bankers Association. Most of that cost has to do with regulatory compliance – which is often ridiculously outdated, time-consuming, and unnecessary.
• The tech-centric hosts on the All-In podcast recently made the point that it is much easier to start a billion-dollar tech company than it is to start a hair salon in many states because of the regulatory issues that hair salons have to deal with.
• The United States dominates the world in tech – with the likes of Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla. In contrast, the EU has three buggy whip manufacturers, a smattering of blacksmiths, and a few goat farmers. OK – I exaggerate a little, as Europe does have Spotify, ASML, SAP, Nokia, and a few other tech firms, but they are dwarfed by America’s.
• The GDP per capita of the U.S. is currently close to $83,000, while the EU’s is only $41,000. In other words, the average EU resident is about 50% as wealthy as the average U.S. resident.
• My neighbor is the CFO for a consumer lending company that uses advanced algorithms to approve loans in a few minutes with FAR better results than the traditional underwriting criteria that regulators force the mortgage industry to use.
• I can also share countless stories of small retailers, farmers, and contractors I know personally who have been effectively wiped out or badly damaged due to a lack of compliance with regulations they didn’t know existed and issues that impacted nobody.
• Large firms in many industries often push for aggressive regulations solely because it will be too hard for smaller competitors to comply with them. We saw this in the mortgage industry when big commercial banks pushed heavily for more regulations partially because they knew small, low-overhead firms – with whom they could not compete – would have difficulty complying. We see this too with pharmaceuticals, financial services, and hospitality (hotels pushed for regs that effectively pushed Airbnb out of NYC, for example).

What The EU Did In The 1990s That The U.S. Didn’t

So – what did the EU do in the 1990s that the U.S. didn’t? They regulated the internet to “protect those poor Europeans,” only to make those poor Europeans much poorer. And yes, I realize there are other factors at play such as geography, trade policies, currencies, and population growth. But – the main factor was regulation.

Politicians love regulations because they give them more power and allow them to exact more campaign contributions – while also pretending to save the world from whatever boogie man the regulations are ostensibly holding at bay.

And sadly, most Americans have no idea of just how costly excessive regulations are – and that is why I shared so many factoids above. The expense is very real, and the cost directly impacts every one of us (with extra work, e.g. borrowers getting a mortgage, or with lost wealth, e.g. Europe).

Our GDP would be far larger, and every American would be much wealthier if we did not have so many costly and unnecessary regulations.

There is currently a huge push to deregulate the American economy – and if it is successful, we could very well enter a golden age with the help of cheaper energy and AI.

There will certainly be bumps along the road (I still think we’re going to see a recession next year), but in years to come we could see unbelievable wealth that will be shared by all of us – as long as our politicians allow entrepreneurs and small businesses to flourish without unnecessary impediments.