Jake wanted to expand and hire more help, but doing so wouold make his business subject to more government regulations and significantly increase his costs. Here are some of the requirements Jake must meet if he expands in order to comply with local, state, and federal regualtions:
- Mandatory safety equipment and materials
- employee health and retirement benefits
- new content and nutritional labeling
- packaging specifications
- more detailed record keeping
- more inspections by the city health dept
- keeping connected with these regulations
If Jake proceeds with his expansion he will be forced to raise his prices to cover the expenses of complying with government regulations. These expenses do not improve his productivity. Increasing prices without increasing productivity is inflationary. Jake's business by itself will not contribute greatly to inflation, but Jake is not alone. Thousands of businesses across the country face similar circumstances. The costs of record keeping and meeting government requirements do not increase productivity, but they do increase business costs significantly. Higher prices result.
If Jake decides not to expand, the jobs he would have created and the increased productivity will not happen. When the costs of regulation become too heavy for businesses already suffering in a recession, they may close shop altogether. This deepens the recession.
What do you suggest Jake does?