The Economic Ball-and-Chain of Regulation
Just how great of a cost is that additive pile of regulation on our economy? A new study by the Mercatus Center at George Mason University came up with a mind boggling answer. Had regulations been frozen in place in 1980, the U.S. economy would have been $4 trillion – or 25% - larger than it was in 2012. In personal terms, that's an additional $13,000 for every man, woman, and child in America. For a family four, it would amount to $52,000 for that one year alone.
Put another way, $4 trillion of economic output would rank as the fourth largest economy in the world; larger than Germany, France, and the United Kingdom, and twice the size of Russia's total output. It would mean a lot of jobs, better jobs, bigger paychecks, greater freedom and opportunity.
Most studies of the cost of regulation focus on a particular industry, a specific piece of regulation, or perhaps nation-to-nation comparisons, essentially looking at a moment in time. However, there is a cumulative effect of additional regulation over time that is very real, too.
The study finds that "federal regulation—by distorting the investment choices that lead to innovation—has created a considerable drag on the economy, amounting to an average reduction in the annual growth rate of the US gross domestic product (GDP) of 0.8 percent."
It is noteworthy that under President Obama, annual GDP growth has never exceeded 3%. Under George W. Bush growth exceeded 3% just two years. But, in the twenty years before that, GDP growth was above 3% in all but six years.
"Federal regulations have accumulated over many decades, piling up over time," note the three economists. "When regulators add more rules to the pile, analysts often consider the likely benefits and compliance costs of the additional rules." Since 2012, the last data year utilized in the study, 80,000 pages of regulations have been published in the Federal Register each year, and that doesn't include the dozens of Executive Orders and Memorandums issued by President Obama.
Because of the important role innovation and productivity growth play in an economy, these distortions have consequences for the growth of the economy in the long run."
No serious person advocates for no regulation, but when is enough, enough? Thomas Jefferson envisioned "a wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government," Jefferson said.
Thousands of pages of new regulations are written each year without Congressional approval prior to implementation. In 2009, Rep. Geoff Davis (R-GA) introduced the REINS (“Regulations From the Executive in Need of Scrutiny”) Act. REINS would require congressional approval for the hundred or so “major” rules each year that cost $100 million or more. Yet, as common-sense as this idea seems, it has been stalled in Congress. The House has passed it multiple times, but it has failed to get any traction in the Senate. Mike Lee (R-UT) has recently taken up the fight, and hopefully will be successful.
All the presidential candidates talk about creating jobs and growing the economy. But, will any of them tackle the ball-and-chain burden of over regulation? Will the next Congress join in the fight, or just continue adding to the pile? Elections have consequences and this one perhaps as much as any in a long while.