With the Obama Administration promising to issue an avalanche of new business regulations in its final year of office, much is being written about the massive drag the existing regulatory regime is having on the U.S. economy. Please see my prior post
Over-regulated!
An Investors Business Daily (IBD)
editorial highlights the damage from the growing pile of onerous rules and red-tape mandated on businesses. The impact is shocking.
Study: GDP Would Be 25% Bigger If Government Regulations Had Been Capped In 1980
April 26, 2016
Red Tape: Economists scratch their heads when asked to explain the economy’s tepid growth over the past several years. A new study gives a possible answer: the growing, cumulative burden of federal regulations.
Under President Obama, annual GDP growth never once even hit 3%. Under Bush before him, there were only two years when growth topped 3%. But in the two decades before that, annual GDP growth was above 3% in all but six years.
Growth has been so anemic for so long, we’re now being told that this is the “new normal.” As the Bureau of Labor Statistics put it, “annual U.S. GDP growth exceeding 3% … is not expected to be attainable over the coming decade.” It lists everything as a cause, except for one thing: federal regulations.
Whenever a new regulation gets passed, the government puts out a cost analysis, which focuses on annual compliance costs. That’s fine for a point in time. But these regulations don’t go away. And every year more get added to the pile. The Code of Federal Regulations is now more than 81,000 pages long.
What’s the cumulative impact of all these rules,
regulations and mandates over several decades? A new study by the Mercatus Center at George Mason University tries to get an answer, and what it found is mind-boggling.
The paper looked at regulations imposed since 1977 on 22 different industries, their actual growth, and what might have happened if all those regulations had not been imposed.
What it found is that if the regulatory state had remained frozen in place in 1980, the economy would have been $4 trillion — or 25% — bigger than it was in 2012. That’s equal to almost $13,000 per person in that one year alone.
Looked at another way, if the economic growth lost to regulation in the U.S. were its own country, it would be the fourth largest economy in the world, as the nearby chart shows.
The authors — Patrick McLaughlin, Bentley Coffey, and Pietro Peretto — are quick to point out that this calculation includes only the costs of complying with federal regulations, not benefits — like cleaner air, safer workplaces, etc. — that don’t show up in the GDP numbers.
Still, does anyone really think that we are getting $4 trillion worth of benefits from federal regulations today?
Bad as this picture is, it has only gotten much, much worse since 2012, as President Obama has embarked on a regulatory free-for-all since winning re-election. While his administration imposed 172 “economically significant” regulations in Obama’s first terms, it’s added another 200 since then. The pace of regulations under this president far exceeds those of either Bush or Clinton. At the end of last year, Obama had imposed 85 more than Clinton and 100 more than Bush. Plus, the scale of Obama’s regulations are arguably far grander than his predecessors, including the entire health care industry, the banking and financial services industry, and the overbearing carbon emission rules.
Yet, mysteriously, this massive and growing regulatory burden on the private sector never comes up when the discussion turns to underwhelming economic growth. Instead, we hear about “headwinds” and the lingering effects of the financial crisis.
The authors say their findings suggest “that a wide-scale review of regulations … would deliver not only lower compliance costs but also a substantially higher economic growth rate.”
Indeed it would.
Another excellent opinion
piece in IBD is from supply-sider Peter Ferrara, a senior fellow at the Heartland Institute, providing additional color on some of the damage done by the EPA, ObamaCare, and Dodd-Frank. Ferrara mentions the proposed REINS Act as a means to at least slow the stampede of growth-crushing regulations.
How Overregulation is Killing The Economy
Peter Ferrara
April 27, 2016
The Competitive Enterprise Institute publishes an annual report on how much federal regulation is costing the economy, cheekily named the Ten Thousand Commandments. The 2015 edition estimated the cost that year to be $1.88 trillion, more than 5 times the cost of federal corporate income taxes that year, and about 10% of the entire 2015 GDP.
The costliest regulatory burden has got be the EPA’s assault on American energy industries. We have a president today conducting a war against our own nation’s coal industry. Oil and natural gas are next on the chopping block.
The Heritage Foundation’s Steve Moore has produced a study estimating the total value of proven reserves of oil and natural gas in America at $50 trillion! That is about three times our entire nation’s GDP.
But so-called progressives are leading a crusade to deny that buried treasure to the American people, under the foolish slogan “Leave it in the ground.”
That is the fairest measure of the cost of the president’s anti-American energy regulation, for which the justification is a fairy tale. The Heartland Institute is now completing the third of three 1,000-page volumes of double-peer-reviewed science published over the past year under the title Climate Change Reconsidered II, demonstrating that the risk of catastrophic consequences from the use of those fossil fuels is indistinguishable from zero.
A close second in regulatory costs is ObamaCare, which is increasing the costs of health insurance by double digits every year. The employer mandate requires all employers employing 50 or more full-time workers to buy mandated health insurance for those workers. The result is 6.1 million involuntary part-time workers today, which the Bureau of Labor Statistics defines as those who “would have preferred full-time employment, (but) were working part-time because their hours had been cut back or because they were unable to find a full-time job.”
But the next most onerous overregulation is Dodd-Frank, whose burdensome costs fall disproportionally on small community banks with fewer employees. Dodd-Frank has led to a decline of over 40% in such smaller banks, which specialize in loans to small businesses, whose growth has been badly lagging.
The Federal Reserve reports that the sharp decline in commercial banks has been driven by the dearth of new bank formation since Dodd-Frank was adopted in 2010, with zero new banks in 2012, and just one in 2013. Consequently, Dodd-Frank has only added the new problem of “Too Small to Succeed” to the old problem of “Too Big to Fail.”
Particularly destabilizing has been the Durbin rule enacted in Dodd-Frank, which arbitrarily slashed by about half the fees banks could charge merchants for use of debit cards by their customers. The Federal Reserve estimates that has cost banks about $14 billion a year, which banks have been recouping by increasing fees to their customers and terminating services such as free checking.
A new economic study by the Perryman Group estimates that the modern, international electronic payments system arising from card payments creates 23 million permanent jobs and increases GDP by 12%. That results because modern electronic payments reduce transaction costs by 50% compared to paper currency transactions, and because the widespread availability of mobile touch-and-pay systems makes the formation of new business models possible, such as Uber and Airbnb. The Durbin rule arbitrarily slashes payment for this pro-growth innovation, which will only tend to limit and shrink it.
A good means of addressing the explosion of federal overregulation is the proposed REINS (Regulations of the Executive In Need of Scrutiny) Act. That act would cut back on executive overreach by requiring that any federal regulation imposing $100 million in increased costs on the private sector would have to be approved by Congress before going into effect.
That would have preempted the entire EPA jihad against traditional American energy production, as well as most Dodd-Frank regulations. Congress would never have allowed Obama to bankrupt the coal industry, for example.
- Peter Ferrara is Senior Fellow for Entitlement and Budget Policy at the Heartland Institute, and Senior Policy Advisor for the National Tax Limitation Committee. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
