When Barack Obama was running for president, he made no secret about his plan to "restore common-sense regulation"—read: increase regulation—by closing the regulatory loopholes he thought the Republicans had opened. Deregulation, he argued repeatedly, is the source of evil. Much like Franklin Delano Roosevelt during the Great Depression, Obama offered a sweeping, ambitious agenda: new financial regulations, new labor regulations, new energy regulations, and more.
Today Obama is the president-elect of the United States. With Democratic majorities in Congress, he will have tremendous power to push his "reforms." And unlike FDR before him, President Obama won't have to create a regulatory system from scratch in order to increase government control of people's lives. His groundwork was laid by George W. Bush.
Some people still seem to think Republicans take a hands-off approach to regulation, probably because the party is always quick to criticize the burdens regulations place on businesses. But Republican rhetoric doesn't always match Republican policy. In 2007, according to Wayne Crews of the Competitive Enterprise Institute, roughly 50 regulatory agencies issued 3,595 final rules, ranging from boosting fuel economy standards for light trucks to continuing a ban on bringing torch lighters into airplane cabins. Five departments (Commerce, Agriculture, Homeland Security, Treasury, and the Environmental Protection Agency) accounted for 45 percent of the new regulations.
Since Bush took office in 2001, there has been a 13 percent decrease in the annual number of new rules. But the new regulations' cost to the economy will be much higher than it was before 2001. Of the new rules, 159 are "economically significant," meaning they will cost at least $100 million a year. That's a 10 percent increase in the number of high-cost rules since 2006, and a 70 percent increase since 2001. And at the end of 2007, another 3,882 rules were already at different stages of implementation, 757 of them targeting small businesses.
Overall, the final outcome of this Republican regulation has been a significant increase in regulatory activity and cost since 2001. The number of pages added to the Federal Register, which lists all new regulations, reached an all-time high of 78,090 in 2007, up from 64,438 in 2001.
Even more worrisome is how agencies implement these rules. In a recent study titled "Homeland Security and Regulatory Analysis: Are We Safer Yet?," Jerry Ellig and Jamie Belcore of George Mason University's Mercatus Center (where I work) looked at the regulatory analysis behind the Department of Homeland Security's regulations. They found that the agency conducted shoddy, incomplete regulatory analysis; never tried to find regulatory alternatives; and didn't bother arguing that there was a market failure or a systemic problem that might warrant government intervention. According to Homeland Security's own estimate, its rules cost the economy more than $4 billion a year; the actual cost is likely to be much higher.
President Bush deserves most of the blame for this regulatory expansion. While the president does not have to sign new rules before they're implemented, he does implicitly approve them. In addition, he signed hundreds of laws commanding federal agencies to produce new regulations. One is the Sarbanes-Oxley Act of 2002, which established new or enhanced standards for all publicly held companies and accounting firms in the United States. Another is the McCain-Feingold campaign finance reform law, which imposed new restrictions on campaign spending and prohibited unregulated contributions ("soft money") to national political parties.
The Bush team has spent more taxpayer money on issuing and enforcing regulations than any previous administration in U.S. history. Between fiscal year 2001 and fiscal year 2009, outlays on regulatory activities, adjusted for inflation, increased from $26.4 billion to an estimated $42.7 billion, or 62 percent. By contrast, President Clinton increased real spending on regulatory activities by 31 percent, from $20.1 billion in 1993 to $26.4 billion in 2001.
The sad implication of these data is that today it costs more to produce each rule than it cost eight years ago. If the regulator's budget is going up while the number of final rules is decreasing, and yet the number of pages in the Federal Register is growing, then the regulatory process is becoming increasingly inefficient. And since the regulations are becoming more expensive, taxpayers are losing on all fronts.
Figure 1 shows the real increase in regulatory spending by full presidential term between 1960 and 2009. During both his terms, President Bush outspent every one of his recent predecessors. In his first term, he increased spending on regulatory agencies by $8.3 billion, almost doubling what President Clinton—the second biggest spender—spent during his second term.
The data also show that, adjusted for inflation, expenditures for the category of finance and banking were cut by 3 percent during the Clinton years and rose 29 percent from 2001 to 2009, making it hard to argue that Bush deregulated the financial sector.
Figure 2 shows the 10 largest annual percentage increases in total real regulatory outlays in the last 50 years. The Bush administration's performances in 2002 and 2003 made the top five, with its 2003 budget leading the pack.
It takes a lot of bureaucrats to create and enforce all those regulations. In eight years, Bush increased the federal government's regulatory staff by 91,196 employees. Clinton cut it by 969. This is why Business Week recently designated Washington as one of the top places to ride out the recession: The government is hiring.
Many of Bush's hires have been in the ranks of the Transportation Security Administration, making the skies safer by confiscating lighters and requiring that nursing mothers declare their breast milk at checkpoints. Never mind that the probability of 9/11-style attacks dropped to near zero in the months after September 11 when airlines installed, at relatively low cost, simple cockpit barricades.
Franklin Roosevelt expanded government power from a relatively small base. Today the Securities and Exchange Commission, the Environmental Protection Agency, and myriad other federal agencies are not only well established but have more power and more staff than ever. Increasing their reach should be easy. President Obama has President Bush to thank.
Contributing Editor Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.