Regulation

The Government's Ten Thousand Commandments Cost $1.88 Trillion Per Year

Regulations now cost your family nearly $15,000 annually.

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Cashburning
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In my 2013 article, "Regulations Have Made Your 75 Percent Poorer," I reported a fascinating study by economists John Dawson of Appalachian State University and John Seater of North Carolina State which found that the proliferation of regulations had dramatically slowed economic growth. By how much?

The growth of federal regulations over the past six decades has cut U.S. economic growth by an average of 2 percentage points per year, according to a new study in the Journal of Economic Growth. As a result, the average American household receives about $277,000 less annually than it would have gotten in the absence of six decades of accumulated regulations—a median household income of $330,000 instead of the $53,000 we get now.

Instead of a $54 trillion dollar economy, we live in a $17 trillion economy.

Every year, the free market Competitive Enterprise Institute issues its Ten Thousand Commandments report on the more direct costs that the regulatory state imposes on the economy. CEI has issued a fact sheet that outlines the costs of regulations. Depress highlights (lowlights?) include: 

Federal regulation and intervention cost American consumers and businesses an estimated $1.88 trillion in 2014 in lost economic productivity and higher prices.

Economy-wide regulatory costs amount to an average of $14,976 per household – around 29 percent of an average family budget of $51,100. Although not paid directly by individuals, this "cost" of regulation exceeds the amount an average family spends on health care, food and transportation.

The "Unconstitutionality Index" is the ratio of regulations issued by unelected agency officials compared to legislation enacted by Congress in a given year. In 2014, agencies issued 16 new regulations for every law —that's 3,554 new regulations compared to 224 new laws.

Many Americans complain about taxes, but regulatory compliance costs exceed what the IRS is expected to collect in both individual and corporate income taxes for last year—by more than $160 billion.

The 2014 Federal Register contains 77,687 pages, the sixth highest page count in its history. Among the six all-time-high Federal Register total page counts, five occurred under President Obama. 

The George W. Bush administration averaged 62 major regulations annually over eight years, while the Obama administration has averaged 81 major regulations annually over six years.

The CEI reports the cost-side of regulation, but what about the benefits? Surely, the benefits of some regulations outweigh their costs. That is certainly what the cost-benefit analyses that regulatory agencies generally report. In 2014, the Office of Management and Budget issued a report that concluded:

The estimated annual benefits of major Federal regulations reviewed by OMB from October 1, 2003, to September 30, 2013, for which agencies estimated and monetized both benefits and costs, are in the aggregate between $217 billion and $863 billion, while the estimated annual costs are in the aggregate between $57 billion and $84 billion. These ranges are reported in 2001 dollars and reflect uncertainty in the benefits and costs of each rule at the time that it was evaluated.

In other words, the benefits of regulations outweighed their costs by a ratio of at least 4 to 1, but perhaps as high as 10 to 1.

But, as noted above, the study I cited at the beginning strongly suggests that reductions in economic growth over the long run likely cost far more than the benefits that regulations are supposed confer on the citizenry.

Disclosure: I had the honor of being the first Warren Brookes Fellow at CEI.

NEXT: I Was a Teenage 'Libertarian of Convenience'*

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  1. Whatever, that social contract charge is just another thing on my mortgage statement b

  2. But something that is unregulated must be uncontrolled, and something that is uncontrolled must be dangerous!!!!

    /sarc

  3. What kind of chaos would erupt in a place where economic growth spills the banks of regulation? I know I certainly don’t want to find out.

  4. In all seriousness, I’m a bit skeptical of the specific numbers quoted here. But at least there is an honest attempt to understand *any* cost associated with regulations. I’m continuously amazed by how many people treat regulation as an unquestioned good, nay, absolute necessity, seemingly without any negative side effects whatsoever.

    1. At work we treat it as the obstacle course we and our competition all have to wind our way through – before we can meet customer needs or make a profit.

      1. I find it more like a minefield in my business…

        1. Regulations are the only thing keeping your office from becoming a literal minefield!!!

          /prog

        2. As I recently had occasion to tell my CEO and Board, any business arrangement we have with a significant physician group is an existential threat to the hospital, due to the “fraud and abuse” regulatory risk.

    2. In all seriousness, I’m a bit skeptical of the specific numbers quoted here.

      Yeah. It’s difficult to quantify the unseen.

      1. Not to mention decades worth of possible capitol accumulation that got pissed away instead.

      2. I can quantify it in a rough sense. I guarantee you that the costs of regulation in this country at this point are colossal. So colossal we can’t even comprehend it. Regulations and taxes sustain every single person who works for the government, or for a government contractor, or for the military, or for local government, etc. Do you realize how many people that is? And then how so many of them use regulation as a weapon? But regulation is a weapon of destruction. All it does is cost money, much like blowing up buildings in the course of war costs money.

        The overall actual costs have to be beyond mindblowing.

        1. Regulation is the people saying “No you can’t do that, but you can do this if you do it my way.”

          Government is the idiots who tell the experts how to do their jobs.

        2. I posted below — local, state, and federal governments spend about $25K for every single person in the country.

      3. Exactly. If we are being honest with ourselves, it’s sort of like “jobs saved or created”. We don’t have a controlled experiment with which to compare, so any analysis is going to depend on models that are necessarily a simplification of the real world and that also are sensitive to a number of assumptions, which may or may not be justified.

        You may be able to say with reasonably high confidence that regulations have a net negative effect. You might even be able to give an order of magnitude estimate. Anything more specific is probably just confirmation bias.

      4. It’s got to be an underestimate. It’s not hard to model just by an assumption of ROI, estimating what’s been skimmed off the seed corn each round, which is probably what they did. But what that omits because it’s not quantifiable is the gains in std. of living that are foregone in the case of regul’ns stifling innovation, such as in medicine. Then there are the losses in utility, which however do not compound, caused by simple prohib’n of pleasurable things like prostitution, drugs, gambling, porn, & some dangerous activities.

    3. I skimmed through the paper and it seems to be typical dubious social science. Find a correlation, declare it a direct causal relationship, then extrapolate it out over a very long time period to get a big number.

    4. Skeptical? I don’t think they’re nearly high enough.

  5. The “Unconstitutionality Index” is the ratio of regulations issued by unelected agency officials compared to legislation enacted by Congress in a given year. In 2014, agencies issued 16 new regulations for every law ?that’s 3,554 new regulations compared to 224 new laws.

    Congress specifically tasks the agencies with making regulations to carry out the provisions of the laws they pass. An example:

    ? 389d. Rules and regulations
    The Secretary shall have power to make such rules and regulations as may be necessary to
    carry out the provisions of sections 389 to 389e of this title.
    (June 22, 1936, ch. 692, ? 5, 49 Stat. 1804.)

    The problem is that government is trying to do what it has no business doing.

  6. “The Government’s Ten Thousand Commandments Cost $1.88 Trillion Per Year”

    But why would we want glass shards in our cans of tuna?

  7. Coase, who was no libertarian, claimed that their was no new regulations that benefited more than they cost. He wasnt arguing against the possibility, just that we probably already had those, and we were past the point of it being possible.

    Law of diminishing returns applies everywhere, makes sense that it applies to regulations.

    1. Except that with regulation, the return is in power. That does not diminish. Rather it only increases.

    2. Coase was libertarian enough. If he ruled, we’d be so free, we’d be agitating over relatively minor impositions.

  8. Regulation is merely the twin sister to taxation and fees. It’s all part of the parasitic drain of government. Which is merely the organized crime unit that has successfully convinced most people that it is the most legitimate gang who you should pay your protection money to. Regulation is just an offshoot of the desires for control of the types of people who like to join the gang.

    1. Freedom means asking permission and obeying orders.

    2. Wouldn’t that make them triplets?

  9. The growth of federal regulations over the past six decades has cut U.S. economic growth by an average of 2 percentage points per year, according to a new study in the Journal of Economic Growth. As a result, the average American household receives about $277,000 less annually than it would have gotten in the absence of six decades of accumulated regulations?a median household income of $330,000 instead of the $53,000 we get now.

    Anyone see the mathematical fallacy there? Hint: it has something to do with the definitions of “mean” and “median.”

    1. IJ: Just a slight imprecision in the language.

      Average: a number expressing the central or typical value in a set of data, in particular the mode, median, or (most commonly) the mean, which is calculated by dividing the sum of the values in the set by their number.

  10. Take Blue Bell, for example, their response to widespread listeria contamination has been to shut down production and recall all product until they can verify their products are safe to consume. Turns out the government didn’t have to send in armed agents to make that happen. The company bet that it was a better long term strategy than being seen as a permanently suspect product. Think of all the USDA compliance fines Blue Bell is stealing by doing this!

  11. I look at the bigger picture: local, state, and federal governments spend around $8T a year, or 40+% of GDP. There are somewhere around 320M people in the US, and 120M households, ie families of some sort. That $8T comes to $60K per household, $25K per individual, which includes babies and old farts.

    I sure as hell don’t get $25K of product from all those governments.

  12. This is exactly the sort of issue the GOP candidates should highlight. It perfectly spans the libertarian/Tea Party/establishment GOP/social conservative spectrum, and is hard for the Democrats to counter. Boil this down to a few inarguable facts and examples, and hammer away.

  13. Don’t worry, quantitative easing will save us.

  14. I’m sorry, this is a ridiculous study.

    While I agree regulation is expensive and hinders growth, there is no way each household would be $270,000 richer nor we would have added 2% per year to economic growth. Monetary policy would have been adjusted — whether forced by the FED or by normal boom/bust cycles or a combination of the two — to slow down the economy. Assuming those dollars actually existed to be distributed to the masses (we have a fiat currency so that is not at all a given), they would most definitely be worth far far less than dollars are worth now and the average family’s worth would not be 5 times higher than if those regulations didn’t actually exist.

    1. Productivity increases mean more for cheaper. You’re caught up in the numbers, but the dollar amounts don’t mean anything at all. We would be 75% richer. Food, electronics, medicine, god knows what else would have been invented or innovated, all 75% cheaper than they currently are as a percentage of our income.

      Even the average income was still 50k, if an Iphone costs 125, your prostate exam went from 1k to 250, whatever, the dollar amounts don’t matter, you’re 75% richer because you can get 75% more things or entertainment.

  15. An economy is an incredibly complex thing. This study just assumes what regulation is costing us now (which is impossible to effectively quantify because there are a crazy number of variables at play) and calculates it back some arbitrary distance in time, without bothering to take into account what higher incomes/growth may mean for the economy.

    To be clear: I do think we’d all be at least slightly better off if it weren’t for the near infinite number of regulations businesses have to deal with day-to-day, but it is unquantifiable in my opinion since it is such a complex issue. Attempting to quantify it makes you look like a fool.

    1. Attempting to quantify it makes you look like a fool.

      So, we pretend it isn’t happening?

      I tend to agree that year-over-year compounding overstates the cumulative impact.

      But regulation is a deadweight cost, at least in part, and deadweight costs have cumulative and even compounding effects.

      So, what if they overstated the cumulative effect by a factor of 3?

      As a result, the average American household receives about $63,000 less annually than it would have gotten in the absence of six decades of accumulated regulations?a median household income of $110,000 instead of the $53,000 we get now.

      Still a crime against humanity.

      1. Thank you.

        1. When something is costing the average family 16k per year, that is quantifiable, and bassjoe can’t wrap his head around how incredibly detrimental to the economy that is, he should be deemed a moron.

          If anything that 75% is probably low. That 2% doesn’t take into account game-changing inventions or innovations that probably would have taken place by now that would have had a much larger than 2% impact on the economy.

  16. I would post this to Facebook IF YOU HAD A GODDAMNED EDITOR.

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