Monday, August 11, 2008

Regulating ourselves out of prosperity

It's true that economies naturally go through periods of growth and retrenchment, good times and bad. That said, it's not wise to add dead weight to even a thriving economy, let alone one that's struggling to stay out of recession.

Last week, in Investor's Business Daily, Wayne Crews and Ryan Young wrote:

While the Dow collapses, we have a bull market in government regulations. The 50-plus departments, agencies and commissions are now at work on 3,882 rules; 757 will affect small businesses. More than 51,000 final rules were issued from 1995 to 2007. Those regulations are not free.

Enforcing and overseeing them costs $42 billion per year. A far bigger cost — one that is not counted in the budget — is compliance. Regulatory compliance costs of $1.16 trillion are now higher than Canada's entire 2004 GDP ($1.017 trillion).

At a time of lackluster 1% economic growth, the regulatory state costs 8.5% of U.S. GDP. Combined with the 21% of GDP consumed by federal spending, we have a federal government that absorbs nearly 30% of economic output. None of this includes state and local government, which push the burden of government up to 53.9% of GDP.
So the government is sucking up better than half of economic output, even as it's doing it's best to kill the ailing creature from which it's feeding.

But that regulatory apparatus hobbles only nasty big corporations, right? We shouldn't mind a weakened economy if it means reining-in ExxonMobil.

Well, even if you're a hater of any business too large to fit in your living room, there's no comfort to be found here. Just three years ago, a report (PDF) prepared for the Small Business Administration found:
The research finds that the cost of federal regulations totals $1.1 trillion; the cost per employee for firms with fewer than 20 employees is $7,647. ... On a per employee basis, it costs about $2,400, or 45 percent, more for small firms to comply than their larger counterparts.
An average regulatory cost of $5,633 per employee is staggering for any business; that the cost is 45% higher for vulnerable small businesses that employ about half of all Americans (PDF), generate most new jobs and innovate at a level well beyond their weight class is frightening. That means that regulatory costs aren't just high, they're also threatening to act as a barrier to entry for new businesses that represent the country's economic future.

Crews and Young are right to add, "We need to roll back the regulatory state and free up the wealth-creating sector. We cannot afford today's bull market in government regulations."



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