The growing regulatory state

Kevin Duncan Research Assistant, GWU Regulatory Studies Center
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Sparked by increasing concerns about the burdens of excessive regulation, regulatory policy has joined tax policy as a central element in discussions about how to energize the struggling U.S. economy. While there is some bipartisan support for reforms that would reduce regulatory burdens, for the most part, the two political parties blame each other for our economic woes, claiming the other party regulated too much or not enough.

Tracking the effects of regulation is notoriously difficult, but government data, including a recently released report, can shed some light on the overall trend of regulatory activity across administrations, and whether recent years have been characterized by regulation or deregulation.

The Office of Information and Regulatory Affairs tracks the total time it takes to comply with paperwork requirements of federal regulations in a yearly Information Collection Budget (ICB) report. The latest report, released last month, tracks the information collection activities of individual agencies, including discretionary actions, new statutory requirements and adjustments due to factors outside agency control. The report offers a different and interesting insight into the growth in federal regulations.

Between 1995 and 2010, the total time spent by the public complying with federal regulations grew by 25%. Such a significant increase over the past decade and a half may well have deterred new business investment even before the 2008 financial crisis.

Over the same period, regulatory agencies’ budgets grew by 166%, according to an analysis by Susan Dudley and Melinda Warren. The increase in expenditures occurred as agencies created new rules, stepped up enforcement of existing mandates and increased staffing.

Surprisingly, most of this growth occurred under the supposedly “anti-regulatory” Bush administration. Given these trends, it is interesting that despite calls for returning to the Clinton-era tax code, to promote either fiscal responsibility or possibly a better growth rate, few are calling for a return to the Clinton-era regulatory climate.

The data in both the ICB report and Dudley’s and Warren’s analysis run in opposition to the common rhetoric that during the Bush years the federal government let businesses regulate themselves more than it had during the 1990s. The Securities and Exchange Commission (SEC) provides a compelling illustration: The ICB reveals that between 2000 and 2008, time spent complying with SEC regulations increased by 221%. Over the same time period, the SEC’s budget increased from $357 million to $1 billion.

It is hard to justify rhetoric suggesting that the beginning of the 21st century was any sort of free-market bonanza. The Fraser Institute’s Economic Freedom of the World Report saw the U.S.’s ranking drop over the past decade. Unsurprisingly, over the same time period, the United States has seen lackluster growth, bubbles and almost a decade of stagnation.

While the OMB and regulatory agencies may rightfully say that new regulations confer benefits, it is hard to argue with those who say that regulations also increase the costs of operating or starting businesses, which deters new and existing economic activities, dampening overall economic growth and prosperity. The growth in the amount of time spent complying with regulations may be a decent barometer for these costs.

Kevin Duncan received his Bachelors of Science in Economics and Public Policy from the George Washington University last spring. Now he now works as a research assistant at the George Washington University Regulatory Studies Center, conducting research on regulations’ effects and how to improve regulatory policy.