The costs of the shutdown are nothing next to the costs of regulation every year

Jim Huffman Dean Emeritus, Lewis & Clark Law School
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Do we really lose when the regulators stay home?

Everybody seems to agree that the federal government “shutdown” cost the U.S. economy at least $24 billion, an estimate generated by the financial ratings agency Standard and Poor’s and repeated ad nauseam by the talking heads and editorialists of the left. Although we might fairly question how one arrives at such an estimate given the complexity of the U.S. economy (not to mention the complexity of the U.S. government), let’s assume we would in fact be $24 billion better off if the government had continued to run at full throttle.

Why would diminished government activity cost the economy about $2 billion a day? Well, furloughed government employees had less cash to spend. Although Congress made sure workers would be compensated for their time off, it is reasonable to assume that some consumption was foregone permanently. In light of the disastrous rollout of Obamacare, it is also reasonable to assume that merely postponed consumption might be further delayed if the government has difficulty figuring out how to actually make the payments.

It is also true that many government contractors had to cease work resulting in layoffs for some employees and less cash for them to spend.  Unlike federal employees these private sector workers are not guaranteed back pay, although their employers will ultimately do the work they contracted to do and somebody will have to be compensated to do it.

There are other costs.  A couple of weeks ago I wrote about the impact of the shutdown on breweries – they could not get needed government approval of their labels for new releases. Writing in yesterday’s New York Times, Timothy Egan provided other examples of the Main Street (and Boondocks) effects of the shutdown. A farmer in Kansas could not “put winter wheat in the ground,” and an Alaska crab fisherman was “being held back” because marine regulators, like the agricultural regulators, were deemed nonessential.

Do farmers really have to ask “mother may I” before they plant their wheat? Do fishermen really need government permission each time they set out their crab pots? Regrettably, the answer is probably yes to both questions. And it is true that brewers must have government blessing of their beer labels.

I will accept that Egan is right about the shutdown’s costs to ordinary people. Some were inconvenienced and a few with narrow profit margins may have suffered business threatening loses. But what about the ongoing costs to ordinary people which result from government regulation of virtually every action of every business?

In January of this year the Washington Post reported on a study estimating the costs of new regulations adopted in 2012 alone at $216 billion. The Post pointed out that the estimate was not discounted for the benefits that would flow from the new regulations, but $216 billion (on top of the much larger costs from pre-2012 regulations) is a mighty big number – 9 times the estimated $24 billion cost of the shutdown.

Of course we need regulations to assure a sustainable crab fishery and other regulations to protect our food and drink supplies, but is it really necessary to employ government workers whose job it is to say “yes you may” plant your wheat, or put your crab pots in the water, or sell your latest brew?

Egan blames the $24 billion loss on “jelly-bellied Republicans [who] threw a tantrum 5,000 miles away and shut down the government.”  His cost illustrations encompass lost consumption by furloughed federal workers and lost income by people unable to do business because those regulators were not at their desks.  Presumably those are the kinds of costs that Standard and Poor’s added up to reach $24 billion.

To avoid such loses in the future the prescription would seem to be twofold:  (1) don’t shut down the government and (2) employee ever more government workers who can spend their earnings while granting permissions to the private sector. But who will pay the taxes necessary to compensate those government workers?  And what are the true costs to the U.S. economy of our “mother may I” approach to regulation?

If the best we can do after a government shutdown rooted in principled (if ill-communicated) objection to an overweening government founded on unprincipled rent seeking by virtually everyone is to count up business losses due to failure to regulate and the short term costs of foregone or postponed expenditures by government employees, we will never come to grips with the fiscal challenges we face.