Every American would be $13,000 richer if federal regulations were frozen in 1980, according to a new study by the Mercatus Center at George Mason University.
The piles of red tape since 1980 have been so costly to the U.S. economy that if regulations were a country, it would have the fourth-highest GDP in the world, as of 2012.
This means the U.S. economy is $4 trillion, or 25 percent, smaller than it otherwise would be, amounting to $13,000 per capita if Washington, D.C. had halted the tide of regulations. The cumulative effect has slowed annual GDP growth by 0.8 percent, say the study’s authors.
Mercatus reached these figures by examining a panel of 22 industries observed annually between 1977 and 2012. The authors used data from the Bureau of Economic Analysis and the Census Bureau to measure the industries, with metrics of regulation by industry provided by RegData 2.2.
“By altering investment decisions and disrupting the innovation that comes from investment in knowledge creation, regulations have a cumulative and detrimental effect on economic growth—and, over time, have a real impact on American families and workers,” said the study’s authors.
“We all know regulations have costs on the economy, but people often overlook the indirect effects. The costs of regulation are clear and measurable when a coal power plant has to shut down because of EPA regulation, or Uber is kicked out of a city. What is difficult to capture is the investment and ensuing innovation that never takes place,” author and fellow at the Manhattan Institute Jared Meyer told The Daily Caller News Foundation in an emailed statement.
“We now have a Code of Federal Regulations that is over 175,000 pages long. These pages contain over one million commandments from Washington in the form of restrictive words that tell business owners they must or cannot do something. It is amazing that anyone can grow a business–much less start one–when they have to comprehend and then comply with the restrictions that apply to them.”
The U.S. should look beyond its shores for examples of how to deal with the crushing the burdens of red tape, according to Meyer.
“Canada and the UK are working to cut their level of accumulated regulation, and the European Union also realizes that antiquated regulations hold back economic growth,” says Meyer.
“In order to promote a dynamic, 21st-century economy, we need investment and innovation. Regulatory accumulation harms both of these critical aspects of economic growth, and I hope the Mercatus Center’s new figures help policymakers realize that their constituents are losing out on potential wealth every day Washington ignores regulatory reform.”
But the study drew criticism from some quarters for not sufficiently showing the benefits of federal regulation. Amit Narang, director of regulatory policy at Public Citizen, told The Hill it “shouldn’t be taken seriously.”
“A serious and balanced consideration of regulatory impacts would take into account the massive costs to the public when we don’t have strong and effective regulations, such as the Wall Street crash that cost the country 14 trillion dollars and ruined the financial security of countless working families and consumers,” Narang said.
“Once those costs of regulatory failure are included, the case for regulations that protect the public becomes obvious.”
Patrick McLaughlin, one of the study’s authors, responded telling The Daily Caller News Foundation in emailed statement the study was not a simple cost vs benefit analysis.
“Our study examines how regulatory constraints affect investment choices, and how that, in turn, affects economic growth. We explicitly state at multiple points in the study that we are not weighing costs versus benefits,” McLaughlin said.
“Instead, we are using the tools of economics to understand how dynamic responses to regulatory accumulation can affect the economy in the long run. Unless you consider how regulations affect people’s and firms’ choices, particularly with regard to investment in innovation, you will miss how these responses to regulatory accumulation change the economy.”
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