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The Corner

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Economic Stagnation & the Administrative State



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It’s possible that one day American civilization will collapse under the weight of unnecessary rules, and the runaway regulatory state will come to some biblical end. 

In the meantime, however, the explosion in regulations under the Obama administration is proving a huge drag on the economy. That explains why the slowest and most meager recovery of modern times is once again slouching back towards recession, losing a tenth of a percent GDP.

You would think that anyone can see how the regulatory rampage is slowing economic growth, but actually liberals can’t. As Adam White recently reported in a harrowing feature for the The Weekly Standard, the administration freely admits that its regulations have been five times more burdensome than all of George W. Bush’s, and almost four times more burdensome than all of Clinton’s. But, the administration argues, the regulations’ many benefits make Obama’s regulations 25 times more beneficial than all of Bush’s! Therefore, the economy would be performing even more slowly but for Obama regulations! 

If every dollar in regulatory costs brings five dollars in regulatory benefits (a profit margin of 400 percent I guess?) then by far the most productive business activity is regulatory compliance, and businesses should avoid doing anything else. Of course, with one major exception,* regulations don’t generally result in large net economic benefits. The administration has fudged the numbers to make it seem otherwise. Its outrageous misuse of science in “calculating” regulatory benefits has already been exposed by Kathleen Hartnett White of the Texas Public Policy Foundation, among others. 

On the other side of the equation, the skyrocketing burdens of the regulatory state have also been revealed by the Heritage Foundation and others. (You’ll be thrilled to learn, for example, that the yearly cost of federal regulations is estimated at about $1.75 trillion. That’s about twice the amount of all individual income taxes, and more than 10 percent of GDP). And an additional cost of regulation, which is hidden and incalculable, is the cost of regulatory uncertainty. Whatever those costs are, they can only be massive, because regulatory (and tax) uncertainty has become the standard complaint of all business leaders in all sectors of the American economy. 

The major problem here is the explosive growth in federal regulations promulgated by executive-branch and independent agencies pursuant to disastrously broad and ill-defined delegations of rulemaking authority. It will soon be possible to establish a broad consensus that the agencies are out of control, and that Congress must reassert its legislative power (and responsibility) in sweeping and historic fashion.

As we move towards consensus on the problems of the unhinged regulatory state and ways to reform it, two proposals will loom large: the REINS Act and the Regulatory Accountability Act. Both have passed the House of Representatives and will become viable in the Senate when the GOP recaptures that body. My strong preference is the REINS Act, which would require congressional approval of major new regulations. Here’s a great paper by former AEI president Christopher DeMuth comparing the two proposals.  

May the debate begin. We need to make sure that when conservatives retake the Senate, radical reform of the regulatory state is at the top of the agenda. In the meantime, it could be that the oil and gas boom lowers energy costs enough to sustain a boom in manufacturing, and that GDP will show strong growth this year. But just imagine what an oil and gas boom would do to an economy unleashed from its regulatory shackles. 

* Regulations benefit the broader economy when they reduce transaction cost, for example by reducing transaction risk.



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