How Regulatory Reform Can Help Drive the Economic Recovery

(wildpixel/iStock/Getty Images Plus)
Cutting burdensome regulations is an obvious way to stimulate the economy without blowing a hole in the federal budget.

NRPLUS MEMBER ARTICLE I t may seem like a distant memory, but just a few months ago, the unemployment rate was historically low. An economic recovery is now in progress, and unemployment has dropped back below 10 percent. But many people are still suffering, and reexamining regulations may be the best way to revive growth and get the economy back to where it should be.

One problem facing our leaders is that some of the tools traditionally available to boost the economy during recessions are in short supply. In a typical recession, the government tends to increase spending or cut taxes. The hope is that these policies will goose the economy and get people back to work sooner. But whatever one thinks about their effectiveness, it’s getting harder and harder to justify them when trillion-dollar deficits are expected to be the new normal.

According to the Wall Street Journal, federal debt is on track to exceed the size of the economy for the first time since World War II next year. While more government spending or tax cuts could boost growth, they probably wouldn’t do so by enough to fully offset the larger deficits they’d create.

Fortunately, there is another arrow in the policymaker’s quiver that often gets overlooked: regulatory reform. It’s less sexy than cutting taxes, or sending constituents a check in the mail and a letter signed by the president, but it may actually produce more bang for the taxpayer buck.

Are regulations bad for the economy, such that removing them will boost economic growth? You might be surprised to learn that until not that long ago, there wasn’t a whole lot of solid empirical evidence on the question either way. Sure, economic theory offered sound reasons to believe that regulations stunt growth by displacing business investments and misallocating resources and talent away from their most productive uses. But few statistical studies had the data to back up that belief, because historically it’s been hard to measure regulation’s economic impact. And in economics, what gets measured tends to be what gets studied.

Thankfully, this state of affairs has begun to change in recent years. Since around the turn of the century, the World Bank and the Organization for Economic Cooperation and Development have put together indices of regulation that measure its extent across countries. By now, we have several decades of data accumulated, and they are informative.

Recently, Robert Hahn and I reviewed studies published in the peer-reviewed academic literature that rely on these indices to explore the extent to which regulations affect economic growth or productivity (which is a proxy for growth). Virtually every study in our sample pointed in the same direction: Regulation that restricts entry into an industry or imposes anti-competitive restrictions on product or labor markets has a negative impact on growth. This held true across a variety of countries, industries, and time periods, and across studies employing a variety of methodologies and statistical techniques.

Of course, regulations have benefits, too, and very often regulators aren’t even concerned with how their policies affect the level or growth rate of GDP. But in a way, that’s the problem: These unintended consequences go overlooked, both because regulators have other goals in mind when they write laws, and because even in the rare cases where they conduct an economic analysis, that analysis typically focuses on small changes in the short term, rather than the long-term dynamics associated with growth.

As this year’s recession begins to fade, regulatory reform is an obvious choice for those who want to juice the economy without blowing a hole in the budget. President Trump has already made cutting red tape a priority of his administration. But according to some measures, there has actually been a modest increase in the overall amount of federal regulation during Trump’s tenure. Trump has effectively managed to turn off the regulatory spigot, such that the flow of new regulations has slowed from a geyser to a drip. But the stock of thousands of preexisting rules still on the books is still a big problem for the economy.

Fortunately, several states have made serious headway at reducing their own regulatory regimes. Idaho and Missouri are notable for their substantial success in this regard. The Trump administration can and should learn from their example.

The coronavirus has wrought havoc on the American economy, but some of the sluggish growth we are experiencing is man-made. While the worst of the virus and the economic devastation that has accompanied it are hopefully behind us, that doesn’t mean we should sit idly by. There is much that can still be done without pushing the federal government further into the red. In that sense, regulatory reform is a can’t-lose proposition.

James Broughel is a senior research fellow at George Mason University’s Mercatus Center and the coauthor of the new study, “The Impact of Economic Regulation on Growth: Survey and Synthesis.”

Most Popular

Law & the Courts

Replacing Ginsburg

While we did not agree with many of Justice Ruth Bader Ginsburg’s views about the Constitution or the judicial function, we never doubted her industry, dedication, gumption, civility, or patriotism. We send our condolences to all who mourn her passing. Justice Ginsburg almost certainly had more fans than any ... Read More
Law & the Courts

Replacing Ginsburg

While we did not agree with many of Justice Ruth Bader Ginsburg’s views about the Constitution or the judicial function, we never doubted her industry, dedication, gumption, civility, or patriotism. We send our condolences to all who mourn her passing. Justice Ginsburg almost certainly had more fans than any ... Read More
Law & the Courts

Barr Is Right About the Prosecution Power

Attorney General Bill Barr gave a speech at Hillsdale College on Wednesday that attracted a lot of attention. Much of that attention was for his ill-considered remark (in a question-and-answer session following the speech) that "Other than slavery, which was a different kind of restraint, [the pandemic lockdowns ... Read More
Law & the Courts

Barr Is Right About the Prosecution Power

Attorney General Bill Barr gave a speech at Hillsdale College on Wednesday that attracted a lot of attention. Much of that attention was for his ill-considered remark (in a question-and-answer session following the speech) that "Other than slavery, which was a different kind of restraint, [the pandemic lockdowns ... Read More

Snobs or Mobs?

A   lot of us were feeling pretty good about the future of the media in late September of 2004. Dan Rather and the CBS news division had just tried to derail George W. Bush’s reelection campaign with some genuine fake news — based on fake documents — and, in spite of the manful attempts of ... Read More

Snobs or Mobs?

A   lot of us were feeling pretty good about the future of the media in late September of 2004. Dan Rather and the CBS news division had just tried to derail George W. Bush’s reelection campaign with some genuine fake news — based on fake documents — and, in spite of the manful attempts of ... Read More

The Mystery of Robert E. Lee

No one who ever met Robert Edward Lee -- whatever the circumstances of the meeting -- failed to be impressed by the man. From his earliest days as a cadet at West Point, through 25 years as an officer in the U.S. Army’s Corps of Engineers and six more as a senior cavalry officer, and then as the supreme ... Read More

The Mystery of Robert E. Lee

No one who ever met Robert Edward Lee -- whatever the circumstances of the meeting -- failed to be impressed by the man. From his earliest days as a cadet at West Point, through 25 years as an officer in the U.S. Army’s Corps of Engineers and six more as a senior cavalry officer, and then as the supreme ... Read More
World

Jared Kushner Was Right

Over the past several years, a new certainty was added to death and taxes: Jared Kushner would fail in his role as the administration’s Middle East point man. It caused considerable merriment among President Donald Trump’s critics (and even some of his well-wishers) when he put his son-in-law in charge of ... Read More
World

Jared Kushner Was Right

Over the past several years, a new certainty was added to death and taxes: Jared Kushner would fail in his role as the administration’s Middle East point man. It caused considerable merriment among President Donald Trump’s critics (and even some of his well-wishers) when he put his son-in-law in charge of ... Read More
Film & TV

The Convictions of Jim Caviezel

‘I didn't get invited by Hollywood to come to this industry,” actor Jim Caviezel says. It was God — not the executives, the talent agents, nor the filmmakers — that gave him his acting talent. “God believed in me, that He wanted me to be an actor. I felt it in my heart very deeply.” A man of deep ... Read More
Film & TV

The Convictions of Jim Caviezel

‘I didn't get invited by Hollywood to come to this industry,” actor Jim Caviezel says. It was God — not the executives, the talent agents, nor the filmmakers — that gave him his acting talent. “God believed in me, that He wanted me to be an actor. I felt it in my heart very deeply.” A man of deep ... Read More