A little common sense could lift millions of people out of poverty without printing or spending an additional dollar.
As other economic "fixes" have proven illusory, regulatory reform can help America avoid stagnation.
T he U.S. economy is headed towards stagflation, a miserable economic condition in which economic growth stagnates while inflation soars. In the first quarter of this year, real GDP declined by 1.4 percent even while overall consumer prices rose by 8.3 percent in the twelve-month period ending in March. For American families who were struggling before the latest economic setbacks, the 5.5 percent increase in average hourly earnings over the previous twelve months was hardly enough to cope with the 10 percent increase in the cost of groceries over the same period, $4.624 per gallon average gasoline prices ($5.559 on the West Coast) as of May 30, and average rents that have soared over 15 percent from a year earlier to $1,962 as of April.
Against this bleak backdrop, my new research shows that regulatory reform offers the nation the shot in the arm it needs without contributing to the current economic woes.
This idea is not at odds with the acknowledgment that clear, well-designed, and sensible regulations are essential to protect the environment, working conditions, and consumers. Nor should it be controversial to acknowledge that regulations may be costly to comply with and give rise to a host of unintended consequences. Unnecessary red tape exacerbates these costs — whether it’s policies designed by large and established businesses that discourage startups and other competition, occupational licensure or other labor laws that reduce employment, nanny-state rules that increase the cost of consumer goods and services, or a host of other regulations that appeal to politicians but don’t hold up to scrutiny.
These policies are like a vise that squeezes economically vulnerable populations. It is, therefore, not surprising that peer-reviewed research has found that higher levels of federal regulations are associated with both higher levels of income inequality and poverty in the United States.
Building upon this research, I’ve worked with the Mercatus Center to publish an online dashboard with estimates of these “regressive effects” for each U.S. state. The findings, which are likely an underestimate because they consider the impact only of federal regulations (not of state, county, or local regulations and ordinances), paint a grim picture.
In California, federal regulations building up from 1997 onward are associated with an additional 736,168 people living in poverty. In New York, the state with the highest level of income inequality in the United States, federal regulations are associated with 350,078 additional people living in poverty. And since federal regulations apply to all states, even relatively low-regulation Texas and Florida are not immune, with an estimated 717,425 and 423,447 additional people living in poverty respectively.
Other nations such as Canada (and particularly the province of British Columbia) have successfully implemented durable and lasting reforms that have provided real relief to both businesses and households without sacrificing environmental standards, working conditions, or consumer protections.
Several U.S. states, tired of waiting on Washington to act, have already taken the initiative and are reforming their state administrative codes. In his first executive directive in January of this year, Virginia governor Glenn Youngkin instructed state agencies to cut regulatory requirements by 25 percent. Two months later, Ohio upped the ante by passing SB 9, which requires that regulatory restrictions be cut by 30 percent across state agencies over three years.
Clearly, the regulatory reform movement is gaining momentum. There is no good reason that Washington should deny Americans the benefits of these reforms at the federal level. A little common sense could lift millions of people out of poverty without printing or spending an additional dollar.