May 20, 2017

Do Regulations Make Americans Poorer?

Is America's accumulating pile of regulations slowing down economic growth? According to a new study from the Mercatus Center at George Mason University, the answer is yes: Thanks to regulatory drag, the U.S. economy is $4 trillion smaller than it otherwise would have been ...

The Mercatus Center's new study refines the earlier work of two economists, John Dawson of Appalachian State University and John Seater of North Carolina State. In a 2013 Journal of Economic Growth article, Dawson and Seater constructed a regulatory burden index by tracking the growth in the number of pages in the Code of Federal Regulations since 1949. That number, they note, increased sixfold from 19,335 to 134,261 in 2005. (As of 2014, it had risen to 175,268.) The authors devised a pretty standard endogenous growth theory model and then inserted their regulatory burden index to calculate how federal regulations have affected economic growth.

Their astonishing conclusion: Annual output in 2005 was '28 percent of what it would have been had regulation remained at its 1949 level.' If not for the growth in the regulatory burden, gross domestic product would have been $53.9 trillion in 2011 instead of $15.1 trillion—a 2 percent annual reduction in economic growth cumulated over 56 years. Americans are significantly poorer due to federal regulations, without which 2011 U.S. per capita income would have been almost four times higher, at $168,000 instead of $48,000.

I have no idea if these numbers are accurate or if the study's conclusions are correct. Indeed, I see some potential flaws in the methodology I would want to investigate. However, this sort of thing needs to be calculated and considered.

It's easy to say regulations are necessary because without them, there would be much harm to citizens by greedy capitalists. (I agree.) But it's much harder to understand that regulations aren't cost-free. At some point -- who knows exactly where or when -- we are getting too much bad for too little good.

This is what we Libertarians call "the seen vs. the unseen." It's easy to see the smokestack that was made to stop smoking. It's not easy to see the town slowly descending into poverty.