Changing glory for that which doth not profit


Economic Analysis

By Leslee Kulba- Richard Rahn, who currently serves as the chair of the Institute for Global Economic Growth, recently called attention to two annual studies. One, the Canadian Fraser Institute’s Economic Freedom of the World report, tied the United States and the United Kingdom for twelfth place in the world for economic liberty. From 1980 to 2001, the United States more or less steadily held down third place. By 2005, it was evident the Leader of the Free World was slipping. The recent analysis shows a slight rebound since 2010-2012, when the country ranked from 14th to 16th.

Countries are indexed according to scores quantifying the size of government, legal systems and property rights, sound money, free trade, and regulation. The last category is subdivided into credit market, labor market, and business regulation. Compared to 151 countries, the US scored highest in labor market regulations, ranking third; but it was 86th in credit market regulations and 62nd in the size of government.

The report observes that the US fell precipitously in the legal systems department, having ranked ninth in 2000. The report’s authors speculate, “The increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs, and the violation of property rights of bondholders in the auto-bailout case have weakened the tradition of strong adherence to the rule of law in the United States.”

Other areas of weakness identified include restrictions on foreign investment, business regulation, independence of the judiciary, impartiality of the courts, and regulatory favoritism. “To a large degree, the United States has experienced a significant move away from the rule of law and toward a highly-regulated, politicized, and heavily policed state,” the authors assert. They further warn that if the United States does not do something to reverse the trend, statistics indicate the nation will be looking at GDP growth slowed to half its historical average.

The other study, known as The Ten Thousand Commandments, is compiled by Clyde Wayne Crews, Jr. of the Competitive Enterprise Institute. From the CEI web site, one can learn 1404 pages of regulation were added to the Federal Register this week, bringing the total to 69,677 pages. Also this week, 59 rules were finalized, and 41 proposed. The nation’s body of regulation now consists of 3196 final rules, with 2121 in the hopper, and 21,631 notices.

The latest bound study was published in April. It begins by tallying this and that astronomical cost of government, and then adds that hidden taxes in the form of regulation are competitive in magnitude. Unfortunately, estimating the costs is beyond difficult. For one reason, many costs are soft and indirect, for another, the federal government in most circumstances makes no reasonable attempt to account for the downsides of its policies; government accountants intentionally obfuscate. Crews states, “The policy circus of an executive office and even a Congressional Research Service study taking taxpayer time and dollars to refute the federal government’s sole comprehensive regulatory cost study rather than compile its own alternative superior estimate is indicative of the state of affairs.”

Crews, a skilled writer and competent mathematician who possesses the rare skill of being able to navigate federal bureaucracies’ data labyrinths, estimates the annual cost of compliance with US regulation to be $1.882 trillion. This amounts to about half of the federal budget or 11.1 percent of GDP. Crews argues, “If it were a country, US regulation would be the tenth largest economy, ranked between India and Italy.” On a personal scale, this works out to $14,974 per US household, indicating it is the second largest line item, next to housing, in family budgets.

On the subject of the rule of law, Crew comments, “There were 51 rules for every law in 2013. The ‘Unconstitutionality Index,’ the ratio of regulations issued by agencies to laws passed by Congress and signed by the president, stood at 51 for 2013. Specifically, 72 laws were passed in calendar year 2013, whereas 3659 rules were issued. This disparity highlights the excessive delegation of lawmaking power to unelected agency officials.”

Another of Crews’ projects is an online book. Entitled Tip of the Costberg, it is presented as a work in progress and frequently updated. The author is fine with regulation as long as it makes sense, but these days it has become a hive of foreseeable crippling consequences, a smorgasbord of techniques known to grow bureaucracy.

Costs of compliance extend beyond taking talent offline to engage in nonproductive paperwork exercises, or even hiring extra people to do this. They entail more than investing in expensive emissions retrofits and personal protective gear. Paying taxes so the government can payroll bureaucrats and furnish their offices is also only a part of the picture.

A poster child of bad regulation, Obamacare has brought costs of compliance into mainstream discussions. News stories are full of employers woefully telling how they have had to cut workers or hold off hiring due to a combination of uncertainty and an inability to meet new cost requirements. Evergreen Packaging in Canton recently had to appeal to the state for a grant from the public coffers so it could comply with new EPA regulations and stay in business.

Price controls, including wage and rent controls, distort markets introducing inefficiencies. Whenever that happens, employers must pay more to deliver the same amount, so they pass the cost on to their customers. Regulations are often the result of cronyism, businessmen exchanging political support for coerced competitive edges in the industry. Not only does this drain the competition of meaningful investment, it creates a business climate of rent-seeking. These days, businesses find it lucrative to divert investment from economy-growing products Joe the Plumber would appreciate, like food and modern conveniences, to lobbyists and other political purchases. Meanwhile, nonprofits and regulators participate in a “sue and settle” charade that also diverts personal power to the regulatory state.

Those living off the bureaucracy spurn Bastiat’s broken windows fallacy. Destruction, we are to infer, is good for the economy because it creates jobs. As power brokers laugh at the notion of opportunity costs, priceless personal liberty is perhaps the greatest cost.

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