Government’s reach growingPublished 11:00pm Wednesday, August 21, 2013
Have you ever hired a magician to perform at a children’s party? Did you know that the Federal government regulates magicians, at least the ones who pull rabbits out of hats? Magicians must comply with Department of Agriculture regulations for the safe handling of their rabbits. Earlier this year, the Department issued a new regulation requiring disaster plans for magicians’ rabbits (and other animals). Magicians can’t just put their rabbit in its cage (or hat) and carry him to safety in the event of a hurricane or tornado, but must write a sufficiently detailed plan to satisfy Federal bureaucrats. According to The Washington Post, a plan for a magician with one rabbit totaled 28 pages.
Government regulation, emanating from Washington, Montgomery, and city hall, touches virtually every aspect of our lives. Automobile dealers, for example, must comply with over forty Federal regulations affecting every aspect of their business, from the showroom to the service bays. And this doesn’t count regulations affecting the safety and fuel efficiency of the cars themselves, or state or local regulations on the dealerships.
The Federal government issued over 3,500 regulations in 2012, and over 80,000 during the past two decades. This total helps explain the pervasive reach of regulation today. Washington regulates far more than it legislates: last year Congress passed only 127 laws. And regulation will likely become even more pervasive in the future. Regulation can usually substitute for government spending, as Obamacare’s individual and employer health insurance purchase mandates illustrate. Government could buy insurance for people using tax dollars, but instead makes people purchase insurance. As growing entitlement spending squeezes the Federal budget in the years to come, Washington might replace more spending with regulatory mandates.
Not surprisingly, these thousands of regulations take a huge toll on the economy. Regulation imposes many costs on businesses. These include paperwork (like that 28 page rabbit disaster plan), responding to queries from bureaucrats, and accommodating inspections. More significantly, compliance often requires spending on new equipment, signs, or other changes to workplaces. Both the Competitive Enterprise Institute and Small Business Administration estimate the cost of regulations at around $1.8 trillion.
Dollar totals in the illions (millions, billions, trillions) are hard to comprehend. To provide perspective, this $1.8 trillion (largely hidden) cost of regulatory compliance exceeds the revenue from Federal individual and corporate income taxes combined. It represents almost 12% of GDP, or nearly $15,000 per family, annually. This is only Federal regulation and does not include state, county, or city regulations.
Unfortunately the impact of regulation on the economy goes beyond compliance costs. Regulation reduces the freedom of individuals and businesses to innovate or create new products. Regulation reduces productivity growth, ultimately reducing standards of living, and particularly burdens small businesses, which are the source of many new jobs. The greatest cost is likely the new products, services and businesses that are never created because of regulation.
The costs of regulation of course must be compared with the benefits. Costs are worth incurring if they yield commensurate benefits. Regulations making the air we breathe and the water we drink cleaner have been costly, but most would agree were worth the cost. Such successes though do not excuse or justify unnecessary regulations; the EPA has enacted some very costly regulations with virtually no documented benefits. And worthwhile regulations should be no more burdensome than necessary.
Much regulation, however, is unnecessary. Markets provide their own form of regulation, a fact which many proponents of larger government simply ignore. Market forces, for example, were reducing workplace deaths and injuries before the establishment of the Occupational Safety and Health Administration. The choice is not between government regulation and nothing, but instead between government and market regulation. Government action is only truly needed when markets fail to provide adequate regulation.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University. Respond to him at email@example.com and like the center on Facebook.