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Federal Regs Cost More Than $2 Trillion a Year
We often complain of red tape in the abstract — an amorphous pile of rules and regulations Washington, D.C. imposes on the rest of us. But every one of those rules is written into the Code of Federal Regulations.
The CFR is a compendium of every rule and reg ever concocted by the federal government, from soup (9 CFR 319.720) to nuts (21 CFR 164.110). Some are no doubt essential, most are probably well-intentioned, and untold numbers are sops to powerful interests with well-paid lobbyists.
As of 2013, the CFR was a whopping 175,496 pages. That’s about 150 times the length of the average Bible. If the CFR were compiled into one volume, the book would more than 55 feet thick. (More precisely, about 666 inches — a telling number.)
Every one of these regulations has a cost in time and money. So the National Association of Manufacturers conducted a massive study to figure out who pays what. The trade association found that complying with federal regulations cost Americans $2.028 trillion in lost economic growth each year. This is about 12 percent of the total GDP.
The study also found that manufacturers bear a disproportionate share of the burden: $19,564 per employee per year. Small manufacturers pay even more — a stunning $34,671 per employee per year. All of this is money that could be used to create new products and jobs or even raise salaries. Instead, it is wasted on red tape.
“Overall, we hope that this analysis helps policymakers as they contemplate additional regulatory proposals,” said W. Mark Crain, the economist who conducted the research. “Small businesses and manufacturers most frequently identified regulatory issues as the top business challenge.”
NAM President Jay Timmons worries that the news will only get worse. “These costs don’t even include the more significant regulations heading our way, such as a new ozone standard from the Environmental Protection Agency that would be the most expensive regulation in U.S. history,” he said.
The first five years of the Obama Administration added 17,522 pages to the CFR – an 11 percent increase. President Pen and Phone is promising more government whether the Senate stays in Harry Reid’s hands or not.
While Democrats offer handouts of money and benefits after the fact, why don’t Republicans free up some of the money wasted on unnecessary regulations. Surely a chapter or ten can be trimmed from the 55-foot-thick rulebook. The NAM study shows this doesn’t just help “big business” in the abstract but rather the people who want a job or a raise.
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For me this is the most important issue, and while the economic costs are bad the complexity of the regulatory code makes the concept of the rule of law a fantasy. If the government wants to get somebody there is no doubt that they will be able to find something to get them on because it is now impossible fully comply with entire regulatory code.
This is important information, but it is abstract and therefore bloodless. It does not have much power to stir people to action. It can too easily result in a yawn. We need, I think, details, concrete details. I reviewed the NAM report and did not see one actual regulation discussed. It only provided broad categories of regulations. What are the regulations at issue? Name them. Detail them. Quote them. Show why they hinder economic growth. Of course, this cannot be done with every regulation. But we must have at least some illustrative examples. Abstract generalizations about how much regulations cost will not convince people that regulations are unnecessary or overly costly or overly burdensome. Perhaps a case study of a small business person would help, a study that takes you through –concretely– the myriad regulations that must be followed.
I think this issue is so important that a strong stand on deregulation could drive a Republican into office.
I bumped up against the EPA about fifteen years ago, and I was shocked to discover that it is entirely under the aegis of the president.
In fact, the agencies that enforce these regulations are under the executive branch. A Republican president, therefore, would have a lot of power to reduce the size of these enforcement agencies.
These agencies don’t answer to anyone. Congress may have passed the bill to authorize their existence, but they are autonomous after that. And they fund themselves by charging extortion fees and fines to businesses and individuals. They really answer to no one, and they have unlimited funds to work with. And everyone is afraid of them.
Reagan got a lot of traction politically with his paperwork reduction act and other anti-bureaucracy measures. The next Republican president could do that too.
While Democrats offer handouts of money and benefits after the fact, why don’t Republicans free up some of the money wasted on unnecessary regulations.
Good question, Jon, to which it is tempting to respond with a cynical laugh. I do like A Beleaguered Conservative’s point, though, and one could do worse than to start with the time and money wasted by attorney Philip Hamburger when he was subjected to “a practice audit.” Not everyone has occasion to fear the EPA, but the IRS is another story. Hamburger, of course, is the author of Is Administrative Law Unlawful?.
You are correct about deregulation. It needs to happen or else the economy will continue to be stagnant. The problem is that since the economic collapse, the term “deregulation” has a negative connotation to the average voter. People now think that banks need to be regulated because of 2008, airlines need to be regulated because of 9/11, cars and gasoline need to be regulated because of global warming. And on and on. If you phrased a question about regulation and deregulation of certain industries, people would want our “betters” to take care of us and protect us from these evil capitalist fat cats who want to pollute Mother Gaia and rip you off.
But the study did not take into account the economic activity that is generated by regs: (1) before agency proposes a new reg, extensive organizational activity and resources go into opposing/shaping the enabling legislation; (2) once regs are proposed, lobbyist lawyers must prepare comments for the docket; (3) when regs are finalized, lawyers must file under the APA to overturn or repeal; (4) once in place, lawyers must prepare mandated filings, reports and other compliance activities; and (5) once violated, the defendants likely require expensive defense.
That’s billions to GDP and we haven’t even got to what the agencies spend… Do we really want to shift resources away from highly compensated DC legal professionals to mere manufacturing activities around the US?
If you go after expensive regs, you may encounter objections from the victims. Recall how many industry groups opposed tax reform in 1986–they feared that the rates would go back up after their hard-won breaks were eliminated. Similarly, many feel that as bad as the regs are, they could be worse and opening it all up with “reform” may not be a good thing. Certainly, their lawyers will tell them that.
Bathos,
Your comment is so deadpan I don’t know if you are being sarcastic. The last paragraph makes it seem as if you are serious.
They are sucking the life out of the economy.
And you are right about voters. But it seems to me to be an issue that could be explained to people. It would take a lot of work, but we’ve got a couple of years and some very bright people. :)
There are few issues that I feel more strongly about than this one. I make a point to say, when people complain about taxes, that the taxes are only a fraction of the financial burden carried by American citizens put upon them by their government.
These regulations are the tools of crony capitalists. They create barriers to innovation. They are used to stifle competition.
They hurt the poor more than they hurt the rich: a $50 driver’s license is nothing to a person who makes $200,000 a year; it’s a big deal to the people who live on minimum wage jobs.
They are leeches on all of us.
I strongly agree with the message behind the post: Regulations are a big drag on the economy.
But I think we are using the wrong argument. I am suspicious of studies that find extremely high direct regulatory costs, because they often fail to consider that the market would impose its own regulatory control over many of those issues. The market is certainly more efficient so there is a cost to having government do this, but it’s not as big as the numbers suggest. We spend a lot of money on ISO certifications and such, after all. If government regulation withdrew, there would be increased demand for other ways of certifying quality, such as UL approvals. It’s even possible in some cases that the market will demand even stricter quality standards in the absence of government certification.
But another high cost to the economy comes from the loss of dynamism and entrepreneurship created by the friction of government regulations. Look at the speed of change on the internet and incredibly dynamic market that has been created where barriers to entry are low and regulations almost non-existent, and compare that to the brick and mortar economy and you get a sense of what we are losing by entangling our entrepreneurs in webs of regulation..
Regulations kill … people, jobs, innovation, common sense.
Regulations are useful tools of crony profiteers (a term I believe to be more accurate than “crony capitalists”).