Federal Regulations Make Americans 75 Percent Poorer

by Hans Bader on June 25, 2013 · 1 comment

in Deregulate to Stimulate, Economy, Regulation

“Federal regulations have made you 75 percent poorer,” and as a result, “U.S. GDP is just $16 trillion instead of $54 trillion,” says an article in Reason magazine. It cites a study that finds that as a result of growing regulation,

the average American household receives about $277,000 less annually than it would have gotten in the absence of six decades of accumulated regulations—a median household income of $330,000 instead of the $53,000 we get now.

The researchers, economists John Dawson of Appalachian State University and John Seater of North Carolina State, constructed an index of federal regulations by tracking the growth in the number of pages in the Code of Federal Regulations since 1949. The number of pages, they note, has increased six-fold from 19,335 in 1949 to 134,261 in 2005. (As of 2011, the number of pages had risen to 169,301.) They devise a pretty standard endogenous growth theory model . . . to calculate how federal regulations have affected economic growth.

Annual output in 2005, they conclude, “is 28 percent of what it would have been had regulation remained at its 1949 level.”. . .Regulations also affect the allocation of labor and capital—by, say, raising the costs of new hires . . .Overall, they calculate, if regulation had remained at the same level as in 1949, current GDP would have been $53.9 trillion instead of $15.1 in 2011. In other words, current U.S. GDP in 2011 was $38.8 trillion less than it might have been.

CEI’s Wayne Crews says that “Obama’s record-setting red tape costs Americans $14,000 annually.” Crews recently released “the latest edition of Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State, which surveys the big picture federal regulatory state by numbers and costs.” For example, he notes, the EPA “added 223 rules in 2012,” with an “estimated compliance cost” of “$353 billion.” The costs measured in Crews’ report will likely be dwarfed by additional regulatory costs in the future resulting from laws backed by Obama, such as the 2010 healthcare law, and the Dodd-Frank Act. It will take years for agencies to issue the regulations called for by these laws, especially the Dodd-Frank Act, a 2,315-page measure whose massive costs are just starting to be felt and have yet to be tallied. Just one of its rules is expected to “cost American businesses $315 billion and increase annual borrowing costs by $43 billion,” according to the Financial Services Roundtable. The Dodd-Frank Act has already wiped out thousands of jobs and harmed the poor. Similarly, Obamacare is causing layoffs in the medical device industry, and will wipe out many jobs. It is also replacing full-time jobs with meager part-time jobs in community colleges, restaurants, and other sectors.

More regulations means fewer jobs. A liberal Yale professor recounts being told by a businessman that he would not hire more employees despite having a “successful business” due to the current political and regulatory climate. “How can I hire new workers today, when I don’t know how much they will cost me tomorrow?,” asked the businessman, “referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business . . . operates on low margins. He can’t afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he’s hiring nobody until he has some certainty about cost.”

Boston business owner Terry Catchpole noted in The New York Times that economic uncertainty due to Obama administration policies has wiped out jobs at companies like his:

Two years ago our executive communications company had 17 employees. Today it has seven . . . like many small businesses, we are dependent on big businesses as customers. And the big businesses that we would ordinarily depend on to become clients are sitting on their cash, because they are deathly afraid of an Obama administration that has been hostile to business . . . They have no idea where the administration’s next attack is coming from, and how much it is going to cost them to defend. So businesses do not spend money; they do not hire my company; and we cannot hire back those 10 good people we had to let go.

Democratic businessman Steve Wynn called Obama “the greatest wet blanket to business and progress and job creation in my lifetime,” saying that “the business community in this country is frightened to death of the weird political philosophy of the President of the United States. And until he’s gone, everybody’s going to be sitting on their thumbs.”

Even agencies that lack the power to adopt much in the way of formal regulations effectively do so by adopting “guidelines” that interpret statutes to impose burdensome obligations never intended by the Congress that enacted them. The classic example is the federal Equal Employment Opportunity Commission, which is discouraging hiring by creating a bad legal climate for employers. It has pressured employers, such as nuclear power plant operators, to hire people with criminal records as armed guards, even when they are prohibited by state law from hiring felons for such positions, as Jim Bovard noted in The Wall Street Journal, discussing the EEOC’s proceedings against a nuclear-plant operator that had refused to hire a twice-convicted thief. The EEOC sued Pepsi for doing criminal background checks, forcing the company to pay $3.1 million to settle the lawsuit. The EEOC is threatening employers who require high-school diplomas with ADA lawsuits. Employers’ ability to hire and fire based on merit has been under assault by the EEOC, which has ordered employers to discard useful employment tests and accommodate incompetent employees. A hotel chain was recently compelled to pay $132,500 for dismissing an autistic desk clerk who did not do his job properly, in order for it avoid a lawsuit by the EEOC that would have cost it much more than that to defend. The EEOC has sued companies that refuse to employ truck drivers with a history of heavy drinking, even though companies that hire them will be sued under state personal-injury laws when they have an accident. The EEOC used the threat of costly litigation for force a cafe owner to pay thousands of dollars for not selecting a hearing- and speech-impaired employee for a cashier’s position.

ken June 27, 2013 at 12:30 am

Will be mentioned week of July 013 at http://www.libertarian-institute.info Thanks!

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