There has been a lot of recent discussion about the hidden cost of government regulation — the legal and administrative requirements placed on businesses and individuals to meet regulations imposed by the myriad of governmental agencies at all levels.
Compliance costs money. The Competitive Enterprise Institute, an admittedly conservative think tank, estimates that the last eight years have added $600 billion in hidden costs to the economy, a number greater that the GDP of Italy. Annual costs are estimated at more than 10% of our $18.5 trillion economy. This is a problem without partisanship. A link to the report is below if you are interested in reading further.
Of course regulation is necessary, but there is a point beyond which it acts as an anchor for economic growth. If you’ve visited a doctor or applied for a mortgage lately — to choose a couple of examples — you have to wonder at the stack of papers required. And these are minimal compared to what you face should you have a wetland on your property or want to build a pipeline.
The current administration has vowed to reduce this burden, but it will be very difficult for many reasons. First, of course, is Congress, which continues to pass broad laws and hand application of those laws over to bureaucrats.
Those bureaucrats have job security, and plenty of time to write regulations attempting to cover every possible question that might arise from the legislation. Once on the books, these regulations are seldom reviewed by anyone, including the Congress that authorized them, and any changes are additive. This has resulted in a massive hodgepodge of often conflicting regulations with conflicting interpretations by different individuals and agencies.
It might be possible to at least slow the growth of regulation by cutting the budgets of the offending agencies. This is what the recent White House budget has proposed, but it has no chance of success.
The Congressional Budget Act of 1974 requires — requires — the Office of Management and Budget to prepare spending projections for the upcoming fiscal year based on a continuation of the previous year’s spending levels. This is called baseline budgeting, and it is why, when politicians talk about spending cuts in either a positive or negative context, they are really describing a smaller rate of increase.
A responsible alternative would be zero-based budgeting, in which every agency would be required to review and justify every expense every year. That is what most of us do in the real world.
Whatever the number, regulatory costs have clearly been increasing for decades, and are one of the principal causes of America’s slowing growth rate. They act as a hidden tax and a brake on the economy, putting more strain on the budget and adding to our $20 trillion national debt.
Click here if you would like to read more.