If we were to design a regulatory framework from scratch, for any sector of a modern economy, it would make no sense to ignore regulatory costs and benefits.
It would make even less sense to implement new rules and regulations and then worry about their impact.
But that’s pretty much what we do in the U.S., where we allow politics to trump common sense.
The 2008 financial crisis is the perfect example. For decades the industry has been as regulated as any on the planet, and some of these rules clearly contributed to the crisis.
But we still allowed politicians to blame the crisis on the free market and then institute more of the same regulations that led to the meltdown. The overall reach of federal regulators goes well beyond the financial sector, though, and nobody should be surprised that the economy is just muddling along.
How bad is the regulatory environment?
The ninth annual Red Tape Rising report gives a great overview; it tracks the volume and, to the extent possible, the cost of federal regulations.
(Two of my colleagues, James Gattuso and Diane Katz hosted a Heritage Foundation event to introduce the report. Anyone can watch online.)
Believe it or not, the federal government doesn’t officially track regulatory costs as it does with things like taxes and spending.
But executive branch agencies that promulgate “major rules”—defined as those expected to cost the economy $100 million or more annually—provide some cost estimates for the rules they issue. These agencies estimated that their major rules from 2014 will cost the economy approximately $80 billion per year.
These are the regulators’ cost figures, though, so they probably underestimate the true cost. Estimates from various independent sources put these costs from hundreds of billions of dollars to over $2 trillion annually.
