America has a reputation as the land of Wild West cowboy capitalism. The truth is rather more mundane. The US economy is one of the most heavily regulated in the world, with the total cost of federal regulations standing at nearly $1.9 trillion—equivalent to nearly two thirds of the UK’s entire GDP.
The US has traditionally been one of the world’s best environments for entrepreneurs, start-ups, and new technologies. American innovation has helped raise living standards around the world. But with regulatory intervention growing steadily every year, the US government threatens to leave America’s limited-government tradition behind, taming the nation’s economy into the Mild, Mild West, to our, and the world’s, detriment.
Financial regulations under both the Bush and Obama administrations have made it so difficult for innovators to raise capital that the number of IPOs has fallen by a third since 2000. Regulations are also threatening life-improving new technologies such as DNA testing services, 3-D printing, and self-driving cars. Regulatory impediments are one reason why labour force participation is the lowest it has been since 1977.
These results are regrettable, but not surprising. In an average year, more than 60 federal agencies combine to issue more than 3,500 new regulations. That means that on average, a new regulation hits the books roughly every two-and-a-half hours, day and night, 365 days per year.
Since 1936, the federal government has published the Federal Register, a daily compendium of all new proposed and final regulations, plus presidential documents and agency notices. It has exceeded 77,000 pages in each of the last five years, twice topping 80,000 pages. If you were to print the last 20 years of the Federal Register, the stack would rival the 555-foot Washington Monument for supremacy of Washington’s skyline.
That’s just the flow of new regulations. Once finalized, they come to rest in the Code of Federal Regulations. If you order a copy from the US Government Printing Office, you’ll get 238 volumes totalling more than 175,000 pages of small print. According to analysis done by the Mercatus Center at George Mason University in Virginia, those pages contain more than 1 million separate regulatory restrictions, like shalls and musts. Those restrictions cover everything from the size of holes in Swiss cheese to procedures for weighing farm animals.
There is also a huge amount of what we call “regulatory dark matter,” which federal agencies often use to expand their reach beyond that spelled out in the Code of Federal Regulations. Examples of regulatory dark matter include guidance documents issued by agencies to allegedly clarify how to interpret their published rules. Technically, these aren’t legally binding, but agencies can force compliance by intimidating regulated parties by denying permissions or applications. Recently, Congress has taken interest in the practice, given its prevalence.
Then there’s regulation via the courts. Ideological activist groups often collaborate with like-minded agency officials to impose new rules via a tactic called sue-and-settle. A group like Greenpeace, for example, will sue the Environmental Protection Agency (EPA) for not enforcing one of its regulations strictly or quickly enough. EPA officials happily admit guilt and negotiate a settlement conveniently expanding the agency’s power and scope—all without Congress passing legislation, and without the agency going through the required notice-and-comment rulemaking process.
What to do?
Simple solutions include removing from the books unnecessary rules like the Swiss cheese and animal-weighing requirements. But more substantive reforms would change the rulemaking process itself, to screen out dubious rules at the outset and keep threats to innovation from emerging.
The Constitution states that, “All legislative powers herein granted shall be vested in a Congress.” But laws might backfire, cost more than anticipated, or prove unpopular with voters. This could make re-election more difficult. So, for political reasons Congress delegates its responsibilities to regulatory agencies, which do not answer to voters and are largely immune from punishment. That needs to change.
A bill in the current Congress, the Regulations from the Executive In Need of Scrutiny (REINS) Act would require Congress to accept some responsibility for regulatory costs. If an agency issues a regulation costing more than $100 million per year, such as EPA rules on carbon dioxide emissions, then Congress would have to hold a vote before that agency’s regulation hits the books—and the nation’s pocketbooks. For big regulations, this would prevent Members of Congress from passing the buck to unelected agencies. REINS passed the House of Representatives this year, but not the Senate. President Obama promises a veto, but what his successor does remains to be seen.
Other possible reforms include an independent commission to comb through the Code of Federal Regulations every year and send Congress a package of obsolete rules subject to an up-or-down vote with no amendments allowed; a “one-in, one-out” requirement for agencies to offset new rules by repealing an equivalent dollar-amount burden of old rules; and a government-wide published budget of regulatory costs, similar to the federal spending budget the government publishes every year.
America’s—and the world’s—long-run economic future looks bright. But regulatory excess adds costly, unnecessary darkness, not just for U.S businesses and consumers, but for the entire global market of which America is so large a part. Those wishing to eliminate global poverty should be aware of the sheer size of the US regulatory state, which, if it were its own country, would be the world’s tenth-largest economy. The prevailing climate for innovation, growth, and poverty reduction should be less Mild and a lot more Wild.