Jobs and the Cost of Regulation

Last Friday, I had a post on the “Cost of Government Day.” According to a piece by Grover Norquist and Patrick Gleason, “the Cost of Government Day arrived Aug. 12 — meaning that the average American toiled 224 days to foot the bill for this year’s total cost of government.”

One reader (Greg) questioned the numbers: “Wouldn’t that make the government 61% of the whole economy? … What am I missing?”

The piece in question went beyond the issue of taxation to include the costs imposed by regulations, claiming that (on average) Americans worked an additional 77 days to pay for the $1.8 trillion in regulatory burdens.

The Cost of Government Day Report (p. 18) provides a somewhat more expansive discussion of the costs of regulation (although one wishes for a bit more on the underlying methodology). It notes:

Our conservative estimate of total regulatory costs takes into account only the cost of complying with regulations: the material resources and labor needed to carry out compliance. For example, if a regulation requires new pollution control equipment for power plants, compliance costs include the costs of manufacturing, installing, operating and maintaining the equipment.

It does not include “the negative economic effects of regulatory requirements—the deadweight loss of these policies” (i.e., the value of “goods and services forgone due to government rules”). “These hidden costs stifle the growth of the economy because they introduce inefficiencies and distortions, while reducing the economic reward left over for productive activity.”

In an op-ed today, Senator Kay Bailey Hutchison quotes Investors Business Daily:

“If the federal government’s regulatory operation were a business,” Investors Business Daily reported, “it would be one of the 50 biggest in the country in terms of revenues, and the third-largest in terms of employees, with more people working for it than McDonald’s, Ford, Disney and Boeing combined.”

The op-ed makes the argument that the growth of the regulatory state in the past 3 years has played a central role in impeding job growth, particularly among small businesses. The senator is seeking support for the Regulation Moratorium and Job Preservation Act she co-sponsored which would “place a moratorium on burdensome federal regulations until the national unemployment rate falls to 7.7 percent — below where it was when Obama took office.”

One cannot deny that the introduction of new regulations—and the anticipated introduction of future regulations—creates additional uncertainty for businesses, thereby impeding recovery. Yet, I can’t imagine that President Obama’s much anticipated but yet-to-be delivered job speech will include support for something like the Regulation Moratorium and Job Preservation Act given that  we have been told (repeatedly) that deregulation and the Bush administration’s commitment to laissez-faire  (insert laugh line here) were the causes of the catastrophic financial crisis.

4 thoughts on “Jobs and the Cost of Regulation

  1. Another area of government growth,similar to the Regulatory Industry, is the Law Enforcement Growth Industry. The more laws:the more policemen,judges,prosecutors,defense lawyers,court employees, jailers and their supporting cast. Which means in order for it to grow,we need more laws.Its like the Welfare System, two thirds of the money spent on the poor never reaches the poor but is spent on waste,fraud,bureaucracy and the “poverty Industry.” Or the Military Industrial complex. In the end most government employees and their hanger-ons consume the wealth of the nation and produce nothing in return. This is why today,among other factors, America is bankrupt.

  2. Two questions:

    1. Aren’t many of the most onerous and pernicious regulations usually issued by states or municipalities?

    2. Don’t some regulations (like anti-pollution ordinances) yield some benefits in the form of reduced long-term health care costs and are those factors included in the cost analysis of the total burden?

    Just curious.

    1. That some regulations may indirectly lead to long-term benefits does not mean they do more good than harm. One of the wonderful things about the free market is it’s ability to discern which business undertakings are profitable (in revenues exceeding costs) and which aren’t. Furthermore, the meteoric rise in health care costs can be much more easily and directly attributed to government policies mandating coverage, paying for coverage, mandating and or banning certain procedures, drugs and practices, and otherwise manipulating the normal free market equilibrium price of health care. Whatever alleged health care savings the government may claim are achieved through burdensome regulation are more than offset by burdensome regulation of health care.

      1. Well even if a regulation that costs $5 only delivers $1 of benefit it still has a net cost of $4 not $5. I was just curious if that sort of thing was taken into account.

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