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On Independence Day -- How Free Are You, Really?
On Independence Day -- How Free Are You, Really?
July 02, 2013
Originally published in Forbes
As reported in Reason by Ronald Bailey, a recent study finds that “Federal Regulations Have Made You 75 percent Poorer.”
The claim is that GDP is only $16 trillion instead of over $50 trillion, while household incomes are $53,000 instead of the $330,000 they otherwise would be.
Such numbers are gargantuan, even allowing for overstatement. And we’re not even talking taxes here.
Many costs of intervention don’t get tallied at all, yet are genuine in the eyes of the affected. Let’s look at some.
Loss of Liberty Costs
Bureaus aren’t particularly adept at capturing the value of lost liberty and choice.
Whether e-cigarettes that emit water vapor instead of noxious chemicals, or the size of beverages, it’s not enough that others are not harmed by one’s activity; liberty must yield and the authorities must decide.
We don’t measure costs as if paternalism were frowned upon.
With the rise of the nanny state comes a loss of the right to disagree and go one’s own way.
Economic Cost and Impact Omissions
The distortions of crony capitalism: Examples include bailouts in traditional industries like GM and new ventures like Solyndra, Farm Bill subsidies, government funded pet technologies.
Permitting restrictions and denial of access to resources: The EPA is a big villain. Nobody’s working while awaiting permits, obviously.
The costs of “rent-seeking”: Firms often actively seek regulation when it disadvantages competitors. Environmental rules, privacy mandates and antitrust are examples.
Differential effects of rules: The very existence of regulation ends up picking winners when something new comes along. There are complex differential effects on those with hands tied relative to newcomers. Technology won’t advance at same rate in a regulated firm as a less regulated one.
Indirect costs: Indirect costs as opposed to direct compliance costs can be difficult to assess, such as economic distortions and ventures not pursued. Small businesses that were never created don’t comment on negative impacts of regulations.
Economic effects of the minimum wage: The impact on the avoidably unemployed aren’t of much concern to the establishment.
Most regulations impacting mostly every industry and sector: Actually, apart from a relative handful of rules that appear over the past decade in Office of Management and Budget (OMB) roundups, some paperwork tallies, and a few industry reports, regulations impacting mostly every industry and sector (like railroading, aviation, energy, electric power and telecommunications) get left out.
Also conceptualization of entire categories of interference, like antitrust, get omitted.
Perpetuation of early-20th century style infrastructure regulation: The costs of siloed, regulated infrastructure could be far more significant than many realize.
The stock of infrastructure could be vastly larger. Early electricity and telecommunications were characterized by competing, overlapping, redundant, maybe even ugly, infrastructure. Then cronyism led to establishment of regulatory commissions to outlaw competition and guarantee returns.
The persistence of regulation that keeps infrastructure eternally segregated may have left us with less robust networks, less overlap and redundancy than would be optimal.
Network industries—water, sewer, telecom, Internet, electricity, transportation—could work together to build infrastructure rather than invest separately and be regulated separately.
The Costs of Benefits
Governmental decisions can adversely impact health and safety, too. The ways risks are identified and society made safer and healthier have not all been discovered, and do not all lie within government’s ambit.
Benefits are best seen as forms of wealth. When “regulation” removes values like risk reduction, or privacy, or cybersecurity, or safety from competitive pressures, agencies undermine actual regulation.
Complex technologies also require that private risk-management institutions like insurance and liability emerge alongside (consider nuclear energy, homeland security, nanotechnology, biotechnology, financial instruments, cybersecurity). It is irresponsible for government to interrupt and induce people into becoming overly helpless or dependent.
Costs of Poor Regulatory Processes
Costs of rules not deemed “economically significant” by the agencies but that in fact are: Many of the thousands of regulations issued by agencies may exceed $100 million annually, but never don’t get counted.
Cumulative effects of rules: As rules accumulate, their overlap can worsen regulatory outcomes. Underbrush is never cleared.
“Guidance Documents” with economically significant impact: Decisions may be made, and parties pressured to act without formal regulation or thorough understanding of costs, such as in EPA Clean Water Act jurisdictional guidance.
“Budget” Rules: Budget rules implement federal budgetary programs, primarily income transfers from taxpayers to beneficiaries.
The OMB notes that these have unaccounted-for deadweight losses, like changing behavior by banning or mandating activities and by altering prices and costs.
Unfunded mandate on States: Congress should consider fuller treatment both on the budgetary and regulatory side.
Regulation by International Treaty: International regulatory costs are terra incognita. Treaties regulate: attempted greenhouse gas agreements and the law of the sea treaty; the Outer Space Treaty.
Job Costs of Regulations
It’s all but official government policy that regulations have no overall employment effect: they displace employment in one area and grow it in another, it’s claimed. Perhaps in a static technical sense that is correct from an economist’s standpoint, but then not everybody’s an economist now are they?
Each of these unknowns constitutes a dissertation in itself. We have much to be grateful for in the U.S.A., but we’re a long way from grasping the impacts of government intervention on our liberty.