America's Soaring Regulations Cost $1.8 Trillion A Year
Politicians from both parties routinely tout the need to roll back unnecessary regulations. But how much overregulation is there exactly? Most politicians have no idea, and neither does the general public.
Most people have some idea that the government spends nearly $4 trillion annually given the prominence of the recent debates over the "fiscal cliff" and "sequestration."
But there is no equivalent regulatory metric. This is a problem that needs fixing.
Agencies aren't exactly forthcoming with data about how much their rules cost, since bureaucrats' sinecures depend at least in part on avoiding public outrage. The documents they do issue are widely scattered and rarely written in language accessible to the lay reader.
In short, the regulatory state has a major transparency problem.
The Competitive Enterprise Institute's annual survey of the federal regulatory state, "Ten Thousand Commandments," the 20th anniversary edition of which was just released, assembles a wide array of disparate data on federal regulation in one easily accessible place. The numbers are astounding.
For instance, federal agencies issued a total of 3,708 final regulations last year.
That's equivalent to a new regulation hitting the books every two and a half hours, 24 hours a day, seven days a week.
Since the first edition of Ten Thousand Commandments was issued in 1993, the federal government has issued 81,883 regulations, or a little more than 4,000 per year.
The Code of Federal Regulations, which compiles all federal regulations, grew by more than 4,000 pages last year. The entire document now runs 174,545 pages, spread over 238 volumes. The index alone takes up 1,142 pages.
In 2010, the total number of specific regulatory restrictions passed the 1 million mark, according to Patrick McLaughlin's RegData program at the Mercatus Center at George Mason University.
What do all these million-plus rules cost? Around $1.8 trillion per year.
This is slightly more than Canada's entire 2011 GDP. An average American household "pays" $14,768 annually in a hidden regulatory tax — more than it spends on health care, food, transportation or entertainment. Regulatory compliance costs more than every normal household budgetary item except housing.
The federal government's ongoing trillion-dollar deficits will likely mean still more regulation.
Suppose Congress wants to implement a new job training program. It could pay for it from the federal budget, which would add to the deficit and cause voter ire.
Or it could direct the Labor Department to issue a regulation requiring Fortune 500 companies to provide and pay for the training, keeping the expense safely away from Washington's balance sheet.
Indeed, regulatory agencies currently have 4,062 regulations at various stages of the rulemaking process. Of those rules, 224 are classified as "economically significant," meaning they each have an economic impact of at least $100 million per year.
This implies at least $22.4 billion per year in new costs, and likely much more. Similarly, the administration's recent Report to Congress on the Benefits and Costs of Federal Regulations sported $20 billion in fiscal year 2012 costs for a subset of rules.
What are the solutions to America's growing regulatory problem?
For starters, the Office of Management and Budget should begin issuing its own Ten Thousand Commandments-style annual report as a matter of basic transparency.
We advise, however, that agencies refrain from self-auditing. Auditors should be independent in order to keep them honest.
An agency auditing its own rules is tantamount to a student grading his or her own papers.
Overregulation is a hard problem to fix because people don't have an idea of its extent.
We do know that it's extensive, but it gets little public scrutiny, compared to the amount of press that taxing and spending issues receive.
As long as the regulatory state remains larger than the entire Canadian economy, economic recovery will be a challenge.
And so long as Washington actively resists basic transparency measures, reform will be nearly impossible.
The first step to curing an illness is to diagnose it correctly.