The Least Sexy But Most Urgent Economic Reform Remains Ignored In The Presidential Campaign

Despite the federal government’s unabated growth, the most significant domestic policy landscape change has been shutting off the the power to the Social Security third rail, healthcare entitlement storm notwithstanding (so don’t remind me).

That is, everybody on the campaign trail has to talk about unsustainable early retirement and entitlement bloat rather than ignore them. As Robert Tracinski puts it, the third rail has lost its jolt.

That’s great; an incredibly significant development in U.S. history, still unappreciated I suspect.

Such entitlement reforms on the one hand, and corporate and individual pro-growth tax reform on the other, are the two dominant legs of the modern domestic economic agenda stool. (Coping with the Affordable Care Act spans both, alas).

The third should be, but is not yet, comprehensive reform of the unaccountable regulatory state. The House, but not the Senate, has passed several bills to rein in regulators, with almost no mainstream press attention, naturally. Without Senate action and a presidential signature we still haven’t passed go.

Why does regulation matter so much?

Go ahead and promise to cut spending to the bone and balance the federal budget besides. Knock yourself out in the presidential and congressional campaigns on fiscal themes, and this economy still can’t grow in the way needed, which I contend is a doubling of GDP within a generation or so, the way the U.S. used to surge and create jobs.

The “hidden tax” of regulation now totals over $1.8 trillion in compliance costs and economic effects, according to my forthcoming informal roundup (it’s called Tip of the Costberg: On the Invalidity of All Regulatory Cost Estimates and the Need to Compile Them Anyway). That’s half the size of the federal spending budget itself, and almost totally hidden as far as any official acknowledgment is concerned.

These rules cover environment, energy, finance, homeland security, telecommunications, health policy—everything plus more.

Consider that Congress passed and the president signed 81 laws last year. But meanwhile regulators issued 3,807 final rules.

That was 2011. Already in 2012, over 46,500 pages have been published in the Federal Register. Among those pages are found 2,298 final rules, according to my tally. We’re on a trajectory to beat 2011 rather handily.

So regulators, not the actual people we elect and to whom we delegate the power to make laws, do the bulk of lawmaking in the country. It’s out of control, and it undermines job creation and wealth creation. And yes, new Dodd-Frank and Obamacare rules are are massive parts of it, but only part.

Accountability for America’s massive regulatory enterprise ought to drive the campaign era agenda, not just the spending and tax policies that dominate attention because we can see and measure them.

So precisely because we don’t measure, we need a regulatory budget to address the unfinished business of regulatory reform generally, and to help inform liberalization of still-heavily regulated sectors of the economy—particularly network and critical infrastructure industries like transportation, telecommunications and electricity and energy.

We still have a chance to avoid preemptive regulation of somewhat new sectors like the Internet and information economy, and to preserve abundant investment in private infrastructure rather than saturate America with semi-governmental “critical infrastructure.”

Make-believe cybersecurity regulations like the Cybersecurity Act rejected in the Senate last week are prime examples of the drive to regulate and of what to studiously avoid. Nobody in any walk of life says “cyber” anymore, but that bill was anti-cybersecurity nonetheless, and sent a message to all economic sectors to avoid being deemed “critical infrastruture” by Washington at all costs.

Security is a form of wealth; it requires free enterprise rather than top down regulation to surge ahead. Same is true of safety, privacy, energy security and so on.

Sen. Rand Paul spoke recently at the Heritage Foundation about a new campaign for tech and Internet liberty, which strikes the right note. But I’m biased since my group CEI co-sponsored the event.

Ensuring that the Internet remains a free realm remains doable, despite looming threats ranging from the coercive access to private property of net neutrality regulation (and, surprise, it’s not neutral) to antitrust activism to content regulation. All cry out for market liberalization, not a heavy hand.

But back to the broader economy.

Past regulatory reform efforts have over-emphasized cost-benefit analysis, and unfortunately Mitt Romney’s language conforms. He and other candidates should emphasize, not so-called net benefits–which agencies abuse in regulatory analyses and have exploited to create the unsustainable regulatory state we now have–but annual cost disclosure in a Regulatory Report Card, and congressional accountability for major regulations.

“No regulation without representation,” one might say.

Regulation is now the Other National Debt Crisis, and deserves not to be ignored anymore. Reforming it makes up the third leg of a healthy economic reform agenda.

We need tax and entitlement rationality; but unleashing vast wealth creation won’t happen when the business of regulatory reform is barely begun.