The Other National Debt Crisis

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When lawmakers neglect runaway federal regulation—the ongoing debt crisis notwithstanding—they disregard the biggest threat Washington poses to economic health, enterprise, and jobs. America today is, in a sense, “closed for business.” While we can take comfort in the notion that there will always be an America, current policies seem directed toward assuring that it may be located elsewhere. 

The United States has the largest government on Earth. Our great wealth permits that bulk much like a bigger dog can have more fleas. But the spending and regulatory burden can no longer be tolerated. In the colonial period, a 1722 letter “Of the Restraints which ought to be laid upon publick Rulers,” by Thomas Gordon noted: 

A nation has but two sorts of usurpation to fear; one from their neighbours, and another from their own magistrates….[F]or one people undone by foreign invaders, ten have been undone by their own native rogues, who were entrusted to defend them.

No foreign power is invading the United States, but our own overgrown government sometimes threatens to “undo” from within. At long last, public opinion is pushing Congress to deal with spending. But no less urgency attaches to dealing with regulation.

Regulation is regarded as government’s impartial tool for checking the excesses of the free market. But what if it is government that helps create those excesses? What if it were the case that federal government accounts for fully a quarter of national income, overwhelmingly beyond that of any industry or sector Washington presumes to impartially regulate? What, then, keeps that vast government in check?

Regulatory compliance costs—the unbudgeted costs of federal paperwork, as well as environmental, financial, economic, and health and safety rules—occupy heights equivalent to total annual federal budgetary costs in the 1990s. Rules issue from over 50 departments, agencies and commissions by the thousands, and rarely does Congress clear out old rules. Agency personnel issue “guidance documents” that can escape even limited procedural scrutiny.

Over the past century and a half, our ancestors created an America where GDP roughly doubled every 25 years. Today it is the federal budget that doubles regularly, and rapidly, while GDP growth figures waver. The federal budget reached $2 trillion and $3 trillion for the first time only within the last decade. The 2011 projected deficit of $1.48 trillion is as large as the sum of all federal budgetary outlays of 1994. Even after the summer 2011 debt-limit deal, savings between 2012 and 2021 that still await the debt commission’s package top out at $2.3 trillion, meaning that spending will be “only” $43 trillion instead of $46.055 trillion. The volume of transfer payments rattled the country during the July 2011 debt ceiling negotiations, yet those entitlement obligations remain intact in the debt deal. The ratchet goes one way, occasionally pausing for spending freezes, at best, rather than actual cuts.

The carnage inflicted on the American economy is man-made. Nothing special about 2011 dictates that America’s historic doubling of GDP should end.

Restraints on spending and popular support for deficit cutting imperative make regulation an increasingly attractive alternative for politicians and bureaucrats seeking to increase their power. Pressures to regulate will grow. But as legendary management guru Peter Drucker noted, to manage one has to measure. Regulatory reporting and disclosure is a basic and necessary, but not sufficient, step in taming this other “national debt,” the regulatory state.

Older rules need routine review and purging, and permanent procedures to get that done on an annual basis need to be put in place. Congress should also consider creating a regulatory cost budget, since, as in other walks of life, 20 percent of the rules can account for 80 percent of the costs.

Disclosure is just the start of the “liberate to stimulate” agenda Congress needs to implement to revitalize the American economy. Congress should consider other extensive curbs on regulation, including freezes, moratoria, expiration dates on new rules, and a Regulatory Reduction Commission to annually assemble packages of regulations to eliminate via an up-or-down vote (much like the Base Closure and Realignment Commission).

Ultimately, voters need the ability to hold Congress directly accountable for regulations by requiring congressional approval of new rules. Thus, legislation that will lead to costly agency rules regulating, say, lamp ballast energy efficiency may or may not make sense to a congressman who may have to vote directly to approve the accompanying costs.

As Congress becomes more answerable for regulation, it will face greater incentives to ensure that benefits exceed costs as determined by independent analysis, rather than by agencies’ own estimates. Greater ongoing oversight might dampen the tendency to overregulate in the future, thus creating pressure for a “regulatory ceiling” to parallel the fiscal debt ceiling. Regulation does not control itself, and agencies will not apply the brakes. We have to do it, through our elected representatives. Washington needs to learn that it is OK for the federal government to not try to regulate everything—that sometimes it is alright for regulatory state to be little bitty, and not bother us too much.