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If you added up the cost of all the regulations that the U.S. government has added to the Federal Register since 1980, how much would it be?
Bentley Coffey, Patrick A. McLaughlin, and Pietro Peretto of the Mercatus Center researched that question for all the years from 1981 through 2012 and found that the continual drip-drip-drip accumulation of regulations has cost the economy about 0.8% of its GDP per year.
Economic growth has been reduced by an average of 0.8 percent per year from 1980 to 2012 due to regulatory accumulation. Regulations force companies to invest less in activities that enhance productivity and growth, such as research and development, as companies must divert resources into regulatory compliance and similar activities. While 0.8 percent may seem small, economic growth is an exponential process—next year’s growth depends on this year’s growth, which depends on last year’s, and that means the gap between what the economy could be and what it is grows over time at an increasing rate.
Compared to a scenario where regulations are held constant at levels observed in 1980, the study finds that the difference between the economy we are in and a hypothetical economy where regulatory accumulation halted in 1980 is approximately $4 trillion.
Put one way, the accumulating regulatory burden on the U.S. economy cost it $4 billion in its Gross Domestic Product by 2012, where if no new regulations had been added since 1980, would have meant the U.S. economy would have been nearly 25% larger than it actually was in 2012.
Put another way, if all the money that Americans had been required to put toward paying to comply with U.S. federal regulations had instead been allowed to be put toward productive economic activity, and that productive activity represented the output of an entire nation, that national economy would have been the fourth largest in the world in 2012.
In 2012, the U.S. government’s total public debt outstanding totaled $15.99 trillion, or nearly 99% of the nation’s GDP of $16.155 trillion in that year. If the nation’s GDP were $4 trillion larger and assuming no difference in the national debt, the nation’s debt-to-income ratio would have been just 79%.
That’s an important difference because other research indicates that once national debt levels exceed 90% of a nation’s GDP, the overhang of that debt is associated with significantly slower economic growth over prolonged periods of time.
The combination of an ever increasing regulatory burden with an excessive national debt then represents a double whammy to economic growth. No wonder other nations like Japan, Greece and Italy, which rank near the bottom for economic growth, also rank near the top for either excessive national debt or regulation.
And ever increasingly, the United States. Escaping such stagnation calls for smarter policies for dealing with both federal regulation and the nation’s debt.