The 20th annual snapshot of the federal regulatory state published by the Competitive Enterprise Institute (CEI) last month announced the arrival of an unhappy milestone: regulatory costs now amount to more than half of all federal spending. Put another way, the real cost of government in the United States is half-again as much as the federal budget, and is approaching a third of the country’s economic output. Said CEI: “Federal environmental, safety and health, and economic regulations cost hundreds of billions – perhaps trillions – of dollars every year over and above the costs of the official federal outlays that dominate the [current] policy debate.”
Just how many billions and trillions the regulatory state costs, and has cost, the American economy has been put into perspective by two economists in their paper, “Federal Regulation and Aggregate Economic Growth”, published in the June issue of the Journal of Economic Growth.
Rather than count the cost in dollars, the economists take a unique approach and attempt to measure how much lower Americans’ standard of living is today compared to what it would be if regulations had stayed at the level they were in 1949, the starting point of their study. Their conclusion? The average American household’s income would be $27,500 a month instead of the $4,400 a month that it is currently.
In their study they count the pages of federal regulations from 1949 through 2005 and discover that they have grown by 600%, slowing the economy by an estimated 2 percent every year. In simple terms, today’s economy, which produces about $17 trillion in goods and services every year, would instead be producing almost $55 trillion. And the authors apologize that their study doesn’t reflect state and local regulations during that period as the effort to collect and analyze them as well greatly exceeded their time and resources.
In a word, incomes and standard of living for the average American family would be even higher than they estimate, had that data been available. They also note that the avalanche of regulations under the Bush and Obama administrations were not included as part of their study.
There were only four years in that 56-year span when federal regulations declined: once under Reagan, and three under Clinton. In every other year, regulations increased, moving from 19,335 pages in 1949 to 134,261 in 2005.
Ronald Bailey, the Science Correspondent for Reason magazine and the author of Global Warming and Other Eco-Myths, looked at the loss in standard of living differently but came to same conclusion. By adding 2 percent to the real historical rate of growth in America’s economy from 1949 through 2011 – 3.2 percent – and then doing the math, America’s economy would be at $49 trillion, just slightly below the $53.9 trillion estimated by the two economists. Bailey notes coyly:
Whatever the benefits of regulation [may be], an average household income of $330,000 per year would buy a lot in the way of health care, art, housing, environmental protection, and other amenities.
Bailey then speculated as to why governments do this to their citizens. He came up with three theories: to improve social welfare by correcting “market failures”, the capture of regulatory agencies by companies in the industries being regulated in order to exclude competitors and increase their profits, or by politicians seeking to increase their power.
There is, of course, a fourth theory not mentioned by Bailey but supported by the political reality of the emerging totalitarianism extant in the country. David Horowitz in his explosive pamphlet From Shadow Party to Shadow Government, Horowitz tracks the intents, purposes and actions of a primary driver behind the current political scene, George Soros, and concludes that his agenda
could essentially be distilled down to three overriding themes: the diminution of American power, the subjugation of American sovereignty in favor of one world government, and the implementation of a socialist redistribution of wealth…
This has been a common theme for decades, first brought to light during hearings of the Reece Committee in the early 1950s. Norman Dodd, chairman of that committee had a conversation with Rowan Gaither, then President of the Ford Foundation, who explained to Dodd:
Mr. Dodd, all of us here at the policy-making level of the foundation have at one time or another served in the OSS (the Office of Strategic Services, the forerunner of the CIA) or [in] the European Economic Administration, operating under directives from the White House.
We operate under those same directives…
The substance of [those directives] is that we shall use our grant-making power to so alter life in the United States that we can be comfortably merged with the Soviet Union [in a one world government].
All that the authors of the report published by the Journal of Economic Growth and by Mr. Bailey have done is to show just how successful those directives and intentions have been, and what they have cost Americans in unattained standards of living far beyond those being enjoyed today.