Tuesday, September 03, 2013

Regulations have consequences - we are much poorer

The whole point of the Broken Window Fallacy is it is easy to forget about what is unseen.

Federal Regulations Have Made You 75 Percent Poorer makes this point.  The article starts with:

The growth of federal regulations over the past six decades has cut U.S. economic growth by an average of 2 percentage points per year, according to a new study in the Journal of Economic Growth. As a result, the average American household receives about $277,000 less annually than it would have gotten in the absence of six decades of accumulated regulations—a median household income of $330,000 instead of the $53,000 we get now.

The researchers, economists John Dawson of Appalachian State University and John Seater of North Carolina State, constructed an index of federal regulations by tracking the growth in the number of pages in the Code of Federal Regulations since 1949. The number of pages, they note, has increased six-fold from 19,335 in 1949 to 134,261 in 2005. (As of 2011, the number of pages had risen to 169,301.) They devise a pretty standard endogenous growth theory model and then insert their regulatory burden index to calculate how federal regulations have affected economic growth. (Sometimes deregulation extends rather than shortens the number of pages in the register; they adjust their figures to take this into account.)

Annual output in 2005, they conclude, "is 28 percent of what it would have been had regulation remained at its 1949 level."

Just think of it, without all this burdensome regulation your salary could be six times great.

I'll acknowledge that there is some room for laws.  I like having some driving laws.  But that doesn't mean ever regulation is a good thing.


Hamilton Bard said...

I agree that government regulations have hurt business and our economy. Politicians like to talk about government spending for physical infrastructure - roads, bridges, etc. - but they forget the effects of "legal infrastructure" on business - the mass of regulations that make it more difficult and expensive for business to do business.

It is ironic that I would say this because I have just written and published a book on how to improve the economy by using income tax rates on corporations to encourage hiring (title is Job Creation Tax Plan). But we can't eliminate taxes altogether, and if we are going to tax we should make sure that the tax structure we have will encourage policies that will help our economy and our country.

Henry Cate said...

Sorry for taking so long to respond to your comment. My wife and I have been distracted with foster care for the last couple months.

I think my two big goals for the tax structure would be to simplify it and reduce government spending. If I had the ability I would be pretty ruthless and just get rid of various Federal government programs.

Good luck with your book.