Costly Regulations Hinder US Economic Growth

Article excerpt

THE American economy is moving steadily into expansion. On Friday, Washington raised its estimate of growth in the first quarter to 2.4 percent from 2 percent. However, there are limits to growth.

Robert Crandall of the Brookings Institution, a think tank in Washington, charges that federal health, safety, and environmental regulation is "absurdly inefficient." He says that "populist groups see environmental policy as a means to rein in untrammeled economic progress."

No one knows the true bill for such regulations, but Dr. Crandall says that "the full cost of environmental policy will soon exceed defense spending" (roughly $290 billion a year at present). The vast bulk of this burden falls on the business sector in the form of "mandated expenditures," a thinly disguised implicit corporate income tax.

The principal result of this approach was a drop in profitability of United States corporations over the last decade to levels far below the norm of the last half century. The business sector accounts for about two-thirds of total private saving and almost all wealth-producing investment.

The decline in profitability has undercut the incentive for business investment. The substandard level of investment has deprived US workers of the tools they need to maintain their standard of living. It is the root cause of the slow motion in the US economy.

While many factors contributed to the riots in Los Angeles, slow growth - which saddles families at the bottom of the income scale with a disproportionate load - certainly played a critical role. The US is paying a high price for misguided health, safety, and environmental rules. Growth may not be a panacea, but the nation is surely far better with it than without.

Meanwhile, the financial community is having trouble interpreting monthly gyrations in economic data. Wall Street spin doctors never let facts get in the way of a good story.

Practitioners of this arcane craft foment market uncertainty. As moods swing from euphoria to despair, trading opportunities develop, especially in government securities. …