Adding Up the Costs of Federal Regulation

Article excerpt

At a recent conference sponsored by the Senate Republican Conference, economists and small business people discussed ways of increasing jobs and economic growth. There was an interesting dichotomy, however, in the presentations of the economists and the business people. While the economists stressed familiar tax proposals, such as cutting the capital gains tax, the business people were almost exclusively concerned with government regulation. While not discounting the need for tax cuts and tax reform, it was clear that the business people thought regulatory reform ought to be higher on the growth agenda.

The business people may be on to something. Although economists universally recognize the importance of government regulation in impeding growth, they seldom stress the issue. In fact, regulation is really little different from a tax. If a businesswoman has to spend $10,000 complying with some unnecessary regulation, it is really no different to her than a $10,000 tax.

One of the main problems economists have in analyzing regulation is the difficulty in quantifying its cost. But in recent years much progress has been made in developing good numbers that help us analyze and study the impact of regulation on the economy. The leader in this effort has been Professor Thomas D. Hopkins of the Rochester Institute of Technology. While a staffer at the Office of Management and Budget, he began calculating the costs of various regulations. Mr. Hopkins has continued the work in academia and produced annual estimates of federal regulation from 1977 to the present. These data are represented in the accompanying chart. As one can see, the cost of federal regulation now exceeds $600 billion per year - roughly equivalent to the individual income tax in its impact on the economy.

The Hopkins data also show the changing nature of federal regulation. …