Thursday, May 11, 2006

Closing in fast

Some years ago, Milton Friedman wrote that the U.S. was socialist. He considered not only the size of state and local goverments but also their reach and came up with a number larger than half of GDP.

Today's WSJ includes an a propos summary of recent research (below) from the Mercatus and Weidenbaum Centers. The study estimates the size of the expanding federal regulatory state. Also mentioned are estimates of the annual costs of federal regulation, about $1 trillion. Presumably, there are also some benefits but surely very much smaller.

In any case, this suggests that the $2 trillion federal government (expenditures, 2002 GDP data) had an influence-mutliplier. If the $1.6 trillion state and local sector had a similar influence, we may not (yet) be in Friedman's "ballpark", but recent red tape growth rates cited suggest that we are closing in very fast.

"Tale of the Red Tape"
WSJ, May 11, 2006; Page A16

"Federal spending isn't all that's been on steroids in recent years in Washington. A report to be released this week by the Mercatus Center at George Mason University and the Weidenbaum Center at Washington University finds that the feds have also been on a regulatory rampage that needs squelching.

"From 2001 to 2006, the number of federal regulatory personnel has risen by one-third (or 66,000 more snoopers); regulatory budgets are up by 52% after inflation; and the Federal Register -- which prints all that regulatory verbiage -- has climbed by more than 10,000 pages. (See nearby chart.) The Institute for Policy Innovation calculates that if you stacked up all the registries from the Nixon Presidency through the present, the pile would reach higher than the Washington Monument.

"The biggest increases in enforcement personnel and dollars have gone to such customer-friendly agencies as the Securities and Exchange Commission, the Food and Drug Administration, the IRS, the Bureau of Alcohol, Tobacco and Firearms and the Antitrust Division of the Justice Department. Just last week Mr. Bush announced an intention to expand the reach of one of Washington's more absurd regulatory regimes: automobile fuel-mileage standards, which push consumers into smaller, less-safe cars and increase traffic fatalities. So much for regulations making us safer.

"Federal regulations now cost the U.S. economy about $1 trillion in lost output a year, or about $8,000 per household, according to a 2005 study by the Small Business Administration. Many regulations, such as clean air and water statutes, do have large societal benefits and can be justified in economic terms for addressing "externalities" that no one else but the government can address.

"But as with everything in Washington, good intentions typically trump any consideration of costs, and so Congress has never passed a law requiring cost-benefit calculations when implementing new rules. This is a particular failure of the Republican Congress, which came within one Senate vote of passing such a requirement in 1995, but has since given up. This hurts small companies especially, because they have fewer employees and revenues across which to spread the costs of meeting federal rules.

"We'll give the Bush Administration credit for at least resisting the mother of all super-regulatory contraptions -- the Kyoto Protocol on global warming. But if Republicans manage to get through November with their majorities in Congress intact, they ought to revisit their campaign promises of yore and look for ways to lighten government's regulatory load."