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  • November 2014
    M T W T F S S
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The Crippling Costs of Overregulation

A recent study conducted by the Phoenix Center found evidence suggesting that reducing federal regulatory activity would have a significant impact on economic growth and job creation.  The study, which analyzes nearly fifty years of data spanning from 1960-2009, estimates that even a 5 percent reduction in the federal government regulatory budget would result in an approximately $75 billion annual increase in GDP and the creation of nearly 1.2 million jobs annually.

On January 18, 2011, President Obama signed an executive order calling for a cost-benefit analysis of existing federal regulations.  The President penned an op-ed in the Wall Street Journal the same day, in which he acknowledged the negative effect of excessive regulation on businesses:

Sometimes, those rules have gotten out of balance, placing unreasonable burdens on business—burdens that have stifled innovation and have had a chilling effect on growth and jobs…..we are also making it our mission to root out regulations that conflict, that are not worth the cost, or that are just plain dumb.

Despite issuing this executive order, President Obama’s actions have spoken much louder than his words.  A January 2011 article in The Economist described the historic rise in regulations since Mr. Obama assumed office:

In his first two years in office the federal government issued 132 “economically significant” rules, according to Susan Dudley of George Washington University. (“Economically significant” means that either the rule’s costs, or its benefits, exceed $100m a year.) That is about 40% more than the annual rate under both George Bush junior and Bill Clinton. Many rules associated with the newly passed health-care and financial-reform laws are still to come.

Existing rules are also being enforced more keenly. The workplace-safety regulator slapped employers with 167% more violations in Mr. Obama’s first year than in Mr. Bush’s last, according to OMB Watch, a liberal watchdog. The Food and Drug Administration (FDA) has stepped up scrutiny of drugs that have already been approved for sale. Last year it barred the use of Avastin for breast cancer, not because it was unsafe but because its benefits seemed too uncertain. The regulatory workforce has grown 16% in Mr. Obama’s first two years in office, to 276,429, while private employment has fallen.

 

Instead of conducting a cost-benefit analysis on all existing and proposed regulations, the study’s authors suggest that a better approach would be to simply cut the regulatory budget, citing that past efforts to implement similar cost-benefit mandates were ultimately unsuccessful.  Simply because an agency is directed to perform a cost-benefit review does not ensure that they will do so effectively or that their recommendations will be acted upon.  Cutting the regulatory budget would force regulatory agencies to “pick and choose” which regulatory interventions are necessary and which are not.

The study additionally found that the reduction of one regulator would create 98 new private sector jobs and spur a $6.2 million gain in GDP.  The authors found that any changes in the regulatory budget are symmetric; in other words, the resulting employment and GDP gains from a 5 percent cut in the regulatory budget are equivalent to the employment and GDP loses from a 5 percent budget increase.  More detailed statistics from the study are shown below:

 

Table 4. Cost per Federal Regulator Summary

Regulatory Budget Adjustment

-5%

-10%

-16% 

 

Average annual increase in GDP

-12,109

-24,217

-38,747

Ratio of New GDP per Lost Federal Regulatory Agency Job

$75 billion

$149 billion

$238 billion

Average Annual Increase in New Private Sector Jobs

$6,200,00:1

$6,200,00:1

$6,200,00:1

Ratio of New Private Sector Jobs per Lost Federal Regulatory Agency Job

1,888,197

2,362,490

3,753,524

Ratio of New Private Sector Jobs per Lost Federal Regulatory Agency Job

98:1

98:1

98:1

 

The Council for Citizens Against Government Waste has long been a proponent of eliminating unnecessary regulatory burdens on American businesses and ensuring that federal agencies do not overstep their boundaries.  The American people are fed up with Washington’s constant overreaching and overspending.  Now is the time for Congress to step up to the plate, cut regulatory spending, and get the nation’s economy back on track.

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