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  • Red Tape Rises Again: Cost of Regulation Reaches $1.75 Trillion

    Red tape chokes economic freedom

    How much does federal regulation cost Americans each year? The question is not an easy one.

    While the revenues and expenditures of the government are budgeted and accounted for each year, the costs of regulation are largely hidden from view, paid for indirectly via higher prices, fewer choices, and less innovation. The best estimates of the total cost, however, have come from a series of reports commissioned by the Small Business Administration (SBA). The latest such report was released today by the SBA’s Office of Advocacy, and the results are startling.

    Rules and restrictions imposed from Washington now cost Americans some $1.75 trillion each year. That is sharply higher that the $1.1 trillion in costs reported in 2005 in the SBA’s last such study.

    Some of this increase comes from identification of regulatory costs that were not included in earlier reports. Yet much represents new regulatory burdens—including a $445 billion increase in the cost of economic regulation.

    No matter how you slice it, $1.75 trillion is a lot of money. It is far more than Americans pay in income taxes each year. It’s about the same as the GDP of Italy. Per household, the regulatory tab works out to some $15,000—almost as much as the average family spends on housing.

    The study, co-authored by economists Nicole V. Crain and Mark Crain, probably shouldn’t come as a surprise. During the past few years, spanning two presidencies, the tide of regulation has risen at an alarming rate. And more is to come: 2010 promises to be a record year for imposing rules, and the full impact of new health care and financial regulations have yet to be felt.

    There is no magic bullet to stop this excessive growth, although reform efforts are growing in Congress. Sen. Jim DeMint (R-SC) is set to introduce a bill that would require congressional approval of all major new rules that impose a significant cost on country as a whole or on a particular industry (The bill is identical to one already introduced in the House by Congressman Geoff Davis [R–KY]).

    Whatever the eventual cure, the reform process, like many others, must begin with recognition that there is a problem. Today’s report makes that problem virtually impossible to miss.

    Posted in Economics [slideshow_deploy]

    7 Responses to Red Tape Rises Again: Cost of Regulation Reaches $1.75 Trillion

    1. Paul Peretz, Fullert says:

      1. The estimate is larglee based on a somewhat dubious regression on OECD data from 25 countries as opposed to being based on US data from the US. You might want to look more closely at this regression which is in one of the appendices to the report.

      2. The independent variable is an index that includes many measures, some of which it is reasonable to call regulation and some of which it is not.

      3. The OMB estimate, as they point out is 66 billion, and while they are right is saying that that is a little low, the jump to 1.7 trillion is not plausible. Further the OMB is in a better position to make such estimates than the SBA as they havfe better access to the relevant data.

      4. They say themselves that most of the change from 2005 is due to a change in the methodology, not to a change in the actual cost.

    2. Pingback: Free Markets vs Government Intervention: A Freedomnomical Epilogue | A View from the Right

    3. Evan Harper, London says:

      In addition to what Paul has said:

      1) "This report does not address the benefits of regulation, an important challenge that would be a logical next step toward achieving a rational regulatory system. … This report, thus, should be seen as a building block toward a broader understanding of the costs of regulation, much of which creates important and substantial benefits."

      2) "How much of this large increase comes from 'real' regulatory changes and how much comes from methodological changes? If the cost of economic regulations in 2004 is re-estimated using the new methodology, that value rises by $445 billion to $1.172 trillion. This recalibration of the 2004 estimate suggests that the 'real' cost of economic regulations increased by $63 billion between 2004 and 2008, after adjusting for inflation and estimation methods."

      Somehow you have misread this as stating that the $445 bil re-calibration of the old data, suggesting a real increase of $63 bil, is actually a real increase of $445 bil.

    4. Bill Byrd says:

      However you critique the study, it does not address the indirect cost to the country in lost jobs, underemployment, lost taxes, lost GDP. Companies that can no longer compete must transfer their production out of the country to survive. We cannot continue this cycle. It is financially unsustainable. In fact, regulation needs to be rolled back to pre-2000 levels

    5. Pingback: The Achilles Heel of Business | RedState

    6. C R Stephens says:

      The author of this study needs to understand the concept of "full cost pricing."

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