In the article, “The Cost of Regulation,” author Mark Thornton, senior fellow at the Mises Institute, details the savings to regulation cuts as well as the cost of increasing regulation. “We estimate that reducing the size of the regulatory bureaucracy may grow the economy and invigorate the labor market. Even a small 5% reduction in the regulatory budget (about $2.8 billion) is estimated to result in about $75 billion in expanded private-sector GDP each year, with an increase in employment by 1.2 million jobs annually. On average, eliminating the job of a single regulator grows the American economy by $6.2 million and nearly 100 private sector jobs annually. Conversely, each million dollars increase in the regulatory budget costs the economy 420 private sector jobs.”
A Better Way To Regulate
Smarter regulation that is actually impactful and cost effective would be ideal but we need to go further by taking away older obsolete rules for every new rule added, streamlining the volume of regulation. Before the Chinese Communist Party’s intervention, Hong Kong had consistently ranked #1 on the economic freedom index. One aspect to their success was they had very few government regulations. While the U.S. has reactionary regulation with many business-crushing consequences, Hong Kong had an environment of permissionless innovation that embraced the benefit of “innovation allowed,” which switches the burden of proof to those who favor preemptive regulation and requires them to explain why ongoing trial and error experimentation with new technologies or business models should be disallowed. Regulators had the burden of proof that their proposed regulation not only works, but also cost effective given the circumstance presented.
How Over Regulated Are We?
In the U.S., heavy regulation is in direct proportion to heavy crony capitalism, as regulation is encouraged or pushed by lobbyists of large firms to keep smaller competitors at bay. The wirehouses love regulations and spend millions in lobbying efforts to keep them in favor with government officials and competitors at a competitive disadvantage through continued heavy regulation. U.S. regulatory costs ($4 trillion) would be economically equal to the fourth largest country in the world.
Regulation depletes one quarter of U.S. GDP and in 2013 totaled 170,000 pages on a federal level. That’s not counting state and local regulatory pages. The Trump administration had issued 65 percent fewer “significant” rules—those with costs that exceed $100 million a year—than the Obama administration. The Trump administration had pledge to “massively” reduce regulation, but only significantly slowed regulation output. The 170,000 pages in 2013 as of 2018 are up to 185,000 pages. The Biden administration has pledged to step up regulation dramatically across industries. More sand will be thrown into the gears of business and industry.
Jon Henschen is founder of Henschen & Associates, a firm that helps advisors find broker-dealer relationships.