Regulation or strangulation?

Nancy A. Bord & William G. Laffer III

July 21, 1992|By Nancy A. Bord & William G. Laffer III

HAS FEDERAL regulation really gotten out of hand? You decide: Americans may be paying more for regulations than they are in taxes.

The average American household forks over nearly $11,000 a year to the federal government in taxes. But the best estimates show the burden imposed by reams of federal and state regulations is soaking them for somewhere between $8,388 and $17,134 a year. Who's responsible?

In January President Bush, no doubt worried about damage control in an election year, called a 90-day halt to any new regulations. When the world didn't come to an end, he extended the moratorium four months.

But it was too little, too late -- the damage was done. Under George Bush the total length of the Federal Register, in which all new federal regulations are printed, has grown from 53,376 pages in 1988 to 67,716 pages in 1991 -- the third highest total ever. Platoons of new regulatory bureaucrats -- more than 20,000 -- have been hired on Mr. Bush's watch to write regulations, catch violators and mete out punishment.

At the top of the list of Mr. Bush's regulatory boondoggles is the new Clean Air Act. Even by conservative estimates, the legislation will cost businesses somewhere between $29 billion and $36 billion a year -- on top of the $130 billion already being spent annually on pollution controls. Of, course, it might be worth paying $30 billion a year or more if doing so would bring about substantial improvement in air quality. However, it appears that the Clean Air Act amendments will produce benefits (such as increased crop yields and certain health benefits) worth only about $14 billion -- a lousy return on the investment.

The president is scratching his head over why the economy can't seem to snap out of its current slump. Maybe it's because the regulatory route, even when it serves a worthy cause like clean air, is incredibly inefficient. It acts as a "hidden tax" on consumers, workers and investors, raising prices and hurting the economy. A company faced with new regulations doesn't altruistically absorb the cost of complying with the rules; to the extent that it can, it will pass the additional cost along to its customers. And if the costs cannot be passed on, they will instead be borne by the company's employees and shareholders in the form of lower wages, lost jobs, and lower profits.

The president can't figure out why millions of new jobs aren't being created on his watch. Could it be because over-regulation exacts a heavy toll on small businesses, the engines of job creation? Small and medium-sized firms find it very difficult to afford the high costs of processing paperwork, paying attorney and accountant fees and committing staff time to negotiating the federal regulatory maze. Sometimes larger companies, better able to accommodate regulatory costs, actually support regulations in the hope of crippling their smaller competitors.

The president could easily do away with a few long-standing regulatory schemes designed to promote health and safety, but which have precisely the opposite effect. For example:

Many federal drug-approval laws make life-saving drugs and medical treatments less available and more expensive. FDA regulation of the pharmaceutical industry, for example, has reduced the number of new drugs introduced by more than 60 percent per year and doubled the cost of developing new drugs in the United States. At least 95 percent of the price of vaccines for children, for instance, results from state and federal regulatory costs.

Federal fuel-economy standards require auto makers to reduce xTC the weight of their cars -- making them less safe. Nothing wrong with fuel economy, but is it worth, over the life of each model year's cars, between 2,200 and 3,900 more highway deaths, and between 11,000 and 19,500 more serious injuries?

It is the lower income families who can't afford bigger, heavier cars -- and the smaller businesses who can't compete when burdened with regulatory expenses -- who are hurt the most by over-regulation. These same people are swelling the ranks of the unemployed. These same businesses are the source of new jobs.

President Bush has plenty of good reasons to say no to the now ridiculously bloated federal regulatory monster. Perhaps the most realistic one is his own political survival.

Nancy A. Bord is a former business economics professor at the University of Hartford. William G. Laffer III is a fellow at the Heritage Foundation, a Washington think tank.

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