In Regulation We Trust

by Sydney Williams A fundamental premise of the coming together […]


A fundamental premise of the coming together of the American colonies in 1776 was that a diverse people from myriad heritages with differing religious beliefs could flourish, as long as freedom prevailed. That demanded a government with limited powers, and, with authorities not expressly enumerated to the federal government, reserved for the states and the people. Congress was granted the power to regulate interstate commerce, not for the purpose of restricting trade, but to promote commerce. Financial well-being, the Founders recognized, was dependent on robust economic growth. Restrictions on limited government began to be reversed with the Progressives early in the 20 th Century, and more definitively with Franklin Roosevelt’s New Deal. Wickard v. Filburn, decided by the Supreme Court in 1942, upheld Congress’ regulatory authority even to items that do not cross state lines…and even for items produced for personal consumption. More recently, the enforcement of regulation has increasingly become the purview of unelected officials.

The Competitive Enterprise Institute (CEI), a small “think tank” in Washington estimates, in their 2012 report, that regulation cost the economy about $1.75 trillion, almost half the U.S. Federal budget and about 12% of U.S. annual GDP. To put that number in perspective, in 2011, individual taxpayers paid $1.1 trillion in personal federal income taxes. To be fair, some regulation is necessary and some makes our lives better. Nevertheless and as would be expected, the Office of Management and Budget (OMB) argues that a cost-benefit analysis shows that the benefits of regulation exceed their costs.

In the first three years of Mr. Obama’s first term, the Code of Federal Regulations (COFR) increased by 11,327 pages – a 7.4% increase. The pace was maintained in 2012, with 3800 final rules issued last year. Today, the corpus of the COFR is approaching 200,000 pages – far more than the average person would read in lifetime. According to the White House, 2012 was the costliest ever in terms of federal regulation – at $19.5 billion, costs were 57% higher than 2010, the second costliest year. Nevertheless, the White House appears to have understated the real costs. Research from American Action Forum indicates that the White House estimates real costs were $23.1 billion. And neither estimate includes six “economically significant” regulations – those whose costs exceed $100 million. It is hard not to believe that the CEI’s estimates are closer to the mark.

The Atlantic Monthly is not a publication noted for hyperbole. Nevertheless, Derek Khanna in the January 27, 2013 issue wrote an article entitled, “The Most Ridiculous Law of 2013 (So Far): It Is Now a Crime to Unlock Your Smartphone.” In it, he noted that by decree from the Librarian of Congress, Americans who unlock their smartphones in order to make them available on other carriers will be subject to penalties. “Anyone,” he wrote, “who accepts payments to help others unlock their phones would clearly be subject to the fine of up to $500,000 and five years in jail.” The origin of this travesty is the Digital Millennium Copyright Act (DMCA) of 1998, which outlawed technologies that bypass copyright protections. Mr. Khanna points out that while this sounds like a good idea, “in practice it has terrible and widely acknowledged, negative consequences that affect consumers and new innovation.” The DMCA leaves it to the Librarian of Congress to issue exemptions from the law.

As an indication of the absurdity of certain regulations and the exemptions that must be sought regularly, Mr. Khanna notes that the American Foundation for the Blind must lobby Congress to protect an exception for the blind that allows books to be read aloud. Every three years their group must come to Capital Hill to explain that the blind still can’t read books on their own and therefore need this exception. It would be funny were it not true.

Red tape is suffocating small business. Millions of rules and regulations encumber businesses in the “land of the free.” In last Wednesday’s Wall Street Journal , Niall Ferguson wrote that the cost of regulation for small business is “36% higher per employee than they are for bigger firms.” The paperwork nightmare acts as a retardant to those who would start businesses. States can be as bad as the federal government. There is little question that while some regulation is helpful and saves lives, a large number of rules are simply manifestations of growing cronyism – designed to protect certain businesses by inhibiting competition. Some examples of the silliest follow:

· The State of Texas requires every computer repair technician to obtain a private investigator’s license. The license requires a degree in criminal justice, or a three-year apprenticeship. Violator’s can be fined $4000 and/or put in jail for a year.

· A Tour Guide’s license is necessary to give tours in Washington D.C. Doing so without could put you behind bars for 90 Days.

· A Massachusetts fisherman was fined $500 for untangling and setting free a whale that had become caught in his nets. Regulations required that he call state officials and let them do the job. (The whale must have been absent when this law passed.)

· In Milwaukee, you must purchase a license to dissolve a business. Further, you must detail the inventory you are attempting to sell and pay a $2 dollar charge for every $1000 worth of inventory.

Much, if not most regulation is imposed by unelected bureaucrats working in agencies such as the EPA. In 2009, Representative Geoff Davis (R-KY) was asked by a constituent: why doesn’t Congress vote on new regulations? It was an obvious concept, but has proven difficult to enact. The REINS Act (Regulations from the Executive in Need of Scrutiny Act of 2013) would require Congress to approve all new major regulations. A version of the bill passed the House in December 2011, but the Senate has yet to hold a hearing. Regulations are imposed, creating costs for consumers, with no oversight by elected officials. Such regulatory charges are, in fact, examples of taxation without representation.

Besides being designed to help particular corporate constituents (and hamper competition), many regulations are imposed by politicians responding to high-profile events. Ross Douthat, in Sunday’s New York Times , noted that the President’s decision to make gun control a second-term priority is coming at a time when “firearm homicides are at a 30-year low.” Congress is pursuing an increase in low-skilled immigration “when the foreign-born share of the American population is already headed for historical highs.” Mr. Douthat adds: “The administration is drawing up major new carbon regulations…when actual global warming has been well below projections for 15 years and counting.”

In his Journal column, Professor Ferguson concluded with a quote from Alexis de Tocqueville regarding the suffocating affects of the regulatory state on free enterprise: “It [regulation] rarely forces one to act, but it constantly opposes itself to one’s acting; it does not destroy it, it hinders, compromises, enervates, extinguishes, dazes and finally reduces [the] nation to being nothing more than a herd of timid, industrious animals of which the government is the shepherd” – We are becoming what H.G. Wells called the Eloi.

“Keep rollin’ down the track, you can’t go back,” goes the song. The same, unfortunately, seems true of our over-regulated state.

This memorandum has been prepared as a matter of general information. The accuracy of the material submitted, though obtained from sources believed reliable, is not guaranteed by us and may not be complete. The opinions and estimates expressed in this memorandum accurately reflect the personal view(s) of the analyst(s) covering the subject securities on the original date the memorandum was issued, but are subject to change without notice. Analyst compensation at our firm is not directly related to any specific recommendation or views contained in this research. The analyst, officers and employees of this firm may at times have a position in the securities mentioned herein.

“The thought of the day” by Sydney Williams


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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