Overregulation: The problem we can’t outproduce (with some words from Reagan)
posted at 2:22 pm on August 13, 2012 by J.E. Dyer
In the period between 1950 and about 2005, Americans continuously sustained a hefty downpayment on our federal, state, and local governments’ spiraling debt, by upping our productivity, our economic output, and the scope of opportunity for everyone.
Overregulation and implied state ownership of what we produce has been a problem for us since Woodrow Wilson’s terms in office. But until the last half-decade, the American people shouldered and outproduced greater and greater burdens of regulation and/or taxation, costly credit and inflation, and victim politics and litigation. Operating in the conditions of relative economic and political freedom – more than most of the world, if not more than in our own past – the American people were a productivity engine unmatched in the history of man. Spend more? We’ll produce more. Tax receipts will skyrocket. If our governments can’t pay their bills, it won’t be because the American people aren’t producing.
The burdens have now caught up with us, however. Tax rates, while they have gone up and down in the last 30 years, have hovered around a mean established in the 1980s. Top rates have not skyrocketed as they did at some points in America’s past. Yet the American productivity engine is faltering. Unemployment remains high at over 8%, and America’s labor force participation rate has dropped to its lowest level since 1981 (which was in the trough of a major recession).
Credit is harder to get, but people don’t want that much of it anyway. Consumers aren’t spending. Housing values have plunged into an abyss, with no end in sight. (A home virtually identical to mine was listed last week for about half what I paid for mine in December 2002. Six months ago it would have been listed at about 65% of my original purchase price.) In the current heat wave in the Southwest, California power companies that announced “flex alerts,” during which customers are asked to use less power, have been surprised that usage was well below what they thought it would be. People can’t afford to pay for air conditioning as they once would have – and many homes are still standing empty after three, four, or five years. Similar low demand has hit the US Northeast. (This means, incidentally, that the power companies aren’t getting the revenue they were expecting. Down the road, that isn’t going to be a good thing.)
It’s easy to say that people don’t want to work. It’s also cheap and easy to talk about “fatcat” business owners who don’t want to hire people, or who are just being rich while the rest of us are miserable.
But most new jobs – about 70% — have always been created by small businesses in America, and those small businesses are being steamrolled by regulation. Regulation is having a serious impact even on big business, and all its costs are passed on to the customer. “Business” doesn’t pay for anything; you pay for it all. If you don’t, the business isn’t viable, and you don’t have those big, clean grocery stores with thousands of products, or gas stations charging competitive prices on every corner. Either you pay all the costs of regulation, or the product isn’t available.
One particular American president was closely attuned to the costs of regulation, and you won’t be surprised that it was Ronald Reagan. Several times in the late 1970s, he spoke about this problem in his radio spots. The points he made then resonate as if they were made at 10:00 this morning.
One 2 March 1977, Reagan talked about “Added Inflation” caused by government regulation*:
To inflation and taxes let us add another cost to all of us which is the indirect inflation brought about by excessive regulation and government statutes.
He went on:
… in 1974 the Federal Register needed 45,422 pages to list all the new U.S. Government decrees and regulations that year…
Those regulations add to the cost of doing business in a variety of fields and many ways which means they add to the cost of the things we buy. For example Congressman Bill Armstrong of Colorado estimates, “Restrictive rate policies of the Interstate Commerce Commission add $5 billion per year in excess freight rates passed on to the consumer.”
Reagan cited other specific costs of regulation in this radio spot. On 8 November 1977, he did a spot on the travails of the Greyhound bus company, which had had some very unfortunate encounters with federal regulators:
Greyhound happens to have the best safety record in the transportation business. …
But one day the company was hailed into federal court by the U.S. Labor Department. The government charged the company with discrimination because it had an age qualification for its drivers. …
Next the Equal Employment Opportunity Commission attacked because Greyhound has a height requirement. After years of experience the company’s safety people had set a minimum requirement of 5’7” for drivers. EEOC charged this discriminated against people who weren’t 5’7”. …
EEOC demanded that Greyhound pay some $19 million to unspecified, unnamed individuals who might have been employed in the past if they hadn’t had that 5’7” height requirement. …
The ICC [Interstate Commerce Commission] has ordered the company to provide a terminal in every town of 15,000 population and up through which the buses run and keep those terminals manned and open day and night. If the ICC has its way Greyhound’s operating costs would be increased by $187 million and bus fares would have to be increased by 50%.
On 27 January 1978, Reagan talked about the disincentives inherent with regulations imposed by the Employee Retirement Income Security Act (ERISA) of 1974.
A relatively small law firm … has instituted a retirement plan involving profit and ownership sharing for its few employees. [This firm] informed [its] Congressman that the ERISA Act of 1974 having to do with pensions had resulted in making the cost of administering the law firm’s retirement plan greater than the plan’s benefits.
Reagan went on in this broadcast to recount the story of a small proprietor in Maryland, the owner of a sewing-machine repair shop. The man, said Reagan,
…decided to hire one employee. It seems this takes more than just running an ad and offering someone a salary. He had write [send] for employer’s state and federal tax forms.
From the state he received a stack of forms including two notices he was required to put on the wall of his shop telling employees how to complain about unsafe or unsanitary working conditions and how to apply for unemployment compensation. The federal government sent him a packet containing 44 forms ranging from 1 to 30 pages each. He said, “I wouldn’t have time to do my sewing-machine work if I had to read all this.” …
The proprietor explained that he had thought he could help the unemployment situation by teaching some boy or girl a trade. He added, “But they don’t make it easy for you at all.”
The IRS concedes his complaint is a familiar one among small businessmen but “ho-hummed” that most of them eventually get used to it. Maybe – but just maybe a lot of them like the sewing-machine man change their minds about hiring someone.
That’s it, in a nutshell. We get used to regulation. It deters new hires, it puts small firms out of business, it makes everything cost more for us and reduces all our options and opportunities – but it operates by stealth, and most of us don’t even know it’s affecting us. Who among us knows what’s in our body of federal regulations? How many of us know that more than 81,000 pages were added to the Federal Register in 2010?
In the 1980s, the annual average was just under 53,000 pages; in the 1990s, it was over 62,000. Why was it even bigger under Reagan than it was in the 1970s? Because of all the federal departments and agencies that had been created in the quarter-century prior to 1980. The departments and agencies write the additions to the Federal Register. You’re paying these folks’ salaries, benefits, and pensions – and for the costs of the regulations they write – but you probably have no idea what 99% of the employees in the civilian agencies and departments are doing all day.
Prosperity has met its match. Regulation will kill prosperity by stealth unless we the people wake up to what’s going on. We are wildly, insanely overregulated today, and if we don’t attack the idea of the regulatory state on those terms – on the premise that regulation itself is mostly a bad thing, and we need far less of it than we have – then we will never recover. Regulation is already repressing and discouraging our economy, and after 40 years of a full-bore barrage from it, we have come to the end of the kick from freedom’s natural momentum and the tax-rate reductions under Reagan and Bush 43.
There will always be some anecdote making it sound like increased regulation is our only option. A posture of principled skepticism toward the very concept of government regulation – an assumption that given our natural rights, it should be rare and limited – is the only thing that will consistently defeat those incessant appeals.
We’ve reached the end of the line. Our freedom to start businesses has been seriously degraded. The cost of inputs to all facets of life, including operating a business, has soared, due largely to regulation. We aren’t better off for all this regulation, which has gone so far beyond things like clean water and warding off disease that it is now doubling back on itself, and deliberately denying us water and declining to spray public spaces for disease-carrying mosquitoes. Regulation has left the compact with the public behind, and is now more about restraining citizens than about helping them – more about creating new sinecures for policy advocates than about ensuring the people have full, unfettered use of their property and their individual gifts.
We can’t compromise with the regulatory impulse. That’s what we’ve been doing for the last 100 years, and this is where we are because of it. Overregulation has created the flailing America of 2012. Only a dramatic reduction of regulation at the top two levels of government – federal and state – can make the difference we need. Unless we get this through our heads, the American idea of liberty, with rights of men that are good against regulation, no matter how badly its advocates want to impose it, will die with my generation.
* The quotations are taken from Kiron K. Skinner, Annelise Anderson, and Martin Anderson, Reagan’s Path to Victory (New York: Free Press, 2004). The book compiles the notes Reagan made for a number of his five-minute radio broadcasts between 1975 and 1979. Skinner and the Andersons transcribed Reagan’s hand-written notes by reproducing his own notations such as ampersands, strike-throughs, and abbreviations. For clarity, I have excerpted the quotations here using full words rather than abbreviations, using “and” for ampersand, correcting spelling, and so forth. I’ve left the sentence punctuation mostly alone, although it could use some commas. The pages on which the quotations in this post occur in the 2004 hardback edition are, in order: pp. 128-9, “Added Inflation”; pp. 220-21, “Free Enterprise”; pp. 259-60, “Regulation.”