Conservatives and liberals often square off over the proper level of government regulation, but most people agree that some level of oversight is necessary to defend against fraud, waste, and abuse. But at what level does the regulation itself become waste and abuse, this time by bureaucrats rather than stakeholders in the markets? Two researchers at California State University Sacramento may not have the answer to that question, but certainly can argue that California has long since passed the threshold (emphases mine):
This study measures and reports the cost of regulation to small business in the State of California. It uses original analyses and a general equilibrium framework to identify and measure the cost of regulation as measured by the loss of economic output to the State’s gross product, after controlling for variables known to influence output. It also measures second order costs resulting from regulatory activity by studying the total impact – direct, indirect, and induced. The study finds that the total cost of regulation to the State of California is $492.994 billion which is almost five times the State’s general fund budget, and almost a third of the State’s gross product. The cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State’s population. Since small business constitute 99.2% of all employer businesses in California, and all of non-employer business, the regulatory cost is borne almost completely by small business. The total cost of regulation was $134,122.48 per small business in California in 2007, labor income not created or lost was $4,359.55 per small business, indirect business taxes not generated or lost were $57,260.15 per small business, and finally roughly one job lost per small business.
Those conclusions are simply stunning, and it’s worth pointing out that the analysis comes from professors at a state-run school, not employees of a private think tank. California currently has 12.2% unemployment, and its economy has almost fallen off a cliff over the last two years. A reduction of even half of the regulatory burden on businesses in California could create almost 2 million jobs and kick-start their economy. Instead, California — like the rest of the US — is focused on increasing taxes and regulation, the opposite of what the Golden State needs.
It would be interesting to see similar analyses on the rest of the states. I suspect California will rank high among them, but perhaps not the highest on the basis of percentage-of-GDP. These are the kind of analyses we need to have an informed debate over the nature and reach of the regulatory requirement for a free people.