President Trump recently announced that his administration would be seeking to cut federal regulations by 75% or more. Should he manage this, the achievement would become the stuff of legend in small-government circles. Of course, nanny-staters, control freaks, rent-seekers and many of the politically less involved will object to a wholesale effort to get government out of the way, thanks to greed for power, greed for personal enrichment, and/or decades of propaganda about the evils of the free market and how only government can protect us from wholesale destruction and exploitation.
Do we really need to cut regulations by 75%? Aren’t regulations a Good Thing?
Consider that nearly 6,000 regulations have been added at the federal level in just the past two years. Consider that the number of pages in the Federal Register, where the government publishes its regulations, has nearly doubled since a Reagan-era low. Consider that, in an 18 trillion dollar economy, regulatory compliance totals over 2 trillion dollars. Sounds like a bit too much of that Good Thing.
That’s two trillion dollars that doesn’t get used productively. Two trillion dollars of wealth creating power lost forever. Each year. Imagine that you hired 25 million workers to dig holes all day, and 25 million workers to refill those holes all day. Imagine that you paid each of those workers $40,000 per year. At the end of the year, you’d be out two trillion dollars and have absolutely nothing to show for it. Some Keynesians will argue that you’ve given 50 million people good incomes for a year, and they’ve spent that money in the economy, but if this was a valid argument, why not run the entire nation that way? Obviously, that money has to come from somewhere, and its ability to employ people in productive ways is lost.
Two trillion dollars is 11% of the total economic activity in the nation. 11% may not sound like a lot, but consider that 11% is nearly twice the net income margin that the average American firm earns, and it’s a dozen or more times what banks are paying in interest on savings nowadays. It’s a massive amount of money, it’s a massive drag on the economy, it’s a massive albatross around most of our necks.
Obviously, we’re not going to cut all regulation, and obviously, we’re not going to recover all that economic inefficiency. Imagine, though, if we could recover a quarter of it. Imagine if we could return 500 billion dollars to productive use, simply by dialing back regulatory burdens to a saner level.
Imagine if a president promised to cut federal taxes by 500 billion dollars. Conservatives, libertarians and the like would be jumping up and down in ecstasy. Liberals, on the other hand, would be screaming about the poor, sick and elderly dying in the streets. But, in restoring 500 billion dollars to the productive economy, with no other changes, we’d be expanding the tax base and actually putting more money into the federal coffers. While I personally think taxes should be cut as well, people who fear disaster from tax cuts should see regulatory relief as a positive alternative.
What of the environment? What of protections for workers? What of all the positives that regulations provide? Won’t we be dooming the nation and the planet to disaster?
Lets dispense with the binary straw man. Elimination of 3/4s of current regulations does not translate to elimination of regulation entirely, despite the certain assertion from sky-is-falling statists to that effect. Lets also be honest – how many regulations instituted today are actually about protecting us from predation, and how many are just unnecessary BS?
An example: The government recently completed a competition for the military’s next standard-issue pistol. The winner, Sig Sauer, is getting a 580 million dollar contract, after a process that took a decade and generated 350 pages of requirements and specifications. The paperwork is estimated to add $50 to the cost of each pistol.
Why would this happen? How could this happen? Very simply – government works with and lives off OPM – other people’s money – and thus has only a very limited amount of pressure to work efficiently. That limited pressure is overwhelmed by the incentives toward make-work and micromanagement. A low-level government manager with a dozen people under him knows that his job is more secure if he has two dozen people under him, and the market forces that would punish him for having too much staff don’t exist in government. Instead, there is monopoly power, and the truly vast sums of money (the federal government alone collects 3.6 trillion dollars a year) flying around make his job about getting more budget rather than using money efficiently. We can’t blame him – it’s simple human nature, after all, but we should recognize the behavior and not presume that regulations are Good by default.
Conservative politicians routinely look to tax cuts as a form of economic stimulus. Liberal politicians routinely look to government spending as a form of economic stimulus. The latter are wrong, and the former face massive resistance. Too few of either consider the alternative – deregulation – despite the fact that it’s a path of less resistance. Unfortunately, too many of both stripes dislike ceding government power, and too many of both stripes are taken in by rent-seekers who work to leverage government to their advantage.
One of the advantages of having someone like Donald Trump in the White House is the lack of political careerism that blinders too many to systemic problems like overregulation. If Trump manages to accomplish a fraction of his promise on this matter, he’ll be doing the economy a huge service. A strong economy means more jobs. Real, productive, wealth-creating jobs, not government “workfare” that bleeds productive capital out of the private sector. Without government picking winners and losers, without government’s monopoly deciding what are “good” jobs and “bad” jobs, without some bureaucrats and their rent-seeking buddies screwing over the less-connected.
Trump is making all the wrong noises on trade, and he should be strongly criticized when he wields his protectionist proclivities. But, we should not let that spill over to criticism of good ideas, and taking a flame thrower, a chain saw, a wood chipper, a crosscut shredder or whatever metaphorical engine of destruction you wish to the metastasized regulatory state definitely qualifies as a good idea.
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