Listen, this whole system of yours could be on fire and I couldn’t even turn on the kitchen tap without filling out a twenty-seven B stroke six … bloody paperwork. Harry Tuttle in “Brazil”
Americans didn’t used to like being told what to do. We fought the Revolutionary War so that we wouldn’t have to take orders from England. We fought the Civil War to end slavery and make every American free. We fought two world wars to hold on to that freedom.
And then along came big government. Medicare to help the old. Medicaid to help the poor. Food stamps and medical leave, help for the disabled and guaranteed wages, regulations to reduce pollution and prevent financial wrongdoing. And much, much more.
Some of it was good. Some of it was needed. But much of it wasn’t. Do we really need more than 80 federal welfare programs to provide money, food, housing, medical care and social services to low-income Americans? Wouldn’t maybe three or four be more efficient?
It’s difficult to pinpoint exactly when regulations got the better of us. You could argue that it goes back to 1930, when the protectionist Smoot-Hawley Tariff Act helped cause the Great Depression and the New Deal made the impact worst. You could argue that it was during the ’60s, when the Great Society programs and the War on Poverty took place. As we (and many others) pointed out last year, during the 50th anniversary of the War on Poverty, after spending $20.7 trillion (based on 2011 dollars), the poverty level today is essentially unchanged at about 15% of the American population.
You could argue that more recent regulatory efforts are to blame. The Community Reinvestment Act, after all, graded lenders based on how willing they were to provide mortgage to unqualified, low-income borrowers. What was created to help poor people become homeowners played a key role in the Great Recession. And, not coincidentally, today home ownership is at its lowest level in 50 years.
Regardless of where it started, today the regulatory state is in overdrive.
Obama Sets a Record
During the presidency of George W. Bush, 496 major rules were approved, according to The Wall Street Journal. A major rule is one that imposes costs of more than $100 million. That’s a lot of paperwork and, given the cost and time consumed, it’s no wonder that productivity and wages stagnated during the Bush administration.
But President Obama has blown away the Bush record, having created 600 major rules—with another 50 or so expected to follow before his term ends, according to The Journal.
There’s no such thing as a free lunch, of course. Today’s regulatory state has brought us the slowest economic recovery in nearly 70 years, lower wages and lower productivity. As The Wall Street Journal reported last week, “Nonfarm business productivity—the goods and services produced each hour by American workers—decreased at a 0.5% seasonally adjusted annual rate in the second quarter as hours worked increased faster than output … It was the third consecutive quarter of falling productivity, the longest streak since 1979.”
In spite of seven years of zero interest rate policy (ZIRP), businesses aren’t investing, except to buy back their own stock or move abroad, where business taxes are lower and government regulations are less restrictive.
The American Action Forum calculated that the economic cost of just the new regulations imposed by the Obama administration adds up to $743 billion per year, based on data provided by federal agencies. Note that the actual cost is likely much higher, given the source of the information.
That’s the equivalent of a $2,294 tax on every American. For a family of four, that’s more than $10,000. And keep in mind that nearly half of America pays no income taxes, so you can double that estimate to $20,000. Of course, most of that cost will just add to the $19 trillion federal deficit, crushing our children’s financial future.
People who benefit from this government state don’t pay for it, so, of course, the demand for more government has become insatiable. The net result is that:
- The middle class gets soaked, paying far more in taxes than it receives in services
- The lower class has little incentive, and often a disincentive, to work hard and rise up into the middle class
- The federal deficit soars
- Americans become less free
More Government, Less Freedom
If you regulate for a living, you tend to see regulation as solving problems, yet it typically creates more problems than it solves. We’ve regulated nuclear power out of playing a major role in our mix of energy sources and now we have to worry about climate change. We’ve used regulations to punish public companies like Enron for their misbehavior and now we have far fewer public companies than we had in the 1990s. We’ve regulated mortgage lenders in the wake of the no-doc mortgage and today it’s difficult even for those with good credit to get a mortgage. Those who do must complete a pile of paperwork to satisfy regulatory requirements.
Where will it all lead? Nobel prize-winning economist F.A. Hayek, having witnessed the evolution of socialism into Nazism firsthand, recognized that socialism inevitably leads to fascism. He wrote The Road to Serfdom in 1944 as a warning to the United States and the United Kingdom, which were becoming increasingly socialistic. Hayek wrote that socialism, while presented as a means of assuring equality, does so through “restraint and servitude,” while “democracy seeks equality in liberty.”
The U.S. is still far from being a fascist state, but more government inevitably leads to less freedom.
The thing about regulations is that they don’t go away. Congress legislates, adding new laws to the existing laws. State legislators, likewise, create new laws. This has been going on for nearly two-and-a-half centuries. Total it all up and it’s a wonder we can breathe without filling out the paperwork and waiting for government permission.
Before his term ends, rather than creating 50 more major rules, President Obama may as well issue yet another executive order regulating freedom out of existence.