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A public policy blog from AEI
The Economist takes a longish look at America’s regulatory problems. And while I am not sure deregulation provides the path to super-super-fast growth, it sure seems like smart reform would help give growth a boost. Some facts from the piece:
1.) “Between 1970 and 2008 the number of prescriptive words like “shall” or “must” in the code of federal regulations grew from 403,000 to nearly 963,000, or about 15,000 edicts a year, according to data compiled by the Mercatus Centre, a libertarian-leaning think-tank. Between 2008 and 2016, under Mr Obama, about the same number of new rules emerged annually.”
2.) “The OECD, a club of mostly rich countries, finds that America’s analysis of regulations is among the most rigorous anywhere. But once a rule has cleared the hurdle, there is little incentive for agencies ever to take a second look at it. So it is scrutinised only in advance, when regulators know the least about its effects, complains Michael Greenstone, of the University of Chicago. The OECD ranks America only 16th for “systematic” review of old red tape. (The leading country, Australia, has an independent body tasked with dredging up old rules for review.)”
3.) “One in five small firms say it is their biggest problem, according to the National Federation of Independent Business, a lobby group.”
4.) “Based on its own survey of businessmen, the World Economic Forum ranks America 29th for the ease of complying with its regulations, sandwiched between Saudi Arabia and Taiwan.”
5.) “One Mercatus working paper plugs the number of rules in each industry into a complex model of the economy. It finds that rules written since 1980 have dampened growth by about 0.8 percentage points a year.”
Reasonable to conclude there’s a problem there, yes? And two great illustrations of the problem:
Infrastructure projects are frequently bogged down in endless environmental reviews and consultations. An example is a project to upgrade the Bayonne Bridge, which spectacularly arches between Staten Island and New Jersey. Elevatin the road so that bigger cargo ships could pass underneath required 47 permits from 19 different government entities, according to Philip Howard, a legal writer. Regulators demanded a historical survey of every building within two miles of the bridge, even though the project affected none of them. It took from 2009 to mid-2013, when building at last began, to satisfy all the regulatory requirements. …Regulation can also impede innovation in ways that are hard to foresee. In 1973 the Federal Aviation Administration (FAA), worried about loud sonic booms, banned civil aircraft from flying at supersonic speeds above America. But planes are now lighter, more aerodynamic, and contain more efficient engines, explains Eli Dourado of Mercatus. That makes them quieter. With start-ups trying to build commercially viable supersonic jets, Mr Dourado thinks the FAA should replace the ban with a maximum permissible noise level. The FAA has acknowledged the case for change, but it moves slowly.
What happened to air travel innovation? Regulation happened, apparently.
Anyway, given all that, the idea of taking an ax to regulation — such as through the Trump administration’s “one in, two out” dereg plan — seems like it might be just the shock the system needs. (Britain’s been doing it since 2011.)
Beyond that, maybe more funding for the White House Office of Information and Regulatory Affairs to better scrutinize the costs and benefits of new regs. Or maybe Congress should create a regulatory version of the Congressional Budget Office, one I would hope would look particularly at how regulations impact innovation and new business formation. And don’t forget harmful state regulations that make housing more expensive, labor markets less fluid, and driverless cars less likely. As I wrote in “Start-Ups and Entrepreneurship” for the Conservative Reform Network:
Venture capitalist Sam Altman recently offered this depressing perspective in his blog: “Many of the companies I know that are innovating in the physical world struggle with regulatory challenges. And they’re starting to leave. The biggest problem, usually, is that they just can’t get clarity out of the massive and slow government bureaucracy.” As with taxes, simplicity and certainty in regulation may be as important as the actual burden. Sunset provisions, for example, would force Congress to revisit regulations every decade or so.”Dearie and Geduldig would require the Congressional Budget Office and the White House of Office of Management and Budget to conduct a third-party analysis of the economic costs and benefits of regulation, particularly to new and small business. Ones with costs exceeding benefits would need Congressional approval. And along with a special tax status, maybe new firms should also get a special regulatory status with only the most essential rules applied.
I would also toss copyright and patent reform into the mix.
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