Special Report

Less Is More

How our spend happy Congress could actually do some good for the economy.

By 3.19.08

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As Democrats and Republicans in Congress group hug over their $150 billion smoke-and-mirrors redistributionist stimulus package, the deficit is projected to top $400 billion.

Federal spending now straddles the $3 trillion mark, the bulk of it from America's entitlements, health, and defense budget bonanzas. The same government that claims to stimulate spends over 20 percent of this nation's $13 trillion annual economic output.

A drop in this big bucket, the stimulus represents a nervous exercise to avoid blame in November and obscure the fact that a recession, if it comes, must be ridden out -- if not now, then months or years later when the re-adjustments could be even more painful. But by then, of course, it will be a problem for other politicians.

Politicians of both parties opportunistically blame markets for an impending recession while paying no heed to the real culprit: the leviathan that government has become. Like the presidential working group now contemplating new oversight of mortgage markets, the "solution" is always to expand that leviathan, to impose new controls on businesses and entrepreneurs.

Blaming the private sector makes bipartisanship easy. The stimulus will have little real effect and betrays no principles when Congress recognizes few boundaries on power anyway. Indeed, politicians promise even more stimulus if the current go round doesn't "work."

The financial markets blamed in the ongoing credit meltdown are already regulated top to bottom. Politicians rarely mention this or the fact that the Federal Reserve has manipulated money, credit, and interest rates for close to a century. (Indeed, any true free market in money and credit is generations away, but that's another story.)

But the partially free financial market we do enjoy should be allowed to function rather than be subjected to even more political intervention.

THERE IS ONE potential silver lining here. The call for new regulations highlights the need to reconsider regulation comprehensively in the context of stimulating economic growth and wealth creation.

A new Small Business Administration (SBA) initiative called Regulatory Review and Reform is an example of just the kind of re-thinking that's needed now.

Reducing the accumulated impact of 70,000 annual pages of new regulations -- in a Washington incapable of cutting spending -- would offer real stimulus opportunities. Pruning the regulatory superstate can increase returns to investors, and offer struggling entrepreneurs greater prospects that risky new ventures will succeed.

That assurance would be welcome. Economist Mark Crain's research for SBA estimates compliance costs for health, safety, environmental, and economic regulations at over $1.1 trillion -- over one-third the level of federal spending itself.

For perspective, consider: Regulatory costs exceed all U.S. corporate pretax profits ($1.06 trillion in 2004), estimated individual income taxes ($998 billion in 2006), and corporate income taxes ($277 billion). Combining regulation and spending, the federal government's share of the economy tops 29 percent.

The 60-plus federal departments, agencies, and commissions are now at work on nearly 4,000 more rules. Of these, agencies report that well over 100 of those are "economically significant" -- that is, they will cost at least $100 million (often far beyond), while nearly 800 are expected to affect small businesses.

So much for a national stimulus policy; we have a ball-and-chain policy.

SBA'S LIST OF THE top 10 rules to reform is a good starting point. But it's only a start: Recent regulatory proposals cover everything from trans-fat labeling to the controversial airline passenger screening system program; from myriad auto and Labor Department safety standards to energy efficiency mandates for anything with an exhaust pipe.

A regulatory stimulus package would create a more favorable environment for business and wealth creation by (1) freezing enactment of new non-essential rules, (2) reviewing the regulatory state as a whole and implementing a bipartisan package of cuts, and (3) instituting a permanent "sunsetting" process of ongoing rule reviews and purges.

Congress could start by repudiating the slate of crippling energy regulations already enacted (and those being proposed this election year).

A Deregulatory Stimulus package is a good start. But we also need to hold Congress accountable for the good and bad that agency rules do. Voters elect their members of Congress, not the bureaucrats in the implementing bureaucracies. The latter lack incentives to police themselves, so they rarely acknowledge that the costs of the regulations they implement could outweigh their benefits.

By delegating lawmaking power to agencies, Congress is the prime mover behind regulatory growth. Sound public policy would hand the responsibility back to Congress and require elected representatives to affirm new major rules and their costs before they are made effective

Long-term economic health owes much to minimal regulation, not short-term stimulus. We badly need better control of the fiscal state -- but just as badly we need to rein in the regulatory state. The federal budget itself didn't even hit $1 trillion -- the regulatory state's current perch -- until 1987. Look at us now. Stimulus, indeed.

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About the Author

Wayne Crews is Vice President for Policy at the Competitive Enterprise Institute in Washington, D.C.