How Over-Regulation Hurts Us – Some Eye-Popping Numbers by Gary D. Halbert

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert

October 14, 2014

IN THIS ISSUE:

1.  Over-Regulation Has Created a Big Hit to the Economy

2.  Reducing Regulations Should Be a Top National Priority

3.  How Over-Regulation Slams US Worker Productivity

4.  US No Longer World’s Economic Freedom Standard

Over-Regulation Has Created a Big Hit to the Economy

You might recall that my September 16 E-Letter focused on how out-of-control federal regulations stifle the US economy. Since then, I have run across an independent study which puts actual numbers to the cost of over-regulation, and the figures are staggering!

The study entitled “Federal Regulation and Aggregate Economic Growth” was published by the Journal of Economic Growth. Among other things, the Journal conducts research on how over-regulation hurts the economy. The Journal calculates that over-regulation has shaved at least 2% off of annual economic growth since 1949.

As a result, the Journal studied the effects on the US economy if GDP had grown just 2% more each year since 1949, which it believes would have been entirely possible with more reasonable (meaning less) federal regulationsFasten your seatbelt!

If the US economy had grown an extra 2% per year since 1949, 2014?s Gross Domestic Product would be about $58 trillion, not $17.5 trillion
as it is today.

That’s simply not possible, you may be thinking. There’s no way the economy could be over three times larger with only a 2% annual bump in growth. But think again and consider the power of compounding over this 65-year period. Albert Einstein is believed to have said, “Compound interest is the eighth wonder of the world.”

Before I get into more mind-boggling numbers, let me state that the Journal of Economic Growth is not opposed to all federal regulation, nor am I. Not all regulation is bad. For example, mandatory seat belt laws have helped cut traffic fatalities by 51% on a population-adjusted basis since 1949. And there are plenty of other examples of federal regulation that have greatly benefited our society.

Since I think that most all of us would agree that some regulations are good, the Journal ran some numbers using only 1% as the yearly cost of over-regulation to the economy. Let’s look at where that would leave us today, if the economy had grown simply by an extra 1% a year since 1949.

  • The 2014 GDP would be $32 trillion, not $17.5 trillion.
  • Per capita income would be $101,000, not $54,000.
  • Per capita wealth would be $480,000, not $260,000. It would probably be higher than that, since savings rates might be higher.
  • The US would have no federal, state or municipal debts or deficits.
  • Pensions would be fully funded. So would Social Security.

These are only the headline benefits if the economy had grown by 1% a year more over the last 65 years. Here are some other potential benefits if the economy had not been held back by over-regulation.

More cheap, safe nuclear power plants. More cancer-curing drugs and other medical cures. More faster, quieter fuel-efficient airplanes. Ditto for automobiles and trains. More mass-transit in urban areas. More and better national security. I could go on and on.

The point is, our economy could be significantly stronger if it weren’t for over-regulation. People at all levels would have more money in their pockets to spend. Consumer spending makes up 70% of GDP. Do the math – would you rather GDP be $17.5 trillion or $32 trillion?

Reducing Regulations Should Be a Top National Priority

Over-regulation should be a huge national issue but hardly anyone talks about it. Name me one national political figure that has run on scaling back government regulation in recent years. It’s hard to find one, perhaps other than Ron Paul who is no longer in politics. With an issue this big, the question is, why not?

You might be thinking that this is a partisan conservative issue. It is not! John F. Kennedy, Ronald Reagan and Bill Clinton – two Democrats and a Republican – were the best presidents since 1949 regarding regulation. And by “best” I mean that these three presidents allowed regulation to grow the least.

The three worst presidents: Harry Truman, George W. Bush and Barack Obama, who still has two more years to go.

Over-regulation is one of the most important issues of our day. It should be front and center in the national debate. It is not a partisan issue. The problem is, few Americans even know what a huge drag over-regulation is on the economy.

Just imagine what it would be like if our economy was $32 trillion instead of just $17.5 trillion today. That’s almost twice as large! Imagine what it would be like if Americans had almost twice as much to spend or save.

Just imagine if the government had no national debt instead of the current $17.8 trillion that will never be repaid. Imagine if we had a balanced budget every year.

The problem is, of course, that if the economy had grown by an extra 1% a year since 1949 – due to reduced regulation – politicians would have figured out a way to spend all of that extra federal revenue.

It sounds so simple, doesn’t it? You would think we could figure this out and fix it.

Yet sadly, over-regulation is rarely even a part of the national debate. It should be!

How Over-Regulation Slams US Worker Productivity

Since 2011, productivity – the main driver of job creation and economic growth – has been growing at just half its historical rate, according to the government’s Bureau of Labor Statistics (BLS). Worker productivity is determined by the amount of goods a worker produces in a given amount of time.

Economic growth is largely driven by gains in productivity, not increases in capital and labor. And productivity is determined by innovation, resulting in more efficient businesses and workers, lower costs, higher profits and incomes, increased demand and gains in job creation. As businesses become more efficient, costs fall and profits and incomes rise.

Over-Regulation

 

According to the BLS, US productivity has averaged 2.5% annual growth since 1947. However, since 2007, it has grown by only 1.5%. Since 2011, it has grown by only 1.1% (as of the end of last year). Then in the 1Q of 2014, productivity actually declined at an annual rate of 3.2%, the weakest showing since the beginning months of the recession in 2008.

Most analysts attributed the sharp decline in the 1Q to the severe winter and predicted a significant increase in the 2Q. Productivity did rise by 2.3% in the 2Q, according to the BLS, but it was below expectations. For the 12 months ended June 2014, productivity rose only 1.1%.

Historically, start-ups launched by entrepreneurs have been responsible for some of the most important innovations of the past century. But alarmingly, new business formation has been declining across the country.

Earlier this year, John Dearie, Executive Vice President at the Financial Services Forum, a non-partisan consulting firm, conducted roundtables with entrepreneurs across 12 American cities and looked at several studies on the issue. Here is what he found: