Federal Regulations Have Made You 75 Percent Poorer

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The growth of federal regulations over the past six decades has cut U.S. economic growth by an average of 2 percentage points per year, according to a new study in the Journal of Economic Growth. As a result, the average American household receives about $277,000 less annually than it would have gotten in the absence of six decades of accumulated regulations—a median household income of $330,000 instead of the $53,000 we get now.

The researchers, economists John Dawson of Appalachian State University and John Seater of North Carolina State, constructed an index of federal regulations by tracking the growth in the number of pages in the Code of Federal Regulations since 1949. The number of pages, they note, has increased six-fold from 19,335 in 1949 to 134,261 in 2005. (As of 2011, the number of pages had risen to 169,301.) They devise a pretty standard endogenous growth theory model and then insert their regulatory burden index to calculate how federal regulations have affected economic growth. (Sometimes deregulation extends rather than shortens the number of pages in the register; they adjust their figures to take this into account.)

Annual output in 2005, they conclude, “is 28 percent of what it would have been had regulation remained at its 1949 level.” The proliferation of federal regulations especially affects the rate of improvement in total factor productivity, a measure of technological dynamism and increasing efficiency. Regulations also affect the allocation of labor and capital—by, say, raising the costs of new hires or encouraging investment in favored technologies. Overall, they calculate, if regulation had remained at the same level as in 1949, current GDP would have been $53.9 trillion instead of $15.1 in 2011. In other words, current U.S. GDP in 2011 was $38.8 trillion less than it might have been.

Read the full article here.

Vince Perfetto

Vince adds diverse experience to the Foundation with a background in broadcasting, accounting, and telecommunications. He loves living in the freest state in America, New Hampshire. With a “Live Free or Die” attitude and a strong independent streak, Vince feels right at home among his fellow N.H. citizens. He was raised to respect others and to work hard to achieve his goals, and thus takes pride in saying he has “the best parents, ever.” When Vince isn’t working on the Foundation, he enjoys hiking, reading, and relaxing with a great New England micro brew.

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