DODGING DOGE OR THE CRAFT OF GOVERNMENT BUREAUCRACY
Excessive regulation weighs heavily on the American economy, slowing both economic growth and job creation. While the growing and more isolated U.S. economy of the past could perhaps shoulder some regulatory excess, those days are over: Gross Domestic Product (“GDP”) growth averaged only 1.4 percent over the past decade while trade, as a share of GDP, has risen from about 10% in 1970 to over 30% today at the expense of manufacturing. Moreover, the U.S. now has about $35 trillion in debt and real wages are stagnant. And, perhaps more troubling, while the reported unemployment rate may only be 4.2 percent, much of the rate’s decline has come from the sharply falling labour participation rate that now sits at just under 63 percent. As of today, nearly 101 million Americans are out of the workforce, about 12 million more than in 2008.
After losing control of Congress in 2010, President Obama extended an olive branch to Republicans by conceding that federal regulations “have stifled innovation and have had a chilling effect on growth and jobs.” To demonstrate his resolve, Mr. Obama proposed to “get rid of regulations that have outlived their usefulness” by issuing an Executive Order calling for a cost-benefit review of existing federal regulations. Unfortunately, Mr. Obama’s call for regulatory reform was never implemented. Despite a clear recognition of the problem, the Obama Administration, like many before it, chose instead to saddle the U.S. economy with a tsunami of new regulations across a wide variety of sectors, including financial services, labour relations, health care, transportation, the environment, social media, crypto currencies and the Internet. As a result, on the last federal workday of 2016, the Federal Register topped off at a whopping 97,110 pages, setting a new record.
Our updated analysis found that one regulator costs now the U.S. economy 135 private sector jobs per year. Each regulator costs the U.S. economy $11 million annually.
President Trump, who had made the revitalisation of the American economy a central policy priority of his last administration, had promised to curtail radically the growth in regulation. President Trump promised that his administration would cut regulations by a staggering 75%.
Mr. Trump appeared to mean business. He and his early appointees promised to take aggressive steps to reverse the excesses of the past and constrain the regulatory state. For example, as one of his first actions as President, Mr. Trump signed an Executive Order implementing a regulatory freeze across Executive Branch agencies. Shortly thereafter, the President signed a second Executive Order requiring Executive Branch agencies to identify two existing regulations for elimination for every new regulation they sought to promulgate. This simple yet clever mandate was meant to force even a diehard regulator into a deregulatory mindset, a shift in attention that could have proven effective but, like Obama before him, he too let the bureaucracy grow bigger and meaner instead. As of the 31st of December 2024, the page count of the Federal Register stood at 107262 having grown by an average of 1250 pages per year since 2016.
While aggressive action to curb excessive regulation is undoubtedly needed, the regulatory state has created vested interests that are reluctant to disrupt the status quo. Moreover, given the inherent nature of the regulatory process (i.e., the need for an administrative agency to draft a Notice of Proposed Rulemaking (“NPRM”) before it seeks to strike existing regulations off the books, the due process requirement that such NPRM be put out for public notice and comment, and other statutory constraints on deregulatory efforts), significant and rapid change will face multiple, and in many cases legal hurdles. Evidence of the past supports the idea that more subtle approaches could prove more fruitful in stimulating the U.S. economy.
In 2011, the Phoenix Center released a paper entitled Regulatory Expenditures, Economic Growth and Jobs: An Empirical Study, in which it was suggested that one way to reduce the overall size of the regulatory burden would be by curbing federal spending on regulatory efforts, an approach that also has a direct and favourable effect on the overall federal budget.
Using modern time-series econometric methods, their research quantified the relationship between government spending on regulatory activity and the important goals of economic growth and job creation. To do so, they evaluated fifty years of data on the regulatory budget, GDP, and private-sector employment. They found that the size of the regulatory budget (as a share of GDP) is inversely related to economic growth and the number of private sector jobs. Their study provided empirical evidence to support what most Americans already intuitively know: reducing the size of the regulatory state cuts government spending and grows the economy.
Their analysis showed that a 10% cut in the regulatory budget, amounting to about $5.6 billion annually, provides for an additional $1.2 trillion in GDP over a five-year window, or $244 billion per annum.
Estimates from their 2011 study indicated that, over a five-year window, even a small 5% reduction in the regulatory budget (about $2.8 billion) would result in $376 billion ($75 billion annually) in expanded GDP and expand employment by 6.2 million jobs (1.2 million annually). Expressing their results in terms of the size of the regulatory bureaucracy, they found that eliminating the job of a single regulator would grow the American economy by $6.2 million and 98 private sector jobs annually.
The macroeconomic benefits of curtailing regulation, in our estimation, are very large. Conversely, an expansion in federal regulatory bureaucracy reduces economic growth and kills jobs, perhaps explaining, in part, the less than stellar performance of the American economy over the last decade. Unlike expenditures on infrastructure (e.g., roads and education) that arguably have positive multiplier effects, the continued and sizeable expansions in the federal regulatory budget appear to be working against an economic turnaround and contribute to higher unemployment. Indeed, they found in their 2011 study that each million-dollar increase in the regulatory budget costs the economy 420 private sector jobs.
It has been thirteen years since that analysis was performed and published. Over that interval, more data has become available. As such,
Current data suggests that a 10% reduction in the regulatory budget ($5.6 billion), which implies a return to pre-Obama Administration levels, leads to an increase of 3 million new jobs annually…
Another way to evaluate their findings would be to express the macroeconomic cost of regulation on a “cost per regulator” basis. To do so, we need to translate a given budget increase into a change in the number of “regulators.” Historically, each $1 million change in the regulatory budget is associated with an addition of about four regulator jobs. Conversely, a 10% cut in the regulatory budget results in a loss of 21,756 regulatory jobs. Our present analysis finds that one regulator costs the U.S. economy the equivalent of 138 private sector jobs per year. And each regulator costs the U.S. economy $11 million annually .
In these frugal times, most Americans are forced to make do with less. Given the pernicious effect of the growth of the regulatory state, it is time for the government to make do with less likewise. Cutting down the bureaucracy and curbing the powers of regulators could do wonders for the US economy but the state and its institutions always seek more powers while fighting off attempts at limiting their size and reach. So, what will the second Trump Administration do? Shrinking the size of the federal regulatory bureaucracy could no doubt get the tanked economy moving again, but if his past is anything to go by, he won’t take on the bureaucracy as many believe he will. Now that he has won the elections, his pet project DOGE is probably already dead but not buried yet.
