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Reforming Government Regulation to Promote Prosperity
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20004 |
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Section : |
MODERN THOUGHT
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| Issue
Date : |
8 / 1992 |
4,691 Words |
| Author
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Murray Weidenbaum
Murray Weidenbaum director of the Center for the Study of
American Business at Washington University in St. Louis and a
former chairman of the President's Council of Economic
Advisers. |
Amid the debate about tax cuts and federal spending restraint as ways of promoting the prosperity of the American economy, there is another alternative that deserves our attention. It is the prospect of reducing the many barriers to economic growth and rising living standards that have been erected by federal regulatory agencies.
If we look at the modern regulatory phenomenon from the viewpoint of the average company, the nature of the problem becomes apparent. For each box on its organizational chart, there are one or more governmental agencies that are counterparts to that box, each of them heavily involved in the company's internal decision making. The impact of those governmental rule makers and reviewers is in one predictable direction: to increase the firm's overhead and operating costs and to reduce the resources available to perform its major task of producing goods and services for the consumer.
To the economist, this is the "opportunity cost" of government regulation: it shows up in what we can call the hidden tax of regulation--the higher prices that consumers pay to cover the cost of compliance with regulation.
The Many Costs Of Government Regulation
The Environmental Protection Agency (EPA), for example, says that the cost to business of complying with environmental regulations comes to approximately $110 billion a year. Moreover, that is not a static figure. The recently enacted Clean Air Act is estimated to cost upward of $25 billion a year. When researchers add in the costs of meeting the rules promulgated by several dozen other regulatory agencies--ranging from the Occupational Safety and Health Administration to the National Highway Traffic Safety Administration--they come up with an aggregate hidden tax of regulatory costs within a range of $200-400 billion a year. These sums are worthy of more attention than they receive.
Clearly, an important effect of regulation is the increase in the price of goods and services. However, when we go beyond the dollar signs, more subtle and often far more serious burdens emerge. Central among these are the effects on research and development, productivity, and capital formation--the basic functions of the economy that are so often adversely affected by regulation. Regulation has reduced the flow of innovation and the production of new and better products because so many government regulatory agencies have the power--which they frequently exercise--to decide whether or not a
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