Commentary

Calling for a Real Stimulus

The U.S. economic recovery remains anemic, so President Barack Obama wants Washington to spend more money. Of course, if the economy was booming, he would want the federal government to spend even more money.

Nevertheless, the favorite justification for public expenditures these days is to “stimulate” the economy. The fact that $5 trillion in federal deficits during the president’s first four years in office didn’t create a buoyant economy doesn’t matter. If we would just spend a little more, everything would be wonderful.

So desperate is he to spend more that in his Tuesday speech he offered the GOP a deal: reform corporate taxes and have Uncle Sam spend, er, “invest,” the extra money to “create” jobs. Which is what his “stimulus” bill was supposed to do. Some Republicans responded positively, proving that they never learn.

Although the deficit has fallen significantly this year — revenues are significantly higher than expected — the Congressional Budget Office figures that the deficit will begin climbing again in 2015 on its way back to $1 trillion. There may never be a time when Washington will not be “stimulating” the economy.

Unfortunately, government cannot create self-sustaining economic growth. Whatever the short-term benefit of tossing taxpayer money down the rat holes closest to Capitol Hill, in the long-term only productive investment will generate a sustained return. And productive investment is precisely the sort of outlay least likely to emerge from Congress hoping to bring down next month’s unemployment rate.

If all that is needed for prosperity is to increase the number of dollars in circulation, then it would make more sense to load up B-52s with dollar bills and drop the cash all over America. Then everyone, and not just the politically well-connected, could get some of Uncle Sam’s largesse. Moreover, people would have to work for their winnings by locating and collecting the bills. Encouraging people to wander the countryside looking for money could be viewed as an anti-obesity initiative!

Rather than expanding government, a true economic “stimulus” initiative would promote the private sector. One of the best ways of doing so would be to reduce the regulatory burden on U.S. companies. 

From the government’s standpoint, the cost of complying with government rules is a form of off-budget spending, which diverts rather than creates demand. From the individual’s standpoint, regulation is an indirect tax, discouraging economic activity. When the government makes it more expensive to create businesses, develop products, expand operations, employ people, and market goods and services, there will be less commerce, meaning fewer and lower paying jobs. Cut regulation to encourage economic growth.

Rather than expanding government, a true economic “stimulus” initiative would promote the private sector.[/pullquote

Clyde Wayne Crews of the Competitive Enterprise Institute publishes an annual study of regulation, the least transparent form of government control. His latest “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State” is filled with bad news.

These days most Americans probably view Uncle Sam’s most important duty as that of sugar daddy — transferring money from taxpayers to basically everyone, ranging from corporations and labor unions to students and retirees. The national government has turned into a vehicle for most everyone to attempt to live at most everyone else’s expense. A system originally created to preserve liberty and limit government has turned into an institution by which the influential loot the productive.

However, nearly as important even if less visible is Washington’s regulatory role. Special interests have learned that they can use federal rulemaking to enrich themselves and/or impoverish their rivals. Doing so has the added advantage of disguising the cost to the public. Added to self-serving regulations are the even more officious nanny-state controls which increasingly appeal to the authoritarian liberals who so often end up in government.

The latter may be the worst. The traditional highwayman would relieve you of your cash, and then ride off leaving you unmolested in the future. Today’s officious regulator takes your money and sticks around, continuing to micro-manage your life at your expense.

Increasingly there seems to be little that we do which lies outside of Washington’s control. Wrote Crews:

The scope of federal government spending and deficits is sobering. Yet the government’s reach extends well beyond Washington’s taxes, deficits, and borrowing. Federal environmental, safety and health, and economic regulations cost hundreds of billions, perhaps trillions, of dollars annually over and above the official federal outlays that dominate policy debate.

The federal bureaucracy, tiny when the national government was created, has become Thomas Hobbes’ Leviathan: 15 departments, 69 agencies, and 383 civilian sub-agencies, employing 2.84 million people. Toss in the military and the federal monster is even more intimidating.

The seemingly harmless Treasury Department tops the list of Washington regulators, with 487 rules completed or in process last year, followed by the Commerce Department, whose other main purpose is to pass out corporate welfare, with 415 rules. The Departments of Interior, Agriculture, and Transportation come next. Last year these five accounted for 1730 rules in process, or 43 percent of the total. The Environmental Protection Agency, usually a reliable member of the top five, has fallen to six, but that still meant 223 new rules last year.

The federal government employed 283,615 people (or full-time equivalents) enforcing its regulations, up about 100,000 over the last decade. Yet the actual cost of running the regulatory bureaucracy isn’t that much, at least compared to total federal spending. Washington University’s Weidenbaum Center in St. Louis figures regulatory outlays to be $61 billion, a mere trifle in a total budget of $3.6 trillion. Far higher is the cost of compliance.

Crews estimated total regulatory costs at $1.8 trillion, very close to the latest estimate of the Small Business Administration. He reported that “For the first time in history, the estimated cost of regulation exceeds half the level of the federal budget itself. Regulatory costs of $1.806 trillion amount to 11.6 percent of the U.S. gross domestic product (GDP), estimated at $15.549 trillion in 2012.” That’s about eight times as much as collected by the corporate income tax and more than one and a half times the amount taken in by the individual income tax.

Crews calculated the total as a $14,768 regulatory tax per household. That’s almost a quarter of average American household’s income. That’s only slightly less than the cost of housing. It’s as much as the combined cost of transportation and food. It’s more than the total cost of insurance, pensions, health care, entertainment, and clothing.

Crews has produced his regulatory survey for two decades, during which time Washington has issued 81,883 rules. Unfortunately, the Obama administration is creating a regulatory surge. Whatever the president’s rhetoric du jour, he is turning into the regulatory president.

LAST YEAR THE Federal Register ran 78,961 pages, the fourth highest in U.S. history. The good news is that the number is down. In 2010 the Obama administration set the all-time record, of 81,405. In 2011 the administration set the second highest ever, of 81,247. (The third highest was in 2008, on George W. Bush’s watch.) The first year for which we have figures, 1936, the Federal Register ran just 2,620 pages.

In 2012 there were 4,062 rules at various stages. The 2,517 proposed new regulations were the highest since 2003. The 2,898 new rules offered in 2011 were the highest in the decade. In 2012 Uncle Sam finalized his work on 1,172 rules, up from 1,010 the year before, and 722 the year before that. That’s a more than 60 percent increase in two years. Of the 4,062 rules in process, 224 were considered to be “economically significant,” much higher than the 180 during George W. Bush’s last year as president. 

James Gattuso and Diane Katz of the Heritage Foundation recently published a new review of the administration’s record. They explained: “Annual regulatory costs increased by more than $23.5 billion during President Barack Obama’s fourth year in office — and by a total of nearly $70 billion during the first term.” On the other side were just two rules cutting costs, by $81 million.

Only in recent times has the modern regulatory state existed. Nor have Republican presidents proved to be friends of liberty. The number of pages in the Federal Register increased dramatically during the Nixon and Ford administrations. Although the number fell back during the Reagan administration, page totals rose under George H.W. Bush’s presidency. Moreover, the number was substantially higher during the George W. Bush administration compared to the Clinton administration.

Editorialized the Wall Street Journal: “[I]f Mr. Obama were ever to acknowledge that this is a problem, he could reasonably blame George W. Bush for setting a lousy example. Despite the Obama myth that the Bush years were an era of deregulation, the Bush Administration routinely generated more than 70,000 pages a year in the Federal Register.” In fact, as noted earlier, George W. Bush stands fourth on the all-time list of pages in the Federal Register.

Still, the present magnitude of federal rulemaking, Gattuso and Katz argued, “is likely unmatched by any Administration in the nation’s history. And, despite a much-touted initiative to weed out unnecessary regulations, only two major rule changes reduced regulatory burdens in 2012.” They pointed to 131 major new prescriptive rules so far in the president’s term, two and half times the number during the Bush first term — and 15 of those regulations actually reduced the federal burden.

Unfortunately, these numbers understate the costs. They only cover major rules. Moreover, in 40 percent of the cases the issuing agencies did not estimate costs. What’s more, noted Gattuso and Katz, “some costs, such as lost innovation or violations of personal liberty, are impossible to quantify.”

ONE OF THE MOST striking features of American regulations is how Americans are losing control over their own government. Last year, observed Crews, Congress approved 127 laws. At the same time, regulatory agencies issued 3708 rules, a ratio of almost 30-to-one. Jonathan Turley of George Washington Law School recently wrote of the “rise of fourth branch.” 

President Harry Truman famously declared “the buck stops here,” but in practice that is increasingly hard to enforce. Warned Turley:

The growing dominance of the federal government over the states has obscured more fundamental changes within the federal government itself: It is not just bigger, it is dangerously off kilter. Our carefully constructed system of checks and balances is being negated by the rise of a fourth branch, an administrative state of sprawling departments and agencies that govern with increasing autonomy and decreasing transparency.

This process may not bother members of Congress. After all, politicians prefer having others do their dirty work. Legislators can enact general laws with attractive titles and generic objectives, leaving agencies to fill in the expensive and unpopular details. If constituents complain, lawmakers can blame the president, his appointees, and unaccountable bureaucrats. Then congressmen can introduce corrective legislation and act as ombudsman, hoping to win more votes the process.

Of course, the argument is that Congress does not have the time, resources, and expertise to address all manner of technical subjects. However, legislators should not act when they have little or no idea what they are doing. Today members of Congress famously don’t even read the general laws they are voting on. Even members of oversight committees don’t read the regulations issued by the federal bureaucracy.

Moreover, legislative oversight is more show than substance. Noted Turley: “Capitol Hill’s relatively small staff is incapable of exerting oversight on more than a small percentage of agency actions.” Absent a scandal or massive public uprising, legislators are likely to let the regulatory state expand unabated.

While there obviously are economic and social problems that must be addressed, not all require the attention of government, let alone the national government. Indeed, bureaucratic imperatives encourage over-regulation. Observed Crews:

Agencies face significant incentives to expand their turf by regulating even without demonstrated need. The primary measure of agency productivity — other than growth in their budgets and number of employees — is the body of regulations they produce.

The rise of executive power and the “imperial presidency” has helped insulate even the most mundane bureau from legislative oversight. Some agencies are formally independent, and in practice the president often is not really in charge of the others either. The layer of political appointees is thin, about one percent, and transitory. Argued Turley: “It’s a small percentage of agency matters that rise to the level of presidential notice. The rest remain the sole concern of agency discretion.”

Another aspect of the rise of the regulatory state is supplanting the judicial branch. Most of us think of due process requiring a real trial before a real judge in a real court. However, federal agencies hold almost a million adjudicatory proceedings every year, ten times the number of federal judicial hearings. Noted Turley: “These agency proceedings are often mockeries of due process, with one-sided presumptions and procedural rules favoring the agency.” Nor is it easy to get judges to overturn the agencies. The Supreme Court has ruled that the federal bureaucracy enjoys heavy deference in its interpretation of federal laws.

The metastasizing regulatory state is justified as bringing enormous benefits to justify its obvious costs. However, federal regulation results from politics, not dispassionate and rigorous cost-benefit analysis. Indeed, wrote Gattuso and Katz, “while regulators have an incentive to minimize the costs of regulations, they have an incentive to inflate their benefits.” Claims of gains often are wildly imaginative or speculative, with little grounding in reality.

There’s little hope for the future, at least under the present administration. Last year the EPA issued the most expensive rules, while financial regulations accounted for half of the major rules issued. Alas, this isn’t all. Predicted Gattuso and Katz: “There are many more rules to come, with an extraordinarily large number of regulations in the pipeline, including hundreds required under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and the 2010 Patient Protection and Affordable Care Act, widely known as Obamacare.” Indeed, when the Congressional Research Service was asked how many new rules would be created under the law, it responded: “The precise number of new entities that will ultimately be created pursuant to [the legislation] is currently unknowable.”

NOR HAS PRESIDENT OBAMA been living up to his promise of an open administration. Gattuso and Katz complained that he “has let regulatory oversight and transparency lapse.” For instance, the administration regularly missed biannual deadlines for releasing its regulatory agenda for each agency, as well as issued major rules without giving those affected an opportunity to comment.

Limiting regulation is as important as limiting spending. The most important single step would be to roll back federal responsibility. Uncle Sam should do less. Social engineering should end. Washington shouldn’t decide who will get what kind of health insurance and when. Washington should stop attempting to make Americans better.

Rules, at least major ones, should require congressional approval. Just as the colonists made “no taxation without representation” their rallying cry, Crews argued that Americans today should insist on “no regulation without representation.” Make elected officials take responsibility for their handiwork. Make them be accountable to voters. 

Congress should sunset regulations. That is, set an expiration date with each new rule. This would require a formal reconsideration of rules now treated as permanent. Although legislators have a tendency to treat their review duties as perfunctory, at least controversial rules could be regularly rethought.

Crews also advocated greater transparency, or “Openness about regulatory facts and figures.” He proposed “regulatory report cards.” Finally, suggested Gattuso and Katz, establish an independent congressional ability to assess regulatory benefits and costs.

Taking these steps would offer a regulatory stimulus to the economy. “Liberate to stimulate,” contended Crews, who pointed out that the $787 billion 2009 “stimulus” bill, which wasted more money than it “invested,” was less than half of the estimated regulatory tax. Rolling back regulation also would act as a freedom stimulus for our nation.

Doug Bandow is a senior fellow at the Cato Institute.