Fred Smith

The debt ceiling negotiations and debates over government spending have transfixed the nation for the last few weeks. President Obama’s call for a “clean” debt limit increase—one without spending reductions attached—was bound to fail from the beginning, as many House Republicans were elected on promises to bring the growth of government under control. To Democrats’ chagrin, opposition to greater government spending was a winning issue in 2010.

However, taxing and spending tell only part of the story. Much of the growth of government occurs off-budget, through regulations that often go largely unnoticed. As Wayne Crews, Vice President for Policy here at the Competitive Enterprise Institute, notes in his annual report, “Ten Thousand Commandments,” hidden regulatory costs approach $1.7 trillion this year. Those costs slow innovation, hampering the economy and job growth.

That estimate is frighteningly huge, yet it is still just an estimate. That is indicative of another significant problem that regulation creates. As Crews in “Ten Thousand Commandments” also points out, “[P]recise regulatory costs can never be fully known, because, unlike taxes, they are unbudgeted and often indirect.” It is this level of indirectness inherent in regulation that perpetrates the ambiguity that paralyzes the business community.

The costs of regulations are not just about dollars and cents. The vast expansion of the regulatory state also imposes costs in the form of uncertainty. Many laws delegate rulemaking to agencies under broad, vague mandates. This creates uncertain implications for the costs of doing business and makes it almost impossible for businesses to plan, invest, or hire new people. Businesses are unsure of what they face until rules are final—and all the legal challenges to them are resolved.

Regulatory costs can no longer be ignored. Hospitality and casino mogul Steve Wynn said recently in a speech to shareholders that the current administration’s policies are acting as a “wet blanket to business and progress and job creation.” He went on to say that businesses are “frightened to death about all the new regulations, our healthcare costs escalate, regulations coming from left and right, a President that… keeps using that word ‘redistribution.’”

Wynn is right. The Dodd-Frank financial regulation law, Obamacare, and EPA energy efficiency mandates are regulatory boulders that block the economic growh plans of American businesses, both in terms of current profits and forgone opportunities. Economic growth and job creation have suffered as a result. Bad enough, yet making things much worse is the Obama administration’s refusal to lessen the regulatory burden in any significant way. In fact, it has been adding to it.

Some examples: The National Labor Relations Board has made it more difficult for employers to counter union organizing. The Department of Interior is setting up further roadblocks to energy production and resource extraction. The Federal Communications Commission is working to impose net neutrality rules. EPA and the National Highway Traffic Safety Administration are pushing unrealistic auto fuel economy standards. The Agriculture Department is sticking its nose into railroad regulation. The Labor Department seeks to broaden the definition of fiduciary duty, thus increasing pension fund risk.

And in what may be the most absurd expansion of regulatory power, new Food and Drug Administration appointees began a crackdown on food producers, including Kellogg’s and Diamond Foods, for noting on their package labels that eating whole oat cereals or the omega 3 fatty acids in walnuts could lower cholesterol and provide other heart health benefits. Linking dietary nutrients with relevant and important health claims, Obama’s FDA argues, requires that the products be regulated as drugs rather than foods.

I could go on and on, but you get the idea. The burden is already great, yet still threatens to grow by leaps and bounds.

Regulations not only impact businesses, they also scare consumers by focusing on the risks, never on the benefits, of new products, services, and technologies. Consumers pay higher prices and have fewer choices. With all these costs and uncertainties, with fewer sales and less investment, is it any wonder that the recovery has stalled?

How do we find our way out of this? As we like to say at CEI, you do not have to teach the grass to grow, you just have to move the rocks off it. Entrepreneurs are eager to innovate, to start new businesses, to create wealth, and to hire people. All they need is for government to remove the regulatory rocks that are stopping them.


Fred Smith

Fred L. Smith, Jr. is President and Founder of the Competitive Enterprise Institute, a free market public policy group established in 1984. Mr. Smith combines intellectual and strategic analysis of complex policy issues ranging from the environment to corporate governance with an informative and entertaining presentation style. Well-known in academic and professional circles, Mr. Smith is a popular speaker at universities and conferences around the world.