Second Wind for the Global Economy

Jack Kemp
Posted: Jul 10, 2001 12:00 AM
Even as the world faces the threat of a global economic downturn, government regulators here and abroad go about the business of destroying wealth, jobs and opportunity, and stifling business and technological innovation. The regulatory burden has to be relaxed quickly, and the United States has to lead the way. Regulations are a tax on the way we live, work and do business in the same way that the income tax and tariffs are. To sustain long-run economic growth, we must not only get tax and monetary policy right but also regulatory policy. Government regulation has a legitimate and important role to play in modern society (although arguably less so in the Internet Age), but few regulations really pass the simple test of cost-effectiveness. Even well-intentioned regulations can cost lives. Fuel economy standards, for example, have driven automakers to build lighter, more efficient cars that give a lot less crash protection and cause literally thousands of deaths per year. Regulatory overkill, therefore, is about much more than just dollars. The latest edition of "10,000 Commandments," a comprehensive analysis of regulatory costs in the United States put together by Wayne Crews of the Competitive Enterprise Institute, demonstrates that regulations cost our nation $788 billion in the year 2000 alone, or 7.9 percent of GDP. In human terms, Crews points out that "regulatory costs now exceed spending for every item in the average family's after-tax budget," more than for medical costs, food or transportation. Based on 1998 tax data, regulations cost the typical family of four $7,410. The unchecked growth of regulation on both the national and global level not only distorts economic decision-making, it demoralizes entrepreneurs and innovators in every field of endeavor. When the European Union's Mario Monti, for example, can block the G.E.-Honeywell merger just to protect competitors in the European market, it sends a signal to businesses large and small that they had better worship more often at the altar of global regulation. When the United States prescribes arbitrary new efficiency standards for appliances like washers and air conditioners, it forces manufacturers large and small to work toward that particular design goal, not other product improvements that make life better for us all. Unfortunately, business doesn't always have clean hands itself when it comes to gaming the regulatory system. As Susan Dudley of the Mercatus Institute at George Mason University points out, "Disappointed that consumers are not buying their high-end washing machines, (manufacturers) convince the administration to ban the popular low- and moderate-priced models. Then, not satisfied with making consumers pay about $250 more for machines with attributes they don't want, manufacturers get their friends in Congress to give them tax credits." In this case the tax credits have indeed been proposed, but thankfully not enacted. Still, it's clear that intrusive regulation does more than cost us wealth and opportunity, it becomes a corrupting tool of business "competition." And that competition will always be weighted in favor of the rich, established, diversified companies, not the smaller producers or start-up innovators. What can be done? The Bush administration has begun to stem the rise of regulatory costs. It has rejected a number of President Bill Clinton's midnight regulations and toned down others, and it has done so in the face of massive distortion by the media. For example, the administration is being hit hard by environmental groups for proposing a modest change in Clinton's proposed air-conditioner efficiency standards (asking for 20 percent improvement rather than 30 percent). Still, the administration has taken a few tentative steps to slow the growth of regulation in some areas. In other areas, lamentably, the administration is increasing the regulatory state. It has endorsed price controls on electricity in California, for example, even while electricity prices are falling on their own, and it has restricted drilling for oil in the Gulf of Mexico even more than Clinton proposed. Also disappointing, the administration says it believes steel prices are too low and is suggesting they be artificially raised by the creation of a de facto steel cartel that would restrict steel output in the same way OPEC keeps the price of oil up by restricting the production of crude oil. The United States should develop a comprehensive regulation proposal to review regulations and reduce them wherever possible. Not only would eliminating unreasonable regulations help revive a faltering U.S. (and world) economy, it would also help to eradicate the corrupting influence of overblown and unaccountable regulatory bureaucracies and head off the natural impulse of bureaucrats, both here and abroad, to find new fields in which to intrude. The stakes for the global economy are high, but the stakes for freedom and democracy and helping the global consumer are even greater.