Regulations' Enormous Costs and DOGE's Enormous Upside

: Veronique De Rugy on Dec 19, 2024

The Department of Government Efficiency has made a promise: It will go after regulations that slow growth, obstruct innovators and cost American households thousands of dollars each year. Here's hoping for success.

The burden of excessive regulation is hard to measure. We know, for instance, that the Code of Federal Regulations is over 188,000 pages long, guaranteeing that citizens can never really be sure they comply with every regulation.

While the stated intent of many rules is to protect the public interest -- be it the environment, safety or market fairness -- the unintended consequences are often staggering. Regulations frequently impose costs far beyond their benefits, stifling entrepreneurship and innovation while hampering businesses' ability to produce at full potential, hire workers or provide consumers with what we need.

Wayne Crews, author of the Competitive Enterprise Institute's "Ten Thousand Commandments" study, produced a price tag that he says is very conservative: $2.1 trillion per year. That's equivalent to Canada's entire economy and a hidden regulatory tax of $15,788 annually on each American household.

These eye-popping figures tell only part of the story.

The costs disproportionately impact new, small and medium-sized enterprises, which lack the resources to hire compliance officers or navigate complex regulations. The Dodd-Frank financial legislation, enacted in response to the 2008 financial crisis, was over 2,300 pages long and added more than 400 new rules and mandates. While it aimed at reducing systemic financial risks, it's much harder for smaller banks and credit unions to navigate, leading to financial sector consolidation and reduced competition.

Environmental regulations are renowned for going too far and imposing costs that outweigh any benefits. Ignoring that the Clean Air Act's approach could be better handled through property rights and tort law, this act -- which the Cato Institute's Peter Van Doren calls "utopian 'costs-don't-matter' air quality standards" -- imposes massive compliance costs on businesses with diminishing returns. Each new amendment tackles increasingly smaller amounts of pollution at exponentially higher prices that are passed on to consumers.

Stringent Environmental Protection Agency emissions standards have made it prohibitively expensive to construct new manufacturing plants, effectively halting innovation in certain industries. The auto industry, too, faces onerous fuel-efficiency standards that raise the cost of vehicles -- even green ones -- and reduce consumer choice, all while delivering marginal environmental benefits.

And don't get me started on the National Environmental Protection Act of 1970. Its requirement for exhaustive environmental reviews has evolved into an endless process whereby even simple projects can be delayed for years through nonstop studies, public comments and litigation. A single environmental impact statement can cost millions of dollars; on average each takes four and a half years to complete. This regulatory maze makes it far more difficult to build critical infrastructure like highways, bridges and energy projects promptly.

NEPA essentially gives federal bureaucrats and activists veto power over private development, even on state and private lands. Rather than protecting the environment, it's become a weapon for blocking development through death by delay, driving up costs for everything from housing to energy while providing minimal environmental benefit.

A prime example is the Keystone XL pipeline saga. The pipeline, which would have transported Canadian crude oil to U.S. refineries, was ultimately canceled after political and regulatory pushback. But NEPA is even more punishing to green projects.

The coming reforms should prioritize inserting sunset clauses on rules as they become outdated, streamlining compliance processes and focusing on outcomes rather than prescriptive, rigid mandates that rule out more innovative approaches. Reducing regulatory burdens with these simple methods can unleash the creative potential of entrepreneurs and businesses.

Indeed, Van Doren reminds us that we are still benefiting from 1970s deregulation. Airline deregulation, while worth it on its own, opened the door to competition and innovation, including the emergence of low-cost airlines and other mass travel that no one could imagine at the time.

A freer economy is not just more productive or better equipped to meet the challenges of the future. It also means lower prices. Writing about Argentina's large, ongoing deregulation under President Javier Milei, Wall Street Journal columnist Mary O'Grady writes that the country's deregulation czar has "discovered a rough rule of thumb: Where deregulation happens, prices decline in the range of 30%. He has seen it in textiles, logistics and some agricultural products." Thirty percent!

That leads to a lot of extra economic growth. Potentially 3% more, argues economist John Cochrane. And since economic growth is everything -- making nations richer, safer, healthier, cleaner and even more peaceful and tolerant -- we should all cheer for DOGE to succeed.

Veronique de Rugy is the George Gibbs Chair in Political Economy and a senior research fellow at the Mercatus Center at George Mason University. To find out more about Veronique de Rugy and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.

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