Regulatory accumulation in the United States is stifling economic growth and innovation, with significant implications for businesses, consumers, and workers. A recent study employing an endogenous growth model reveals that regulations, while often implemented with good intentions, have contributed to an average annual reduction of 0.8% in US GDP growth. Although this may appear small, the long-term effects on the economy are profound.
The Economic Cost of Regulation
Federal regulators frequently assess the impact of individual regulations without considering their cumulative effect. Over the last three years, regulations with quantified costs, but no stated benefits, have added an annual burden of $40.5 billion—more than three times the cost of regulations that included quantified benefits.
- 2020: 27 rules introduced $15.4 billion in annual costs.
- 2021: 20 rules imposed $18.5 billion in annual costs.
- 2022: 9 rules contributed $6.6 billion in annual costs.
This unchecked accumulation distorts corporate investment decisions, reduces innovation, and places an undue burden on the economy, particularly on vulnerable populations.
Impact on Low-Income Americans
While regulations often aim to protect society, their unintended consequences disproportionately harm low-income households. Increased costs for essentials such as food and utilities hit these groups hardest, with some estimates suggesting that regulatory costs represent six to eight times more of a low-income household’s income compared to wealthier individuals.
Additionally, regulations frequently address minor risks that affect specific demographics while spreading the financial burden across the entire population. This dynamic exacerbates economic inequality, leaving poorer Americans less equipped to absorb the rising costs.
Labor Market Distortions
The labor market is particularly vulnerable to the effects of regulatory overload. As regulations drive up costs, production shrinks, leading to job losses not only in regulated sectors but also in industries reliant on those products. This domino effect reduces overall employment and productivity.
Displaced workers often transition to compliance-related roles, which yield lower economic output. Even when they secure new positions, many experience long-term income losses due to skill mismatches. Over time, this trend limits economic mobility and widens the gap between lower- and higher-income groups.
The Consequences for Entrepreneurship
Regulatory accumulation poses a significant challenge for new businesses. Established companies can often absorb compliance costs, but for smaller enterprises and start-ups, these barriers are prohibitive. The result is a stifling of entrepreneurship, which is vital for innovation and job creation.
Decades of overlapping, redundant, and contradictory rules have created a complex regulatory framework that discourages market entry, hinders competition, and reduces economic vitality.
Policy Recommendations
To mitigate the detrimental effects of regulatory accumulation, policymakers must:
- Conduct comprehensive evaluations of how new regulations interact with the existing framework.
- Simplify and streamline the regulatory process to eliminate redundancies and contradictions.
- Develop a systematic approach to measure the cumulative impact of regulations over time.
- Prioritize deregulation efforts that promote entrepreneurship and economic growth.
By addressing these issues, the US can foster an environment that supports innovation, sustains growth, and benefits workers and consumers alike.