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hidden regulatory compliance costsGovernment Regulatory
Compliance Cost Report

- page 2 (Reference Data & Reports) -

By Michael Hodges (email) and Bill Mechlenburg
updated August 2010
- a chapter of the Grandfather Economic Reports -

INDEX OF CONTENTS:


REGULATORY REFORM MOST NECESSARY

  1. "I consider regulatory reform one of the most necessary items for improving and sustaining faster economic growth. Although no regulatory agency has been given the express mission to depress the economy, many of their actions have that undesirable effect. The impact of governmental rule makers is in one predictable direction, to increase a firm's cost and reduce the resources available to produce goods and services for the customer.
  2. The benefits of regulation should not be overlooked, but it is too generous to assume that every regulation is effective. Given the current estimate of (federal) compliance costs of $600 billion a year, a 10% reduction stemming from sensible reforms would have the benefit of a $60 billion tax cut." Murray Weidenbaum, professor & chairman of the Center for the Study of American Business at Washington University in St. Louis - reported in NABE News #119, November 1996.

    "Regulatory Compliance Costs are huge, un-measured and un-budgeted and un-accounted-for impacts on the economy." He mentions the continuing growth of all government spending as a share of the economy as the culprit. - Nobel Laureate Dr. Milton Friedman in his communications with this author.


Author Comments

Efforts to restrain government spending will come to naught if new budgetary restraint is not accompanied by new regulatory discipline. The authors of this report fully echo this statement.

As it becomes increasingly difficult to realize social agendas by transferring more of the private sector's now diminished piece of the economic pie to direct government spending, then social approaches may continue by mandating more un-funded regulatory cost burdens direct to the private sector. The author firmly believes that regulatory compliance mandates of State & Local governments must be taken into account, as well as federal costs mandated. Its the totals that count. State & local government share of the economy has increased significantly (partly generated by federal social mandates) - from 6% of the economy's national income in 1947 to about 16% today - - also at the expense of the private sector's share. And, as shown in the State & Local Government Report, their employee headcounts have increased much faster than the general population - - to the tune of 10 million more employees than would have occurred had such increase not exceeded population growth. More employees does not equal fewer regulations, or in less detail and complexity. Further, state & local governments are also experiencing increased pressure on spending & taxation, which might lead to increases in un-funded mandates to realize agendas.

To continue agendas, federal AND state/local government can mandate direct to the private sector without any funding. This leaves it to the private sector to fund said mandates (from productivity, pay levels, jobs and imports) - - or 'go to jail.'

With great problems in public education, of rapidly rising per student real costs while quality declines, the federal (and state) government may look to 'solve' this problem by simply mandating that the private sector ('for the good of future workers') pick up the cost of more worker training and education, allowing the failed school system to keep its budget and go its merry way without meeting the education requirements of the private sector. (If the President was serious in his November 1996 remarks about 'needing volunteers to teach children to read,' why did he not take action to restructure the education system, including its spending excesses?) Raising minimum wages and other methods so government can cut back welfare spending may result in transfer of certain welfare costs to the private sector, the same as had government increased business taxes for direct welfare spending. Instead of facing families with requests for more taxes (a political danger), which if approved would reduce family net incomes, governments can find a methods (safer politically) to support social agendas via 'hidden' regulatory mandates - - which in turn also reduces family net pay and job security - and reduces international competitiveness. If families had the chance to vote cleanly to choose between lower net pay with air bag mandates vs. higher pay with no such mandates - - which would they choose? Answer: they are never given a chance to voice that vote.

The bottom line: continuing pressure on productivity, trade balances and family incomes is facing the young generation.

While some may be taking steps on one hand to reduce government and taxes, under the table we are increasing the influence and cost of government via regulation. It's like a balloon. You squeeze it one place and it bulges out somewhere else. Perhaps the only effective method of reducing future regulations is to reduce the budgets of the government organizations (federal, state, local) that produce regulations. Congressman Dick Armey's proposal for developing regulatory cost budgets (to cap the total cost of regulation per year) should be given serious study.

As stated on page 1 of this report, much work needs to be done concerning regulatory compliance costs - budgeting, accounting, control, sun-setting, etc. In his study, Dr. Hopkins rightfully made a firm call for action. The authors of this report echo that call. more than ONE TRILLION DOLLAR annually in regulatory compliance costs (14% of our economy) are too great to ignore, just because the general public might not understand how such impacts them - - and therefore there is little political heat on politicians. Ignoring firm action would be a lack of responsible leadership, and places our nation's families and their children's future at risk.

The author hopes this report is informative and useful to further the process.

End of author comments - - GO TO TOP - - or precede to the excellent article below - -


OVER-REGULATING AMERICA

[THE ECONOMIST July 27TH 1996]

Tomorrow's economic argument

America is failing to get a grip on "indirect movement"

A NEW consensus on economic policy has triumphed in America. It is based on two beliefs. First, that monetary policy should aim for stable prices and nothing else: gone are the days when the Federal Reserve Board thought it could secure high growth and job creation (some congressmen are even talking of revoking the Fed's formal mandate to promote full employment).

Second, that fiscal policy should aim for balanced budgets, at least over the medium term: this year's federal budget deficit of $117 billion will be smaller in absolute terms than any since 1981; as a share of GDP (1.6%) the deficit is the lowest since 1974.

In terms of economic achievement, the consensus has been a triumph indeed: output has grown steadily since early 1991; unemployment is down to 5.3%, the lowest rate in six years, inflation is dormant. But in terms of economic debate, there has been not a triumph but a movement in the battle lines. Though tax-cutters and tax reformers continue to vie for influence at the court of Candidate Dole (see American Survey), debate about fiscal and monetary matters is gradually being overtaken by argument about the remaining tool of policy. That tool is regulation.

The lines in this new argument are already drawn. On one side, Bill Clinton praises the worthy goals that regulation can achieve. As an emblem of his administration, and as a model for a second presidential term, Mr. Clinton cites the Family and Medical Leave Act of 1993, which requires employers to give 12 weeks of unpaid leave to new parents. Spurred by the election campaign, he has recently added two further proposals. One would guarantee parental rights to take unpaid leave to do things for their children: to visit a doctor, for example, or attend a parent-teacher conference. The other would allow workers to take time off in lieu of pay for overtime.

In 1993 Mr. Clinton signed a law extending unemployment benefits by 20 weeks in states with a low unemployment rate and by 26 weeks in states with a high one. He may soon raise the minimum wage. He has defended environmental rules. He once proposed that firms be made to spend 1.5% of their payroll on training. And all this pales next to the most ambitious rule-extension of all: the president's failed plan to spread medical insurance by obliging employers to provide it.

On the other side, Republicans denounce the cost of all this meddling. In March they forced Mr. Clinton to sign an anti-regulation reform by tacking it to a bill raising the government's debt ceiling; regulatory agencies can now be sued more easily by small firms, and their new rules are subject to review by Congress. Meanwhile both the Senate and the House have considered more ambitious anti-regulation ideas. These include appointing a commission to select hundreds of regulations for the chop; requiring that Congress ratio rules drawn up by regulatory agencies; and obliging the government to reimburse people and firms

( And since publication of this article Mr. Clinton has signed a Federal law mandating a 48 hour hospital stay for all new mothers whether they need it or not. Here is Federal regulation making medical decisions! )

This has all the makings of a lasting fight. Having accepted the wisdom of balancing the budget, Mr. Clinton (supported by congressional Democrats) wants to find a way of pursuing social goals without boosting federal spending. Regulation, which shifts the cost of public policy to individual and firms, is the perfect means of doing this. The Republicans understand that all too well. They know their efforts to restrain government will come to naught if new budgetary restraint is accompanied by new regulatory discipline. In short, regulation is as distasteful to them as it is attractive to Mr. Clinton.

regulation trendsThere are high stakes in this battle.

Some economists argue that the gradual decline in productivity growth in America (and other western countries) since the mid1970s is partly attributable to the spread of regulation.

Federal regulations impose costs on individuals and firms that are probably at least half as big as those imposed by federal taxes.

The best estimate of the regulatory burden, compiled by Thomas Hopkins of the Rochester Institute of Technology, puts the cost of complying with federal rules at $668 billion in 1995, compared with $1.5 trillion in federal spending.

Mr. Hopkin's figures are conservative. They include only the burden of complying with rules for which cost studies have been done. Some costs, such as the loss of productivity caused when new regulation forces firms to adjust, are left out altogether.

regulation trendsUsing his conservative figures, Mr. Hopkins estimates that in 1995 federal regulation cost the average American household $7,000 (more than the average income-tax bill, which was $6,000 per household last year).

The burden of regulation has grown steadily since President Reagan's anti-government crusade gave way to the "kinder, gentler" Bush administration. Mr. Bush signed mandates for cleaner air, greater generosity towards disabled people, a higher minimum wage, and more stringent product liability laws. As a result, the cost of compliance leapt .

Mr. Hopkins cites the example of Eastman Kodak, a photography company whose tax staff has grown by two-thirds over the past decade, partly because of the tax breaks allowed by Congress under new regulations. The company's annual tax return has doubled in weight to 35 pounds over the same period.

Federal agencies scrutinize every aspect of a company's activity: the Equal Employment Opportunity Commission (for the personnel department); the Occupational Safety and Health Administration (the factory floor); the Environmental Protection Agency (everything). These agencies are sometimes crass. In one notorious incident, a bank in Kansas City was ordered to put a Braille keypad on a drive-through cash machine.

And the federal level is only part of America's regulatory problem. Multiple levels of authority produce endless reels of red tape, from the state, county and city governments to semi-autonomous local agencies charged with controlling pollution and other evils. All produce rules which overlap, replicate and, on occasion, contradict one another.

There have been periodic attempts by both Congress and the administration to roll back the frontiers of bureaucracy. Last year, for example, Congress voted to limit new "unfunded mandates" - federal rules and laws requiring state or local governments to take regulatory action while not providing them with the money necessary to do it. But so great is the political momentum behind regulation that its burden is likely to continue growing. When Republicans in Congress proposed another anti-regulation bill last year, Mr. Clinton declared that it "would stop new protection from deadly bacteria in our drinking water, stop safer meat and poultry, stop safer cars, stop final implementation of the law that lets parents take leave to care for a sick child." This time, the Republicans backed off. Because the cost of regulation is indirect and hard to see, they did not have the stomach to take on the president.

The politicians' reluctance to do more to rein in regulation holds out the danger that America's government, while appearing to shrink, may actually grow. Anybody who doubts this is possible should consider Japan, where government spending as a share of GDP has been fractionally smaller than America's for much of the past decade (32.4% in 1980-95 compared with America's 32.9%). But Japan's government is hardly laissez-faire. A web of regulation slows business down, drives prices up, and (Mr. Clinton might note) stokes popular disgust with government. In Japan, the consensus in favor of regulatory reform is almost as firm as America's consensus in favor of fiscal and monetary discipline.

Japanese lessons

The contrast with Japan teaches an important lesson. Having eliminated budget deficits during the 1980s, many Japanese are now willing to surrender this gain to wage war on regulation: they want to scrap rules protecting agriculture, say, and give farmers taxpayer subsidies by way of compensation. This suggests that future Americans may also undo current efforts to bring budget spending into line, unless regulation is kept in check also.

Free the workers

How should regulation be checked? A necessary step is to simplify the confusing rules produced by multiple tiers of authority. That, though, is ultimately a constitutional not an economic question and is likely to take decades. Meanwhile, the various rule producers can all try to distinguish between the justifiable and unjustifiable parts of what they do. Tariffs, licenses and other competition restricting rules are almost never justified: they subsidize producers at the expense of consumers and reduce growth by dulling producers' incentives. Happily, as the second chart

shows, this point is widely recognized. Many price controls, rules restricting market access and other anti-competitive regulations were scrapped in the 1980s. Deregulation of interstate trucking, for example, has cut the cost of road haulage by $8 billion a year, according to Murray Weidenbaum, head of the Center for the Study of American Business in St. Louis, Missouri. The number of jobs in trucking and warehousing has risen by 37% since 1980.

Less obviously, many regulations in the workplace fall into the unjustifiable category, too. The president's family-leave law, his failed training proposal, and many other "mandates" on firms may do more harm Than good. This is because these benefits are provided to many workers anyway, without the government needing to get involved. And, where they are not provided, there is good reason for this.

Left to themselves, firms and workers weigh the relative attractions of wages and non-wage benefits. Suppose, for example, that it costs a firm $10 to provide health insurance, and that employees value this insurance at $20. In such a case, the firm will provide the coverage and cut wages or other benefits by, say, $15: the bargain leaves both sides $5 better off. But now suppose that a particular benefit costs more to provide than employees think it is worth. In such a case, the company will obviously not want to spend $20 providing something that its workers value at only $10; and the workers themselves will not press for a change for fear that the firm will claw back the extra costs by cutting other benefits that they value more highly. In this example both sides will feel better if the benefit is not provided.

Now consider what happens if the government steps in and (for example) orders all firs to offer training to workers. Most workers who set a high value on training are unlikely to be affected: the bargaining process means that they will presumably have taken jobs with employers who provide the benefit anyway. But workers who value training less will have it forced upon them. Some will no doubt find that they were underestimating the value of training and will appreciate the benefit. But even then it will not come as a free gift. For the most part, workers will find that their firms cut wages or benefits to recoup the newly imposed training costs. In effect, workers will have been forced to "purchase" a benefit they did not particularly want, and to sacrifice other things they liked better.

In some cases, the outcome may be worse than this. Firms may find it difficult to recoup the cost of government-mandated training. Minimum-wage laws may prevent them from cutting wages - and the more the minimum is realized the more jobs it will affect. Union-negotiated deals may prevent them from withdrawing other benefits. In these cases, firms will cut staff. In November 1992 Laurence Meyer (whom the president has just appointed to the Fed) estimated that the training mandate then proposed by Mr. Clinton might cost 200,000 jobs over two years.

As a general rule, anybody whom a mandate is intended to help is likely to suffer disproportionately from the cost of providing it. Suppose, for example, that the government mandates parental leave, hoping to help parents. This will make parents more expensive to employ than other worked who do not take advantage of this benefit. As a result, firms may cut parents' pay or may simply not hire them.

The broad presumption, therefore, should be against mandates. But there may be exceptions, and the Clinton team is good at citing them. Lawrence Summers, the number two at the Treasury, argues that employees may undervalue certain goods. They may, for example, underestimate the risk of falling expensively sick: in that case, mandatory health insurance might help them, even if it comes at the expense of other goods that workers believe they want more. The underlying justification for such intervention is that the government knows better what workers want than they do themselves.

Or the government might intervene because it knows that, if workers are uninsured, their medical costs will be shouldered by others. Doctors might treat them without pay, then recoup the money by overcharging insured patients. This would push up insurance premiums, which would in turn discourage workers from insuring themselves. Mandatory health insurance would clamp down on free riders.

These arguments may justify limited workplace regulation. Factory safety rules, and possibly health insurance, might reduce the medical bills that the general pub public must pay, so justifying a certain amount of public intervention. All the same, this gain must be weighed against the danger of forcing workers to "purchase" benefits they do not want. The free-rider argument certainly does not justify the extravagant list of rules proposed by M r Clinton.

Green Grievances

The free-rider defense does cover some other types of regulation. Safety rules, such as laws that keep drivers of the bottle and behind seat-belts, might be justified if hospital costs tend to be paid by others. Environmental laws present an even clearer case. Firms can save money by passing the cost of pollution on to others. It is encouraging that, according to Mr. Hopkins's second chart, environmental and safety rules account for a much greater share of regulatory costs than they did in the 1970s.

The trouble is that, although the environment needs to be regulated, it can easily be regulated badly. Two environmental laws - one to protect endangered species, the other to protect wetlands - have begotten a host of rules that prevent people from building homes, plowing fields, filling ditches, and even repairing fences on their own land. in one infamous case, a man who cleared 7,000 tires from his property was prosecuted for destroying a wetland; the tires had trapped water from a nearby stream, creating several pools which the regulators deemed worthy of protection.

Clumsy rules can also lose sight of costs. An obvious point perhaps, but efforts to respond to it have failed repeatedly. During the Reagan and Bush years, the administration's Office of Management and Budget reviewed most big regulatory proposals; the OMB'S role has been weakened under Mr. Clinton. Last year's Republican anti-regulation drive would have subjected all rules to cost-benefit analysis; this year the Republicans have retreated. Some laws explicitly lay down that their goals should be achieved whatever the cost.

Because cost-benefit analysis has been carried out only sporadically, America labors under some outrageously expensive rules as well as some good ones. A so-called "trihalomethane drinking-water standard", adopted in 1979, costs an estimated $200,000 for each life saved. On the other hand, restrictions on wood-preserving chemicals, adopted in 1990, cost an estimated $6.3 trillion per life saved.

Obviously, it is hard to put a value on a life (to put it mildly) but, because resources are not infinite, some calculation of costs and benefits is required. Robert Hahn of the American Enterprise Institute reckons that only about half of all environment, health and safety regulations imposed since 1990 for which data are available would pass a reasonable cost-benefit test.

In a survey of 33 safety laws, Kip Viscusi of Duke University, North Carolina found that just 13 save lives at a cost of less than $4m apiece, the highest price he reckons reasonable. To sort out effective measures from hideously expensive ones, regulators need to do more than just subject rules to a cost-benefit test. They also need to make sure that the same test is used by different agencies. At present, some agencies refuse to put a value on life understandable, perhaps, but this implies that society should pay an infinite amount for safety. Others do value it, but at different prices. Transport regulators reckon a new rule pays its way if it saves lives at less than $3m a piece. Environmental regulators are often willing to accept a higher cost.

But in the end, argues Richard Armey, the House majority leader, the best way to me sense of America's tangle of rules would be to draw up a regulatory budget, rather than concentrate on cost-benefit analyses. Such a budget would cap the compliance costs that each agency could impose. The agencies would then decide which rules they could afford, much as they already decide how to spend their share of the government's regular budget. Proponents of a regulatory budget argue that its greatest advantage is political. It would force Congress and the administration to take responsibility for the costs of new laws, and it would make these costs transparent. At the moment, Congress can pass feel-good statutes that promise clean air and so on; it does not have to answer for the expensive rules that regulatory agencies draw up to achieve these objectives. This would change if Congress had to specify the cost of each new law, and to make room for this cost in its regulatory budget.

Given time, such a budget might make bad regulation as politically embarrassing as wasteful spending. It would make it possible to compare indirect government spending on clean air with direct spending on tanks or roads. This clarity would end the current temptation to see regulation as a cheap alternative to tax-financed pro grams. Americans could see both for what they are: government interventions that may accomplish useful things, and that are certain to cost money.

A few doughty congressmen think a regulatory budget ought to be adopted. Mr. Clinton's recent victories in the regulation debate make their cause seem hopeless for the moment. A big Democratic victory in November would increase the chances that bad regulation will spread. If so, America's promising new consensus in monetary and fiscal policy will not be quite the triumph that it appears to be.

(Above article copied from The Economist by: Bill Mechlenburg, mechlen@concentric.net )

GO TO TOP - - or, precede to read the last section below - - with data tables and methods for the charts on page 1


How we produced the numbers in the charts

DATA SOURCES:

Summary: this author located two studies which have been performed regarding estimation of regulatory compliance costs. One (by Dr. Thomas Hopkins in 1996) estimates the cost of complying with federal regulations equivalent to 42% ($668 billion in 1995) of additional federal spending and the other (by the Competitive Enterprise Institute reported in 1999) at 43% ($737 billion in 1998) additional. Since no studies could be located regarding those additional regulatory compliance costs imposed by state & local government, and not to leave this important impact out of our evaluations, these costs are estimated as discussed later - - in order to arrive at a total estimate for all regulatory compliance costs regarding both federal and state & local government mandates. From data below we estimate the 2003 cost of complying with all regulations as 14.9% of the economy's $8.8 trillion national income - - or a total regulatory compliance cost that year of $1.3 trillion ($980 billion federal mandates plus $323 billion state & local government mandates).


1. Dr. Thomas Hopkins study (1995).
A Prime Source of federal information for this Grandfather Regulation Report is from studies performed by Thomas D. Hopkins, (an adjunct fellow of the Center for the Study of American Business at Washington University in St. Louis and the Arthur J. Gosnell Professor of Economics at Rochester Institute of Technology). Such studies are documented in
"Regulatory Costs in Profile" by Dr. Hopkins, (Policy Study No. 132, August 1996, sponsored by the Center for the Study of American Business - - which is an integral part of Washington University). In the author's opinion, this is the best study to date on the subject that could be located - and also, according to The Economist, July 1996 (copy on this page) "Regulatory Costs in Profile" - by Dr. T. Hopkins - It is not copied here due to its size - but this link will take you to a summary plus address to obtain a copy of the complete study booklet from Washington University in St. Louis

Dr. Hopkins, in 'Regulatory Costs in Profile', states: "Not withstanding the substantial burdens created by regulation, no comprehensive system exists for a regular, annual accounting of such costs. Thus, the decidedly primitive allocation assumptions underlying this work represents, regrettably, the state of the art. Given the substantial magnitudes involved, there seems little excuse for the "hands-off" approach taken by government statisticians and accountants. Simply because a cost does not correspond to a tax collection should not spare the government from a responsibility to document the costs it is imposing. The estimates and projections should not be interpreted as a claim to new and precisely correct figures. Rather, they should be seen as a challenge to the regulatory status quo.":

Dr. Hopkins reports FY 95 annualized federal regulatory compliance costs at $668 Billion (and, for 1988 $426 bill, or $549 Billion in 1995 dollars). Considering a federal spending budget of $1.5 Trillion, the $668 billion regulatory cost is equivalent to an extra 45% federal spending. According to the report, these costs do not include the cost of lost efficiency, nor the "indirect effects on innovation and productivity that may be quite substantial." Using his conservative figures, Mr. Hopkins estimates that in 1995 federal regulation cost the average American household $7,000 (more than the average income-tax bill, which was $6,000 per household last year.

(author note: Dr. Hopkins's study used $1.5 trillion federal spending data as reported for 1995 in arriving at his 45% regulatory ratio. However, recently federal agencies published revised data for that year. Using the recently revised government data for federal spending for 1995 of $1.576 trillion, this $668 billion of regulatory costs is equivalent to 42.3% of additional federal spending for that year - which was equivalent to 11.3% of national income.)

Additionally, early 1997 Dr. Hopkins by email informed the author that he has not seen similar studies concerning regulatory compliance costs imposed by state & local governments - - these costs must be quite substantial, too. The author believes they should not be left out of this report, or further studies might be less likely to occur on this very important category. Therefore, for the sake of this study, regulatory compliance costs mandated by state & local government are here estimated at one-half the intensity of the relationship of federal compliance costs to total federal spending - - in other words, using Dr. Hopkins'45% of federal spending additionally, since compliance costs to federal regulations are 45% total federal spending, then state & local government regulatory compliance costs are 22.5% (1/2 x 45%) of state & local government spending. If, instead of a 45% federal added ratio, we use the 42.3% ratio of the above author note - - then on-half of that equates to 21.2% for state & local government mandates.

2. Competitive Enterprise Institute study (1998)
"Government is costing us more than the taxes we see. According to the Competitive Enterprise Institute (CEI), federal regulations cost taxpayers $737 billion in 1998. That's 44 percent of the size of all federal spending. The typical family pays an average $7,239 of the regulatory bill, up from $6,800 in 1997. "That's 20 percent of the after-tax budget,'' notes Wayne Crews, author of the CEI report. "More is spent on regulation than on medical expenses, food, transportation, recreation, clothing or savings,'' says Crews.

Contributing to the cost are the federal agencies that have added 21,000 rules in the last five years. Currently, Congress is not held responsible for the cost of new regulations, but it should be. In order to control regulations, the CEI report suggests all members of Congress be required to vote on agencies' final rules before they become binding on the public. Otherwise, it is regulation without representation.

Consider this: the costs of regulation by the U.S. government is nearly as large as the combined GNPs of Canada and Mexico. The 1998 Federal Register contained 68,571 pages, the highest level since 1980 and a 6 percent jump over the previous year. And more regulations are coming. An estimated 4,560 new ones are in the pipeline. The top five federal rule-producing agencies last year were the Department of Transportation (518), Environmental Protection Agency (462), Department of the Treasury (438), Department of Agriculture (384) and Department of Health and Human Services (350). The total just for the top five is 2,152 new regulations in 1998. Worse, we rarely know what benefits come from these regulations because many are not accompanied by benefit estimates." Competitive Enterprise Institute (CEI), Cal Thomas reports on regulatory compliance cost study in the Jewish World Review, Apr. 9, 1999.

(author note: as with the author's note regarding Dr. Hopkins' federal spending data for 1995, federal agencies also revised said data for 1998 - the year of the CEI study. If we equate CEI's $737 billion for 1998 to actual revised federal spending for that year of $1.704 trillion, then the added regulatory ratio works out to be 43.4% (still close to CEI's 44% ratio. Measured another way - - in 1998 federal spending was 24.2% of national income. Its regulatory compliance costs were therefore on-half times 43.4% or 10.5% of national income ).


COMBINING THE STUDIES TO PRODUCE DATA FOR THIS REPORT:

For Federal regulatory compliance costs - -
Dr. Hopkins reports 45% additional to actual federal spending. The author's note revises this to 42.3% using revised federal spending data.
CEI reports 44%, which is revised by the author to 43.3%.
Summation - for this report series we shall use 42.1 or 43% - meaning the cost of complying with federal regulations is equivalent to an additional 43% of federal spending.
For state & local government - - as stated before, we shall estimate the additional cost of complying with just state & local government regulations is equivalent one-half the added intensity as to federal regulations - - being one-half of 43% - - meaning the cost of complying with just state & local government regulations is equivalent to 21.5% of additional state & local government spending - - round off to 22%.

Other Grandfather Economic Reports include charts showing federal spending at time this study first prepared at 26% (2010 at 32%) of national income; federal regulatory compliance costs would then be 43% of this, or 11.2% (or 13.6% for 2010) of the economy's national income. For state & local government spending, the Grandfather Report charts show spending at 17% (2010 at 18%) of national income. Therefore, state & local regulatory compliance costs are used as 21.5% of this, or 3.7% (17% x 21.5%) of the economy's national income (for 2010 a 3.8% ratio). Summed together, federal plus state/local government mandated compliance costs in this study represent 14.9% (11% federal + 3.3% state/local) of the economy for the original study (updated to 2010 at 13.6% federa; + 3.8% state/local), as measured by national income. [national income is used to measure the economy's size (not GDP), based on firm recommendations to the author from Nobel Laureate Milton Friedman. A discussion of this issue is included at bottom of the Grandfather Report referenced at start of this paragraph.]

Following is a summary table of above data of outlays and regulatory compliance costs for 2004 as a share of the economy (as measured by national income), using up-to-date 2004 federal, state & local government spending data and national income for that year (with updates for 2010), while holding steady regulatory compliance cost ratios of 11% of national income for federal regulations plus 4% of national income for state & local government regulation compliance:

 

Share of Economy

as Percent National Income

Percent of Economy Federal State & Local Total Cost Impact of Governments Private Sector Share Remaining
Government spending outlays (prior) 26% 17% 43%  
Government spending outlays (2010) 32.4% 18.1% 50.5%  
Regulatory compliance cost (prior) 11% 3.7% 14.6%  
Regulatory compliance cost (2010) 13.6% 3.8% 17.5%  
Totals (prior) 37% 21% 58% 42%
Totals (2010) 46% 22% 68% 32%

From this data table we can estimate the 2004 cost of complying with all regulations as 14.6% of the economy's $9.2+ trillion national income - - or a total regulatory compliance cost that year of $1.3 trillion ($1.028 trillion federal mandates plus $343 billion state & local government mandates).

From this table for 2010, we can estimate 2010 costs complying with regulations as 17.5% of the economy's nearly $12 tillion of national income (calculated by original methods in prior Economic Report to Congress).

Considering the above share of the economy 'consumed' by government spending outlays and by regulatory compliance cost ratios, the following table calculates what residual share of the economy is left over for what we call the 'free market' private sector:

Calculating the Private Sector' Residual Share of the Economy Percent of Total Economy (Nat. Income Method) - [original study] Percent of Total Economy [2010]
Total Economy's National Income 100% 100%
Less Federal spending outlays ratio (26%) (32%)
Less State & Local government outlays (17%) (18%)
Less Federal regulatory compliance costs (11%) (14%)
Less State & Local regulatory compliance costs ( 4%) (4%)
Balance share remaining for Private Sector 42% 32%

1988 costs are calculated per Dr. Hopkins for federal mandates as $805 Billion in 2010 dollars (about $438 Billion in 1988 dollars), or 40+% of federal budget expenditures in 1988. For state & local government regulatory cost mandates, one-half of the 40% will be used against state & local outlays.

The following table takes all data above - - showing regulatory compliance costs in dollars.

SUMMARY: Compliance Cost Dollars

Regulatory Compliance Cost ($ Billions)

 

in actual dollars

 

Federal

State & Local

Totals

1988 $437 $124 $561
2004 $1,028 $343 $1,371
2010 $1,590 $446 $2,036

From the above, we have a possible compliance cost impact growth curve from 1988 to 2004 (or to 2010).

We are hopeful that others will get into more depth on this subject, and further expand Dr. Hopkin's excellent study on federal data, as well as building a firm base for state & local government data - - both with a long term time horizon (perhaps back to post World War II, as in this report).

CONTACT THE AUTHOR (at michael-hodges@comcast.net), who welcomes inputs to further improve the this report, such that it may become more informative.

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Note - this Regulation Cost Report, a chapter of the Grandfather Economic Report series, is based on government reported spending, inflation and population data contained in appendix tables of annual 'Economic Reports of the President Transmitted to the Congress' published each February  - and regulatory spending data from two learned studies referenced on page 3 of this report. While government spending and population data is readily available the same cannot be said for regulatory compliance costs which are not accounted by any levels of government, such depending on private studies which are few and far between. This report utilizes several learned studies, and is intended to add information to this subject of regulatory compliance costs. This report, first issued in 2002 and updated in 2005, assumes similar compliance cost ratios to federal spending as contained in the original issues and references to be similarly applied to recent published government spending, inflation and population data to arrive at such estimated compliance costs for 2010, since subsequent to the first issue no other such studies have been located. Readers are encouraged to do their own research on this subject, and also to notify this author [via email] of any found more recent learned studies considered relevant and reliable in addition to here contained, May more effort be made to account for and control these huge costs, just as so emphazised by the late Nobel Laureate Dr. Milton Friedman in his communications with this author.

Copyright 1997-2011 Michael W. Hodges. The Grandfather Economic Report series is the intellectual property of its author; all rights reserved under Copyright Conventions. Permission to redistribute all or part of this series for non commercial purposes is granted by the author, provided the associated web page address is included and full credit given to the Grandfather Economic Report and the author, Michael Hodges. Notice appreciated via email.