The high cost of safety

“If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it.”

—Ronald Reagan

Do government regulations keep us safe? Without regulations, wouldn’t “unbridled capitalism” keep millions in poverty, pollute the planet, and result in giant private monopolies?

This is the progressive viewpoint. In the late 19th century, far fewer regulations resulted in 4.5 percent annual economic growth. The progressives changed that. Democrats like Woodrow Wilson and Republicans like Theodore Roosevelt initiated progressive “reforms” to place the bridle bit on unregulated commerce.

Today, even many Republicans are progressives. The progressive institutions include central banking, the income tax, and large regulatory agencies such as the Environmental Protection Agency, the Departments of Energy, Labor, Health and Human Services, Commerce, the Food and Drug Administration, and so on.

Do these agencies, and the thousands of pages of regulations they generate, help us live better, safer lives? Libertarians, who are not progressives, say they do not. Libertarians, and classical liberals such as those who flourished in the 19th century, take a much dimmer view of regulations. The early Democrats believed in decentralized banking, gold and silver money, private schools, drinking alcohol even on Sundays, mutual aid, and a small central government that only occasionally enforced its will on the states, where most of the political power lay. Americans paid very few federal taxes.

That changed in the 20th century. The Federal Reserve, the income tax, direct election of senators, and other progressive “reforms” tilted power towards big national government. Some may forget that progressive reforms also produced American involvement in World War I, the eugenics movement, Jim Crow, alcohol prohibition, and the Great Depression. By 1949, the Progressive regulations were firmly embedded in the American way of life.

But what if we stopped there? What if we simply stopped passing new regulations after 1949, and left the economy alone, without any new regulations? Where would we be today? Living in a cesspool of pollution, earning 10 cents an hour in a sweatshop? Or, something else entirely?

Last June, the Journal of Economic Growth published a study that illustrated what that something else entirely would have been. They started by measuring the number of pages of regulations in 1949 (19,335) with the number in 2005 (134,261). Annual economic output, they conclude, “is 28 percent of what it would have been if regulation remained at its 1949 level.” Put differently, if regulations had remained constant, current Gross Domestic Product would be $53.9 trillion instead of the $15.1 trillion of 2011. Economic growth is slowed by 2 percent annually due to regulatory burdens. Business must comply with often petty and irrational regulations rather than produce goods and services for consumers. This results in a sort of negative compound interest drag on growth.

Think of it in terms of your own income. The median income in America today is about $50,000 a year. If the “unbridled capitalism” that progressives fear actually existed, even from 1949 onward, the average income would be $330,000 a year. That amount of income would allow people, instead of the state, to control their health care, housing, education, and quality of life. Poverty would be very rare. It would certainly be better than individuals being $54,000 in debt due to the constant borrowing needed to prop up the regulatory welfare/warfare state.

Libertarians understand the negative effects of regulations but now they have data that shows the cumulative effect of all regulations over a period of decades. Will Obamacare and the loss of civil liberties serve to alert voters to what the costs of big government really are?