Economists confirm federal regulations come at a high cost

Mark and Nicole Crain have nearly made academic careers out of studying the costs of federal regulations. So the economists from Lafayette College in Pennsylvania offer a valuable perspective on the accumulative effects of the thousands of regulations promulgated by our government.

The Crains discussed their research and latest findings with the Business Times in a telephone interview. A story based on the interview appears on page 17 of this issue as part of coverage of a meeting convened in Grand Junction to discuss the implications of federal regulations, particularly for small manufacturers and other small businesses.

Loyal readers will recall an editorial that appeared in this space in the last issue recounting a study commissioned by the National Association of Manufacturers to calculate the cost federal regulations. The Crains conducted that study and came up with a number that’s staggering even by government standards: $2.028 trillion annually.

The Crains also conducted a similar study for the U.S. Small Business Administration Office of Advocacy in 2010 and estimated total federal regulatory costs then at $1.75 trillion annually. Clearly, the cost of federal regulations is growing along with the number of regulations.

Part of the problem, the Crains say, is that lawmakers and policymakers might well consider the potential costs of a single regulation, but forget the costs associated with that regulation add to the accumulative effects of all regulations, some of which long have been on the books.

The Crains also took a look in the NAM study at the costs of federal regulations across various industry sectors and different size businesses. What they found confirms a common lament: Small business shoulder a disproportionately heavier burden than large businesses in complying with regulations. Small manufacturers in particular incur regulatory costs of $34,671 per employer per year, more than three times the average for all U.S. businesses.

Along with their other research results, the Crains reported yet another striking finding in surveying business and managers on what they’d do with the money in the hypothetical event they didn’t have to spend it on regulatory compliance. Fully 63 percent said they’d invest the money in their operations in additional research, new equipment or expanded operations. Another 22 percent said they’d spend the money on employee initiatives, including higher wages. Given that the cost of federal regulatory compliance equates roughly to 12 percent of gross domestic product, just think about what would happen if that cost were eliminated and there was a proportional increase in GDP?

As the Crains have long have calculated, federal regulations impose high costs on businesses in a variety of ways — not just direct in compliance costs, but also what economists call opportunity costs.

It’s something to keep in mind as complaints continue about the slow economic recovery, lackluster job growth and low wages. It’s something voters should keep in mind, too, as they complete their ballots for the upcoming election.