Regulation University: The Consequences of Regulatory Accumulation

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Government spending may be slowing but regulatory output is not. The number of regulations passed the one million mark in 2010, and their volume continues to rise. What does the continuing growth of so many rules mean for the U.S. economy and individual industries?

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Regulation University: The Consequences of Regulatory Accumulation

  1. 1. Regulation University: The Consequences of Regulatory Accumulation February 28, 2014 Patrick A. McLaughlin Senior Research Fellow Mercatus Center at George Mason University
  2. 2. What is regulatory accumulation?
  3. 3. Why is it a problem? 1. Blocks innovation and entrepreneurship 2. Diverts attention from new and important risks 3. Wastes scarce agency resources
  4. 4. Less innovation = less growth in trillions of real dollars 60 What would GDP have been in 2011 if regulations had stayed at 1949 levels? $53.9 trillion 50 40 30 20 $15.1 trillion 10 0 Actual GDP Potential GDP
  5. 5. $30,000 $25,000 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 in billions of dollars Actual and Alternative Growth Paths $35,000 Hypothetical Economy Actual Economy $20,000 $15,000 $10,000 $5,000 $0
  6. 6. Example: Design standards Design standards on trains, automobiles – prevents innovation domestically and trade internationally
  7. 7. Example: Logan City, Utah
  8. 8. Why does it occur? 1. Incentives of agencies 2. Incentives of politicians 3. Incentives of incumbent firms
  9. 9. Aren’t there already requirements for review? 1. Exec. Order 12866 2. Presidential initiatives
  10. 10. Current process ineffective at review
  11. 11. No Independence = No Results
  12. 12. Can we solve this? 1. Independent review 2. Focus on risk and outcomes 3. Overcome groups with vested interests in keeping nonfunctional rules
  13. 13. Independent review 1. BRAC 2. Scientific peer-review
  14. 14. First test of functionality: Risk Nonsignificant Significant risk risk Current risk Functional Nonfunctional Noncurrent risk Nonfunctional Nonfunctional
  15. 15. Second test of functionality: Outcomes Achieving outcome Not achieving Necessary to maintain outcome Functional Nonfunctional Not necessary to maintain Nonfunctional Nonfunctional
  16. 16. Overcome groups with vested interests in keeping rules 1. Agencies 2. Incumbent businesses 3. Special interest groups
  17. 17. Questions?

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