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InsiderOnline Blog: February 2013

The Fiscal Problem Is Also an Over-Regulation Problem

Using the latest projections by the Congressional Budget Office, Dan Mitchell calculates that the federal government could close its budget deficit easily in ten years if it merely limited the growth in spending to the rate of inflation. [International Liberty, February 6]

OK, let’s do that. Of course, the revenue projections will turn out to be accurate only if the economic growth projections turn out to be accurate, which has not happened recently notes Salim Furth:

[Heritage Foundation, February 5]

In his recent article, “Why Such a Slow Recovery,” (The Insider, Winter 2013) Furth explains the economic problem:  

With new regulations and business requirements in health insurance, small-business finance, environment, energy, and tax compliance, not to mention the ever-expanding reach of state licensure boards, it is expensive to open a business. In a report published by the Weidenbaum Center at Washington University in St. Louis and the George Washington University Regulatory Studies Center, Melinda Warren and Susan Dudley have calculated how much money the federal government spends to develop and enforce regulations. They calculate that the federal budget for economic regulation increased to $9.2 billion in 2012 from $6.3 billion in 2007. In President Barack Obama’s first three years in office, 106 new major regulations were created (four times more than in President George W. Bush’s first three years), report The Heritage Foundation’s James Gattuso and Diane Katz. Those regulations cost earners $46 billion annually. The biggest new fixed costs come from the Dodd–Frank bill, ObamaCare, and the activist Environmental Protection Agency. In all three cases, enormous discretion is left to regulators to write and implement rules as they see fit. Under arbitrary enforcement, large firms with lobbyists and lawyers have a competitive advantage over unconnected newcomers.

High fixed costs and onerous regulation are textbook “barriers to entry.” Incumbent firms favor many of these barriers, because they keep competitors out of the market, which keeps profits high. In banking, the stringent regulations of the Dodd–Frank Act not only make it hard for small or start-up banks to survive, they discourage banks from lending to borrowers who do not have a strong track record. Less credit for unknown borrowers means fewer start-up jobs created.

Posted on 02/08/13 03:16 PM by Alex Adrianson

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