Warnings from the United States

May 13, 2015 2:43 PM

The Competitive Enterprise Institute’s excellent paper, the 'Ten Thousand Commandments' is an annual snapshot of the regulations within the US and it should serve as a reminder of the dangers of an overburdening state.

The total annual cost of US regulation is now estimated to be $1.9 trillion which, if it were a country, would make it the tenth largest economy in the world – just behind Russia and ahead of India. The cost of regulation has grown to exceed federal income tax receipts and, since 1993, over 90,000 rules have been issued.

Undoubtedly some regulations are of net benefit, but as 'Ten Thousand Commandments' argues, far too often the effects of regulation are simply unknown.

Who suffers from bad regulation? The consumer, the employee and the shareholder.

Like taxes, regulatory costs are reflected in lower wages, lower dividends or a larger mark-up on the company’s products. This does massive (largely unnoticed) damage, and leads to lower levels of economic growth and to lower levels of prosperity. Politicians need to recognise the unintended effects of their actions.

The practical upshot of regulation is to leave the average American $15,000 worse off – 23 per cent of average pre-tax wages.

Indeed for typical Americans “more is ‘spent’ on embedded or hidden regulation than on health care, food, transportation, entertainment, apparel and services and savings”. This reflects a long-held TPA view that, with high taxes and excess regulation, there is a cost of government crisis.

It is well known that if you look after the pennies the pounds look after themselves, but where regulation is concerned, this is too often forgotten. Interest groups or individuals who argue that their new pet regulation would only cost a tiny amount should remember this. For businesses and wealth creators, overbearing rules can be a death by a thousand cuts.

Who benefits from deregulation? Not necessarily the large corporations, who can afford to hire staff to manage regulatory tasks, but small businesses who cannot. The most grateful recipients of deregulation would be small firms who account for 99.3 per cent of all UK businesses. Indeed lower costs for them and their customers would allow small firms to be more competitive with large corporations.

As Rory Meakin argued yesterday, the government has a mandate to cut taxes and reduce spending. I would add that a government truly on the side of customers and small business would heed the warnings in 'Ten Thousand Commandments' and deregulate as well to leave us freer and wealthier.

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