This week, the House Committee on Government Oversight and Reform released a new Staff Report entitled Continuing Oversight of Regulatory Impediments to Job Creation:  Job Creators Still Buried by Red Tape. Among other significant data, the Staff Report found that:

• From 2010 to 2011, the number of final rules issued by federal agencies rose from 3,573 to 3,807—a 6.5 percent increase.  During that same time frame, the number of proposed rules increased 18.8 percent;
• The published regulatory burden for 2012 could exceed $105 billion, according to the American Action Forum, headed by a former director of the Congressional Budget Office;
• Analysis from the Heritage Foundation indicates that that Obama Administration issued 106 new rules in its first three years that collectively cost taxpayers more than $46 billion annually—four times the number of “major” regulations and five times the cost of rules issued in the prior administration’s first three years; and that
• In the past decade, the number of economically significant rules in the pipeline—those that could cost $100 million or more annually—has increased by more than 137 percent.

The thrust of the report was to comment on how the expanding regulatory state is curbing job growth.  With unemployment above 8% and showing few signs of improvement, the effect of the growth of government control of the economy on jobs is obviously an important issue.

The Staff Report makes a number of specific recommendations mostly aimed at updating and streamlining (and in some cases outright repeal) of the various laws Congress directs regulatory agencies to implement (e.g., the Communications Act, the Federal Power Act, the Clean Air Act, Dodd-Frank, the Patient Protection and Affordable Care Act, etc.).  However, given the wide range of political constituencies these laws have created, we shouldn’t get our hopes up for such reforms.

Barring substantive re-writes of major pieces of signature legislation, Congress could pass new process reform laws to rein in regulatory activity such as the Regulatory Flexibility Act and Paperwork Reduction Act.  However, as the statistics from the Staff Report above unfortunately show, these legislative efforts have not made a significant contribution towards curtailing regulatory activity.

Of course, we could always ask the regulatory agencies themselves to exercise some restraint.  Again, I wouldn’t get my hopes up.  Despite President Obama’s call for federal agencies to perform serious cost/benefit analyses and to remove regulations that have “outlived their usefulness”, regulatory agencies are themselves political entitles.  As a result, we should not expect regulators to undertake this task in both a competent and dispassionate matter.

Are there other potential solutions?  While it is possible for narrowly-tailored regulations to have significant societal benefits in appropriate circumstances, the political forces outlined above create a fertile environment for regulatory excess.  That said, as we noted in our 2011 paper Regulatory Expenditures, Economic Growth and Jobs: An Empirical Study, there is a simple yet hopeful solution available to Congress and the President to reduce the influence of regulation on employment and economic growth:  responsible across-the-board cuts to the operating budgets of federal regulatory agencies.

Indeed, in our paper, we showed using fifty years of data and advanced econometric techniques, that there is a demonstrable link between the size of the total regulatory bureaucracy and jobs and GDP.  Significantly, the data indicate that just a 5% across-the-board cut to all federal regulatory agency operating budgets would produce $75 billion in new GDP growth and create 1.2 million new private sector jobs EACH YEAR.  (For those interested in watching Phoenix Center Chief Economist Dr. George Ford present the paper, please visit our webpage here.)

We even break these findings down into a “cost per regulator.”  According to our study, each year, a Federal Regulatory Agency Employee:

• Cuts GDP by $6,200,000;
• Eliminates 98 Private‐Sector Jobs; and
• Destroys the Equivalent of the Economic Output of 134 Persons.

In terms of an employment multiplier, each million dollar increase in the overall federal regulatory budget costs the economy 420 private sector jobs each year.  Surely, both sides of the aisle could agree that that a mere 5% reduction is a step towards better and more efficient government?  Indeed, with joblessness claims on the rise and federal deficits soaring out of control, what are we waiting for?