Possibly $15,000 per household, a new study finds. Senator Elizabeth Warren (D., Mass.) expressed a common belief when she said that, while regulations impose costs, they are also about making sure that someone does not get to beat out the competition because they are dumping filth in the river or spewing poisons in the air. A new study finds that preventing competition is indeed a primary result of federal regulations, but few of them pursue environmental goals.
Lafayette University professor Mark W. Crain has been quantifying regulatory costs for a quarter century, first coauthoring with Thomas D. Hopkins and more recently with Nicole V. Crain. Their latest study, for calendar year 2022, is in fact three studies: a survey of manufacturers, a set of international comparisons, and a compilation of reports from the Office of Management and Budget (OMB).
The survey of manufacturers asks what they are spending on regulatory compliance. It defines regulatory compliance to include employee time fulfilling requirements, hiring outside advisers, purchasing and maintaining items required by regulation, and acquiring emissions credits or offsets. Environment and energy is just one of ten categories of regulations that respondents cite. Employment regulations are another of the ten, and just as significant, with almost half of respondents reporting that labor rules are in the top two in terms of compliance costs.
The survey also indicates how even environmental regulations may undermine competition in manufacturing because the regulatory costs fall disproportionately on small businesses (the EPA has debated the disproportionality result). On a per-employee basis, manufacturers with fewer than 50 employees spend $40,700 per year complying with environmental regulations, compared to only $12,500 for manufacturers employing 100 or more. It is especially notable that large manufacturers spend less per employee on compliance even though regulators might find it easier to achieve regulatory goals by scrutinizing the large businesses more closely. Even environmental regulations are providing large businesses a degree of protection from competition by smaller ones.
Nonmanufacturing enterprises are almost 90 percent of GDP. The Crains turn to international comparisons to assess their regulatory costs. They begin by dispelling the progressive myth that Scandinavian countries thrive from the guiding hand of big government. Three of the five OECD countries with the least burden from economic regulation are Finland, Denmark, and Iceland. Other studies have also found Scandinavia to be relatively lightly regulated, especially regarding product markets.
Ranking 16th, the U.S. is not among the low-regulatory-cost countries. The Crains' analysis of GDP data from 2000 to 2022 suggests that if regulatory costs in the U.S. were reduced to match the average of the five least-burdened countries, U.S. GDP would increase by approximately 8 percent. Eight percent of GDP is about $2 trillion per year or $15,000 per household per year.
Because their regression holds constant various measures of employment, likely the $2 trillion of added GDP would come from higher productivity rather than working more. In other words, economic regulation is significantly holding back wages and living standards. The Crains do not assess whether commensurate benefits come from the economic regulations, which include price controls, barriers to forming new businesses, and product prohibitions that are unrelated to environmental objectives.
By compiling estimates from different U.S. agencies as reported by OMB, the Crains conclude the total cost of environmental regulation in 2022 amounted to $588 billion. Regulatory agencies are notorious for underestimating regulatory costs, although I have found that the estimates are more accurate for environmental rules. Furthermore, the $588 billion in environmental-rule costs includes all such regulations, whereas the $2 trillion reflects only those costs absent from the five comparison countries. Therefore, at least 80 percent of the regulatory burden has nothing to do with protecting the environment.
I found similar results using different methods. Of the $90 billion added to annual regulatory costs by the Biden administration's rules finalized in 2021 and 2022, less than one-third are associated with environmental rules. New rules such as vaccine mandates, employment requirements, and those related to student loans account for the remaining two-thirds.
Each regulation may cost the average household less than $1 per year. However, the cumulative effect of tens of thousands of regulations involves significantly decreased wages and productivity and even reduced life expectancy, as regulatory barriers prevent households and businesses from realizing their potential.
If regulatory costs in the U.S. were reduced to match the average of the five least-burdened countries, U.S. GDP would increase by approximately 8 percent.
Casey Mulligan is a professor of economics at the University of Chicago and a senior fellow at the Committee to Unleash Prosperity. He served as the chief economist at the White House Council of Economic Advisers, 2018–19.