Measuring Regulation
How many regulations are there? Which industries have to jump through the most regulatory hoops? Which government agencies are most likely to pass new rules?
The Mercatus Center at George Mason University recently rolled out RegData 2.0 to try to answer these questions, an improvement upon its ongoing efforts to uncover the reach of America’s regulatory state. The project, led by Patrick McLaughlin and Omar Al-Ubaydli, is taking a novel approach that gives researchers and the public a better view of the government’s actions.
In 1975, the Code of Federal Regulations had 71,224 pages. By 2013, the number of pages had grown to over 175,000. Combing through these endless pages is a tall order, and the opaque nature of government regulations makes parsing out the effects on various market participants even more difficult.
Measuring the growth of regulation is no easy task. Not all pages of regulation have equal effects. Sometimes regulations can drag on, but have relatively few restrictions or obligations. Some one-page regulation can be littered with restrictive phrases such as “must not” or obligations to take certain actions, signified by words such as “shall.” Although no one can measure the effects of regulations precisely, RegData solves this problem by measuring the number of restrictive terms instead of just concentrating on the number of pages of regulation. The terms can also be mapped to individual industries.
This data can be used in numerous ways. RegData disproves the notion that deregulation caused the 2007-2008 financial meltdown and ensuing credit crisis. The number of restriction on the finance and insurance industry increased 32 percent from 1998 to 2012 (the latest year of data available), including a 14 percent increase from 1998 to 2006. More regulation of the financial sector might not prevent another recession.
In addition to industry-specific breakdowns, RegData’s search results can be broken down by government agency. For example, restrictions on the finance and insurance industry by the Federal Trade Commission have grown 1,500 percent since 1998—far higher than any other agency’s increase.
The FTC ‘s reach into the finance and insurance industry, though growing, is small compared with other government agencies. Another feature of RegData tells us that the FCT has 149 terms related to the finance and insurance industry in its section of the Code of Federal Regulations. The Treasury Department has nearly 6,000 matches, and the Departments of Labor and Homeland Security each have over 1,000 matches. Experimenting with the RegData tools shows that businesses not only have thousands of restrictions to follow, but that these restrictions come from a multitude of diverse federal agencies.
Since the late 1990s, the starting point of RegData's tracking, the number of federal restrictions has steadily increased a rate of nearly 2 percent per year. This accumulation of commands has real effects on the economy—especially on small businesses. Large, established corporations are often able to afford the immense legal and accounting costs necessary to comply with Washington’s web of regulations. They can spend money lobbying policymakers so that the regulations they produce are tailored to fit their needs. A small business owner who just opened her first restaurant does not have the luxury of an expensive legal team nor the political pull to write her own rules.
Another reality of regulations is that the costs are eventually passed on to consumers. Taking just one example, the consequences of regulations that increase the cost of energy production will eventually show themselves in the form of higher electricity and utility bills for households.
Total restrictions on the oil and gas industry have increased 20 percent since 2006, driven by the Environmental Protection Agency, which has been leading the regulatory crusade against fossil fuels. In just two years, from 2010 to 2012, the EPA increased its oil and gas regulations by 45 percent. Though the recent increase is higher than the past, EPA has steadily tightened its stranglehold on the oil and gas industry since at least the late 1990s. Total EPA restrictions now number 136,000.
How can the EPA possible enforce all of its rules, and how do firms know that they are in compliance? Regulatory accumulation opens up the possibility that government agencies will use selective enforcement against individuals and businesses that fall out of political favor. In an open democracy, this possibility is unacceptable.
Unraveling Washington’s labyrinth of restrictions takes time and effort. Regulators are clearly against trimming back their growing powers, and regulations spawn interest groups that want to regulate their competitors out of business. RegData is an improvement on prior systems. As it continues to increase its capabilities, the public will be able to better measure the expanding problem.