Study # 1—Federal Regulation and Aggregate Economic Growth
Two economists (John Dawson of Appalachian State University and John Seater of North Carolina State) recently released a new study in the Journal of Economic Growth. According to that study, the growth of federal regulations since A.D. 1949 has cut U.S. economic growth by an average of 2 percentage points per year. These annual losses are cumulative.
According to the study’s authors,
“Macroeconomists typically divide government economic activity into four broad classes: spending, taxation, deficits, and monetary policy. There is, however, a fifth class of activity that may well have important effects on economic activity but that nevertheless has received little attention in the macroeconomic literature: regulation.
“Regulation’s overall effect on output’s growth rate is negative and substantial. Federal regulations added over the past fifty years have reduced real output growth by about two percentage points on average over the period 1949-2005. That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011. That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level.”
As a result, the average American household receives about $277,000 less annually than it would have gotten in the absence of six decades of accumulated regulations. Without those regulations, today’s median household income would be $330,000 instead of the current $53,000.
Hard to believe isn’t it?
If it weren’t for government’s unbridled impulse to regulate anything and meddle in everything, the average American family might be earning $330,000 a year.
Think about that. With less government regulation (more freedom), your family might be earning over a quarter million dollars more than it currently earns.
One-quarter million dollars.
How many problems do you have that you couldn’t solve all by yourself if you had an extra $250,000 income each year?
How much help would you need from government? How much assistance to you suppose would be required by people who are currently on welfare? How many subsidies would go to support the rich? Would any bank be “too big to fail” if every American family’s income rose by $250,000 per year?
I guarantee that if the average American family was earning another $250,000 per year, enough of that would “trickle down” to the unemployed to make life a lot better than it is living on welfare. And who would “fake” being unemployed in order to get $30,000 a year from gov-co if, by being employed, they stood to earn a quarter-million dollars each year?
Without the endless stream of government regulations, we’d all be so prosperous that almost none of us would be dependent on government. If very few of us were so impoverished as to be dependent on government, what power would government hold over the American people?
• Of course, we can doubt the accuracy of the numbers presented in this study. Is it truly possible that, with the same level of freedom as was enjoyed in A.D. 1949, you and I might be earning another $250,000 each year?
I can’t say.
I can say that I downloaded a copy of the study and it appears credible. I can say that this study is unlike previous studies in that it applies to over 60 years while the longest previous study applied to 20 years. By expanding the time frame, this study reportedly generated a more reliable result.
But even if the study’s results were miscalculated, I’ll bet that their numbers are at least half right. In other words, in the event that the study’s $330,000 median home income is mistaken, the real number would still be at least $165,000.
Again, how many problems would you have today—mortgage, car payments, health care, college for the kids, etc.—if your income were increased by, say, $100,000 per year?
Unless the authors have made a spectacular, career-ending mathematical mistake, we now have evidence that our national prosperity is being destroyed by our own government.
Except for “Big Brother,” you and I, our parents and our kids, might all be rich.
When Reason.com asked the authors about the cause of overregulation, one author replied: “. . . we didn’t set out to prove or disprove any particular theory.” The other added that their research does not address the question of “why society allows excessive regulation . . . . It’s an important [issue], but it’s one for the public choice people to study, not for macroeconomists like me and my co-author.”
Study #2 offers a surprising and unsettling explanation for why we allow—and even encourage—excessive governmental regulation.
Study #2–Regulation and Distrust
Reason.com recently published “No One Trusts the Government—Which is Bad News for Libertarians”. That article explored an extraordinary paradox: “When public contempt for the feds increases, so does the size and scope of government.”
I.e., the more we distrust and despise the government, the bigger it gets.
After listing some examples of why people generally distrust the government—and why that distrust is rational—the article continues:
“Pew Research concludes that “trust in federal government remains mired near a historic low and frustration with government remains high.” Just 26 percent of Americans trust the government most or all of the time, while 73 percent usually distrust it. . . . In a comprehensive survey of public attitudes done last September, Gallup found that just 19 percent of Americans think they “can trust the government in Washington to do what is right” “just about always” or “most of the time.” [81% generally distrust government.] The latest CNN/ORC poll, shows large majorities convinced that Obama is failing on the economy, the deficit, foreign policy, civil liberties, and just about everything else.”
We could therefore suppose that, since the vast majority of Americans distrust their government, we should see powerful, populist movements to reduce the size and power of government.
But Reason.com writes,
“What if distrust in government perversely drives demand for more government? That’s the implication of recent research, and it helps explain why the state keeps growing even as our faith in it shrinks.”
What a dopey conclusion! Surely, people aren’t so dumb (or perverse) that, in the midst of massive government corruption or mismanagement, people demand even more government.
But according to an A.D. 2010 paper “Regulation and Distrust” and published in The Quarterly Journal of Economics) that’s just what happens. The more incompetent, corrupt or even treasonous a government becomes, the more government the people demand.
Say it isn’t so!
It can’t be!
Yes, I know that people are often stupid and routinely do dumb things, but the idea that we’re somehow drawn by corrupt government to support even more government is so freakin’ stupid and suicidal that it’s hard to believe or even imagine.
Most people just can’t be that dumb, right?
In fact, according to the study’s authors’ abstract of their study, people can be that dumb:
“We document that, in a cross section of countries, government regulation is strongly negatively correlated with measures of trust. In a simple model explaining this correlation, distrust [for government] creates public demand for regulation [and] regulation in turn discourages formation of trust . . . . A key implication of the model is that individuals in low-trust countries want more government intervention even though they know the government is corrupt.”
God help us all.
Therefore, “Drawing on World Values Survey data from the past several decades for over 50 countries, the authors help explain what they call ‘one of the central puzzles in research on political beliefs: Why do people in countries with bad governments want more government intervention?’”
The authors observe that in countries where the majority of people routinely trust their government, the general level of governmental regulation is relatively low. However, in countries where distrust of government predominates, citizens “support more government regulation, fully recognizing that such regulation leads to corruption.”
Worse, increased regulation inspires more distrust, which in turn engenders more regulation.
OMG! Corrupt government isn’t simply an event or phenomenon—it’s an addiction almost identical to crack cocaine. The more you get, the more you want!
This addiction to corrupt government seems like less of an economic phenomenon than a biblical curse. Perhaps, as we become an increasingly immoral people who are unable or unwilling to govern ourselves, we become more susceptible to being governed by others—even though we know they are corrupt.
As distrust of government rose under G.W. Bush, government grew massively. Under Barack Obama, distrust of government has grown even faster—as has the size and power of government. Despite knowing that our government is destroying our nation (see Study #1, supra), most Americans support more government and thus, more national destruction.
The more we distrust government, the more it grows. The more it grows, the more we distrust it. Corrupt government feeds on our distrust. Fascism becomes increasingly attractive. We cheer the police state and hold parades to celebrate the openings of new concentration camps.
We begin to behave like lemmings.
• I’ve tried to warn people against government for most of 30 years. I’ve been pleased to see more and more people come to accept my warnings. But I’ve also been frustrated by the fact that, despite growing awareness of governmental corruption and treason, government grows faster and more importantly, the people seem helpless to stop or slow that growth. Until now, the contradiction between growing public awareness of government corruption and growing public support for more government seemed incomprehensible.
But, now, I begin to understand. Some perverse instinct, impulse or even curse compels nations that rationally distrust their government to nevertheless irrationally support even more government growth.
So, here in my “Tale of Two Studies” we see evidence of “What Fools These Mortals Be”. In Study #1, we have evidence to prove that the government is our enemy rather than our benefactor; that increased government regulation is driving us into poverty. And yet, in Study #2, we see evidence that most of us are somehow inclined, compelled, or even cursed to support that government which we know to be the most corrupt, oppressive or even treasonous—and thus, support our arch-enemy and our own national self-destruction.
The authors of Study #2 hope that the people will one day resist over-regulation—but they offer no reason to suppose that will happen. The logic of people’s perverse impulse to support and expand corrupt government implies that once the spiral of self-destruction begins, government will grow increasingly oppressive until (like the former Soviet Union) the nation finally disintegrates into anarchy and violence.
I no way out of this spiral other than a revival of American faith and morality—and I don’t imagine such revival taking place until after a collapse.
I don’t know if the implications of this article scare you, reader—but I guarantee they scare me. For the first time, I begin to believe that there may be no hope of avoiding a national catastrophe. For the first time, I see collapse as not merely possible, but inevitable.
I’ve concluded a number of my previous articles about our economic prospects with advice that you “Buckle up”.
This time, I really mean it.