Regulatory state harms consumers

With the holiday season approaching, the impacts of inflation could alter consumer habits. The National Retail Federation announced that it expects spending to increase between 6 and 8 percent, which won’t account for the increase in inflation. While inflation may be chipping away at consumers’ wallets, government regulation is another significant driver of high prices. The explosion of the U.S. regulatory state comes at the detriment of millions of Americans who must pay for these new rules and regulations in the form of higher taxes and fewer economic opportunities. 

This past month, the Competitive Enterprise Institute (CEI) published a report called Ten Thousand Commandments, which examines the size and scope of government regulation and attempts to estimate its financial impact on the economy. Government regulation acts as a hidden tax on consumers who have little recourse but to demand greater transparency from their elected officials, who frequently seem reluctant to provide it. 

The number of new rules and regulations created each year continues to grow. In 2021 alone, the Biden Administration added 3,257 new rules to the books, while enacting only 143 new laws. This figure has increased significantly from the four-decade low of 2,964 new rules added by the Trump Administration in 2019. These 3,257 new rules mean that the executive branch is issuing “23 rules for every law enacted by Congress.” In other words, the number of new rules that unelected officials at federal agencies create far outpaces the number of new laws that Congress — the branch of government constitutionally tasked with this responsibility — creates.

More disturbing, these new rules represent just a drop in the bucket compared to the total number of regulations that have been created since the first edition of this report in 1993. Since that time, federal agencies have issued 114,821 final rules (not including government guidance documents). Many of these rules fill the 185,000 pages of the Federal Register’s Code of Federal Regulations

According to CEI, the cost of federal regulation is $14,686 annually for every American household. This amount is greater than the per household cost of individual income taxes and rivals that of annual corporate pretax profits. American households could be spending this money on more important items like food, clothing, healthcare and transportation, among many other important services. 

Government regulation can also carry significant economic costs in less visible ways. For instance, using the limited data available from federal sources, CEI estimates that “regulatory compliance and the economic effects of federal intervention” cost the U.S. $1.927 trillion annually. According to the Commerce Department’s Bureau of Economic Analysis, this is an amount equal to 8 percent of the U.S. gross domestic product (GDP). 

The regulatory state drives up costs, exacerbating the impact of inflation. The American Consumer Institute released a report earlier this year, Recent Causes of Inflation and Adverse Consequences for Consumers, that found that current inflation would cause the average household to lose out on $4,400 in purchasing power through the end of 2022. 

On top of the government spending that is pushing inflation higher, the cost of energy production is also contributing to high prices. Energy prices are influenced by global factors beyond national control, but government regulations aren’t helping matters. The Biden Administration’s “whole-of-government” mandates that direct federal agencies to prioritize climate, equity and other progressive agenda items over agency responsibilities have only further entangled the issues of regulation and inflation. Insofar as the mandates prioritize renewable energy over traditional sources that fuel the bulk of consumer demand, these policies drive up the cost of energy. 

The causes of consumer-facing price increases are difficult to isolate, as various factors are intertwined. Unfortunately, the role of the regulatory state in driving up prices is often overlooked as inflation takes center stage. Lawmakers concerned with increasing consumers’ purchasing power need to look at reducing regulatory burdens on the economy, which will help reduce prices by decreasing compliance costs.  

FacebooktwitterredditlinkedinFacebooktwitterredditlinkedin