Regulation University: The Consequences of Regulatory Accumulation

February 28, 2014

Patrick A. McLaughlinSenior Research Fellow

Mercatus Center at George Mason University

What is regulatory accumulation?

Why is it a problem?1. Blocks innovation and

entrepreneurship2. Diverts attention from new and

important risks3. Wastes scarce agency resources

Less innovation = less growth

Actual GDP Potential GDP0

10

20

30

40

50

60

$15.1 trillion

$53.9 trillion

What would GDP have been in 2011 if regulations had stayed at 1949 levels?

in t

rillio

ns

of

real d

ollars

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Actual and Alternative Growth Paths

Hypothetical Economy

Actual Economy

in b

illion

s of

dollars

Example: Design standards

Design standards on trains, automobiles – prevents innovation domestically and trade internationally

Example: Logan City, Utah

Why does it occur?1. Incentives of agencies2. Incentives of politicians3. Incentives of incumbent firms

Aren’t there already requirements for review?1. Exec. Order 128662. Presidential initiatives

Current process ineffective at review

No Independence = No Results

Can we solve this?

1. Independent review2. Focus on risk and outcomes3. Overcome groups with vested

interests in keeping nonfunctional rules

Independent review

1. BRAC2. Scientific peer-review

First test of functionality: Risk

Significant riskNonsignificant risk

Current risk Functional Nonfunctional

Noncurrent risk Nonfunctional Nonfunctional

Second test of functionality: Outcomes

Achieving outcome Not achieving

Necessary to maintain outcome Functional NonfunctionalNot necessary to maintain Nonfunctional Nonfunctional

Overcome groups with vested interests in keeping rules1. Agencies2. Incumbent businesses3. Special interest groups

Questions?