Red tape chokes economic freedom

Red tape – rules, regulations, restrictions and mandates imposed on America – rose alarmingly in 2009, mirroring the overall decline in economic freedom in the United States, as reported in this year’s Index of Economic Freedom.
That’s the conclusion of an upcoming Heritage Foundation report detailing trends in federal regulation. In fact, the cost of new regulations imposed on Americans during fiscal 2009 was the highest in 17 years, weighing in at over $14 billion per year.

Perhaps surprisingly, most of these new regulations were adopted by the Bush Administration. In part, that is due to the normal ebb and flow of rulemaking: the last year of every presidential administration is always a busy one. Still, conventional wisdom to the contrary, the Bush years were hardly a time of deregulation. By every measure, regulation increased, rather than decreased, during President Bush’s eight years in office.

President Obama, however, has been no slacker in the business of regulation, imposing some $5 billion in new costs in his first year, despite the fact the he didn’t even have most regulatory officials in place yet. New rules ranged from the costly – such as increased automobile efficiency standards which will cost billions to implement – to the petty, including increased scrutiny of breakfast cereals and yard sales.

And much more regulation is on the way. In January, the EPA issued a formal finding that CO2 “endangers” public health by causing global warming, allowing the agency to regulate it. Specific rules will soon follow, with enormously high costs.

The first such step is a proposal to again increase automobile fuel economy standards. More stringent limits would follow, which could affect schools, farms, restaurants, hospitals, apartment complexes, churches, and anything with a motor – from motor vehicles to lawnmowers, jet skis, and leaf blowers.

Similarly, new rules are being applied to the financial sector. The Federal Reserve, for instance, has outlined plans to regulate the pay of executives, loan officers, traders and other employees of financial institutions, establishing rules on how compensation systems are to be structured, and even requiring advance approval of specific plans. More broadly, the Obama Administration is seeking new rules for how all corporations determine pay, including a federal requirement that corporations allow shareholder votes on the pay of executives.

Meanwhile, the Federal Communications Commission has proposed regulating the Internet and limiting how companies such as Comcast and Verizon operate their Internet networks. These “net neutrality” rules, by limiting how Internet traffic can be managed, threaten to slow Internet access, as well as reduce investment and innovation.

This rising tide of regulation makes it more important than ever that policymakers adopt reforms, including strengthening of regulatory review procedures, creation of an independent congressional regulatory review capability, and adoption of regulatory “sunset” procedures.

But such reforms will not be enough to stem the regulatory tide. Burdens will rise as long as policymakers are willing to keep the floodgates open. Americans will find it harder to keep their heads above water, and America’s economic freedom will continue to diminish until policymakers exercise the will and resolve necessary to guard against the deluge.