ON-Lion Letter
The impact of regulation on economic growth has been widely studied, but most research has focused on a narrow set of regulations, industries, or both.  These studies typically rely on regulatory indices that measure subsets of all regulation, on country-to-country comparisons, on short time spans, or on surveys in which experts report the degree to which they believe their country or industry is regulated.  In order to better understand the cumulative cost of regulation, a comprehensive look at all regulations across many industries over a long period of time is imperative.

An April study from the Mercatus Center at George Mason University in Arlington, Va., uses an economic model that examines regulation's effect on firms; investment choices.  Using a 22-industry dataset that covers 1977 through 2012, the study finds that regulation -- by distorting the investment choices that lead to innovation -- has created a considerable drag on the economy, amounting to an average reduction in the annual growth rate of the U.S. gross domestic product (GDP) of 0.8%.

If regulation had been held constant at levels observed in 1980, the American economy would have been about 25% larger than it actually was as of 2012, according to the study.  This means that in 2012, the economy was $4 trillion smaller than it would have been in the absence of regulatory growth since 1980.  This amounts to a loss of approximately $13,000 per capita, a significant amount of money for most American workers.

The Lynde and Harry Bradley Foundation in Milwaukee supports the Mercatus Center.
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