Tackling Regulatory Burdens: Policy Recommendations for the Next U.S. Administration

Shanker Singham: Thank you very much to the Mercatus Center for hosting this fireside chat. We're going to be having a fireside chat with Casey Mulligan, who is the professor of economics at the University of Chicago. I am Shanker Singham, the CEO of Competere, a company that provides trade, competition, and regulatory policy advice to governments and companies around the world. We're focused on promoting international trade and competitive markets around the world.

I'm joined by Alden Abbott, who's the senior fellow at the Mercatus Center at George Mason University, where he oversees research on competition law and policy. Alden and I are co-authors of Trade, Competition, and Domestic Regulatory Policy, published in 2023, which is a unique combination of analysis of both international trade, investment, regulatory and competition policies and the interaction between trade, competition, and domestic regulatory policy.

We're also members together, Alden and I, of the Growth Commission, which comprises a nonpartisan group of international economists who look at tax, trade and regulatory proposals and policies and how they affect GDP per capita for primarily the G7 countries. We have done projects on the UK budgets and the UK laws and policies with regard to the growth agenda. In November 13th of this year, following the US election, the Commission will present publicly a key element of a potential growth strategy for the incoming administration, whoever that ends up being.

With that, I will hand over to Alden to introduce Casey Mulligan, and then we'll have a few questions that he will have, and then I'll come in at the end with a few more questions of my own. Alden, over to you.

Alden Abbott: Thank you very much indeed, Shanker. We're delighted to have Casey Mulligan, as mentioned, a leading expert on applied microeconomics and regulatory reform. He's a graduate of Harvard College and holds a PhD from the University of Chicago in economics. He's testified before Congress on the costs of regulation and written widely on the topic. He also formerly served as chief economist for the President's Council of Economic Advisors.

Professor Mulligan has been assisting the Growth Commission in its assessment of regulatory burdens and how they might be lessened through executive action by a new administration. Our conversation today will center on that topic. Let's begin. Professor Mulligan, could you provide us some general background on how the burdens of federal regulation in the US have risen in recent decades, and what are the main drivers of regulatory cost increases?

Casey Mulligan: Yes. I'm not sure we could say a trend per se, there's been a fluctuation. President Obama famously said he had a bone in a pen and he would use it. He made an extraordinary number of regulations. President Trump removed a lot of regulations. Then President Biden has returned to regulate even more than President Obama did, measured by at least the cost of those regulations.

I think one thing that's important to understand about these two surges in regulation, very little of it, it's hard to put a percentage and say a third, a fourth, a fifth, would be considered environmental. Most of it is business regulation, narrowly defined, net neutrality, it's got nothing to do with the environment. We had regulations recently banning short-term health insurance. That's got nothing to do with clean air or water.

A lot of the costs come in the form of products being more expensive than they have to be. Internet service, health insurance, things like that. They typically regulate necessities, so that means that lower-income people especially bear the burden. By definition of a necessity, low-income people spend a bigger share of their income than middle and higher-income people would on those necessities.

Alden: Okay. That's a good overview of, I think, what you're saying is regulations really cut broadly, not just a few parts of the economy, but lots of sectors. Professor, what steps has the federal government-- before getting to that, let me ask you that. In a nutshell, how have regulatory cost increases affected American families? Is there an average measure, for example, of cost per family or cost per individual?

Casey: It's a challenge because there are thousands of regulations per administration. I've tried to do that by trying to identify the larger ones and putting a cost on those and assuming, best-case-scenario, the others don't have any cost. The Biden administration had created costs with its new regulations, $47,000 per household. That's a present value. Each of these regulations, like if they got their net neutrality, courts happen to overrule that, but net neutrality would raise internet prices not just this year but for many years in the future.

That's my attempt to put a number on that. President Obama was about, as I said, about half, $20,000 or so per household in cost, which is not a negligible amount, households don't have that laying around in spare change, but it's much smaller than Biden's.

Alden: Interesting. You're really putting number on this, and, there's a lot of interest about, as you already mentioned, income distribution, poor families particularly hit by this sort of thing. What steps has the federal government taken in recent years to deal with regulation and try to control its costs? Can you give us an idea of what's worked and what has not worked?

Casey: In many cases, they don't take any steps. There's been some noise in the Biden administration, supposedly they're cutting red tape. It's not true. Occasionally, you will have, and I saw this in Trump administration as well, an agency that says, "Oh, yes, we're going to cut red tape. What we're going to do is we're going to force families or companies to file their forms through a computer and not use paper. Therefore, we're saving you paperwork." Of course, you have to force them to do that, but in many cases, they prefer the paper. Very often, there's no cutting back on regulation.

Now we had the Supreme Court recently gave a decision related to major questions doctrine, which says, "Hey, agencies, whether it be federal communication in the case of net neutrality or HHS in the case of health insurance, you name it, EPA. You can't create these creative interpretations of the statutes passed by Congress to give yourself all this extra authority. That just happened in the last several months. I think we're anticipating that that's going to cut regulation a lot. We already know that net neutrality, for example, was struck down by the Supreme Court as a follow-up to that major questions decision that they came.

I think that's one part coming from the judicial branch. The executive branch, they police themselves. How well can that work? One thing that surprised me pleasantly in the Trump administration had a regulatory budget. They said to each agency, there's only so much cost you can create with your new regulations. If you want to create more than you better find some ways to cut costs from some of the older ones. I found that to be very effective and surprisingly effective, given it's a self-policing exercise, the executive branch policing the executive branch.

Alden: Okay, well, that's very interesting. I'm going to turn to Shanker. I think Shanker, you have some additional questions about what can be done to deal with regulatory problems and excesses and burdens. Shanker?

Shanker: Yes, sure. Thanks, Alden. Actually, what you just said, Professor Mulligan, about the regulatory budget approach is very interesting. Obviously, there's multiple ways to try to attack the problem. None of them are mutually exclusive. One of the things we'd like to sort of draw you out on is the approach to regulatory burden. There are lots of different ways you talk about a regulatory budget on the one hand that seems to have had some success. There's ideas about one in, two out, for example, that thing, looking at the sheer size of the federal rulebook, almost a sort of cutting pages exercise.

Or there is the approach of looking at this from the perspective of the anti-competitive effect. This is something that Alden and I spend a lot of our time on, the anti-competitive effect of regulations and really prioritizing those regulations that damage competition in the marketplace and thus destroy consumer welfare and damage, as you mentioned, the poorest families often pay the highest prices for these sorts of things.

Do you differentiate between those? Do you do whatever, is your recommendation to sort of do whatever works or would you have an approach to that type of analysis that one might do for anti-competitive regulation in particular?

Caasey: As a principled matter, I admire your emphasis on the anti-competitive. Let's be honest, this is the point of many of these regulations. The politicians might not advertise that, but that's the point. I gave the example of some of the internet rules. There are some internet companies that want to stick it to other internet companies, and they happen to have people sitting in those agencies. The eliminating the short-term health insurance, some big insurance companies that sell other types of health insurance, they don't want to compete with that.

You're really going to the root cause. Now, whether the political system can handle such honesty, we'll see. I think that's something to be tried. You guys would know better than me whether it's been tried anywhere yet, but it's something to try. You mentioned the one in, two out. That's a kind of regulatory budget. Many countries do something like that, and they call it a regulatory budget. It's a counting rules budget. We have X number of rules last year, and this year we can have no more than X. If you want to add one, you got to take one out.

The Trump administration had that type of regulatory budget as part of what they were doing in Executive Order 13771. The other type of budget they had, I believe it's unusual internationally, is based on the costs themselves. It wasn't enough just to take two out for everyone in under the 13771. You also had to remove costs in dollars. That I found more effective internally in the government. It's tougher to communicate.

The combined approach, I think, worked well. The president definitely got a lot of mileage communicating to people the two in, one out. If that was by itself, there'd be funny business. We saw funny business. We would see agencies, when they would deregulate something, they'd say, "Well, let's make this two deregulations instead of one so we get the points." Because we had the cost side, they couldn't only get away with that. They had to also show that they were meaningfully reducing costs. We kept that part of the budget in dollars.

Shanker: Yes, it seems to me that the cost element is crucial, obviously, to avoid the gaming you talk about. There's certain things, you've gone to the heart of the political problem in terms of it. One thing is compliance costs and sort of generalized business compliance costs, which is easier, I think, to deal with.

The real damage, in our view, from the work that we've done comes from precisely the thing you talk about, which is some incumbent trying to take advantage using the federal regulatory rulebook to do that, to achieve an anti-competitive benefit that they don't have in the ordinary marketplace. Of course, that means it's incredibly politically difficult to go against what they are suggesting.

Do you think that making some of those, beyond the compliance costs and the business costs and so forth, but making some of those competitive harm costs more explicit? You talk about, the 47,000 or 46,000 per household for some of this stuff. These are numbers that get people's attention, I think. At the moment, we have a situation in the G7. The US is probably slightly more resilient than other G7 countries, particularly in Western Europe and even Japan. We have very slow, stalled economic growth in the G7 generally.

Therefore, there's a real premium, particularly GDP per capita. There's a real premium on trying to develop some growth. Do you think that costing these things more and getting that message out would help the government control this sort of spread of anti-competitive regulation? If so, what would your recommendations be in terms of how the administration should handle the regulatory review process, both in terms of the stock of existing regulation and obviously the flow of new regulation?

Casey: Yes, you raise an important point. I just want to repeat it for the folks because it's so important. The distinction between what you call the compliance costs, sometimes I call it a clerical cost, and really, it's a type of opportunity cost in reducing competition and having a well-functioning market that we're not experiencing because of the regulation. I'll give an example. It's known as the rebate rule, and this was a Trump administration rule, which I opposed when I was asked about that, but it ultimately became a rule.

That rule was a price control on business-to-business transactions in pharmaceuticals, prescription drugs. Guess who wanted it? The manufacturers wanted to limit the discounts that would be received by their customers. That's what the rebate rule was about. They were pushing for it hard. If you look at the rule in the Federal Register and see the cost that HHS assessed to that, they only assessed clerical costs.

Literally what they did is they say, okay, how many words is this rule? How long does it take an adult to read that many words? How important is that adult's time? They multiplied them together and they came up with something like $50 million in costs. Just the time it takes to read the rule. Never mind all the opportunities that were wiped out by the rule, which is what you're emphasizing when you talk about the appetite-competitive effect.

When we worked on that at the Council of Economic Advisers, we found that rule was costing something like $100 billion, not $50 million. This is an important distinction. Then you pointed out that, well, if we try to track the aggregate costs, could that help? I think it helps in a couple of ways. Certainly, you have in mind getting the public engaged. You can't engage them one rule at a time because, as we said, there are thousands. The aggregate analysis, I think, can be helpful in that.

The other thing that helps politically, and I saw this in action, is really the package deal. We see this in tax cuts, too. We have these parts of the tax code, and everybody's got their favorite deduction and they don't want that taken out. We do these reforms every 10 or 20 years. Often we come out and say, look, I'll give up my deduction if you make all the other guys give up their deduction, and then we can have a cleaner tax code. I think that can work in regulation. I think that's why you've seen waves of deregulation.

One great wave was in the '70s. President Carter has his signature on those. Very impressive. deregulating railroad rates, airline rates, various aspects of energy, price control. That was impressive. I think it came as a package. That was important. Then also in the Trump administration, the regulatory budget was creating a lot of deregulation all at once. I saw companies come in. Every rule, the company's entitled to come in and say, please hear me out, keep my rule.

We would hear them say, "Look, we want you to keep this rule, but we really like all the other rules you're getting rid of." That really helps our business overall. They understood the package deal. Really, the exception that proves that rule is the only time I heard companies not express it that way was the auto companies. They had regulations favoring them. They were so massive to their bottom line that there's no extent of other regulations that could compensate them for that. I think focusing on a portfolio of deregulation can be a political tool, not just a communications tool, targeting those people who aren't engaging in these things. They're both important.

Shanker: That's really interesting. In terms of the companies that came to you either asking for a particular regulation or trying to hold on to what they had. One of the challenges I think that we face in the political economy considerations is trying to get those same companies to think of themselves to move from a producer welfare orientation to a consumer welfare orientation.

You mentioned the car companies. Obviously, they are profoundly affected by the input costs that they face, and there's a whole slew of regulations that raise the cost of some of their inputs and other things, trade policies, and so forth, that raise the cost of their inputs. I think in 2001 or 2002, around the time of the steel safeguards action, was probably the first time we saw the car industry come together and say, "Hang on a second, the rising cost of steel is a real problem for us," and actually work to lower those barriers.

What's your assessment of companies that came to you? Is it entirely a producer orientation focus or is there any thinking of how do we lower our input costs? We are adversely affected by this whole set of regulations in the supply chain that we need to deal with. I ask this question because we're in a world now going forward where some of these supply chain costs.

First of all, we're going to have to learn what is going on in the supply chain a lot better than we did before. Secondly, some of those costs through particularly European regulations in the European pipeline. I'm thinking about things like deforestation and the AI regulation in Europe, regulation related to DEI, and so on. There's a lot of that coming in the supply chain. Do you think companies are looking at their costs and saying, "Look, this is unsustainable? We're going to have to do something about this." Is their approach, it's unsustainable, let's get everyone on the same unsustainable playing field.

Casey: Well, you always have the problem that the consumer is a rather diffuse group. That's also true among businesses. The car company is buying some steel, no doubt, but they're only selling cars. On the producer's side, you tend to have this concentrated interest and that's a challenge. That said, we did have the companies. They didn't come to me personally, by the way. In our system, they have a right to speak with the executive branch and we have, they're called 12866 meetings based off the executive order that created this system.

I would attend the meetings and listen to what the companies had to say. You had companies, so with the rebate rule that I mentioned we had the manufacturers wanting the price control, and the consumers, and these were business consumers, mainly health insurance companies and also employers saying, "We don't want that price control." That was the case, it's the exception that proves the rule that I talk about. Prescriptions are a very big percentage of the cost for health insurance companies.

Some of these health insurance companies only sell prescription insurance. It's like everything in their cost. They had an incentive to lobby, to show up, and put pressure where they could.

Shanker: Well, you mentioned 12866 and obviously that's the executive order that kicked of cost-benefit analysis There had been a series, an you saw it with the Carter deregulations and you mentioned the airline aviation deregulation and railroad deregulation and you look at the history of this and 12866 and on, we've been seeing a cost-benefit starting to take root in the '80s and more and more cost benefit-focused primarily initially on business compliance cost and those kinds of things but gradually growing and increasing in scope.

We still have situations I think in the US where certain agencies' activities it's illegal to do a cost-benefit analysis OSHA regulation and so on. What scope do you see for improvements there in terms of wider application of this general principle? Secondly--

Casey: I'm sorry.

Shanker: No, no, go on. You answer that and I'll come back on.

Casey: The scope is tremendous for improving the cost-benefit analysis because the environmental rules will consider opportunity costs, although in the recent administration, even they haven't. I believe they're worried about lawsuits and the environmental agencies are worried so they do cost-benefit analysis that includes opportunity and anti-competitive costs and things. Otherwise, they're not doing that.

Net neutrality didn't have cost-benefit analysis. The rebate rule had a cost-benefit analysis, but it's purely along this ridiculous paperwork obsession. There's also a reason for that, an incentive reason. There's a paperwork work reduction act where Congress has given them a strong incentive to do that type of analysis.

I was pushing particularly HHS to be doing a broader cost-benefit analysis. They'd say, "We don't have enough time." I said, "Fine, I'll do it for you." I did 21 of them including around the rebate rule. Ultimately, is the executive branch policing the executive branch. Congress really needs to get in the game with something like a CBO for regulations or maybe CBO could have another branch that does regulations and not just costing out budget items. That would be I think something to try in our system.

Shanker: It's interesting in terms of the cost-benefit analysis, you look around the world or other places that do it, that have a history of doing more of it. Like in the UK, for example, there's been quite a lot of supposed cost-benefit analysis of regulation. What you often find is that if it's done at all, it's sometimes not after the event. It's not even connected to the regulatory process.

I think your idea of the CBO for regulation is a really interesting one to provide a discipline on the process and link it more into the regulatory structure.

Now, one of the things that Alden and I proposed in the book is expanding the scope of cost-benefit analysis for new regulations to evaluate the impact of that regulatory system or that regulation on three things, on competition, on trade effects, how open does your trade environment, and there's some history there. Also on impact on property rights, because the models that we're using to calculate the impact of regulatory distortions, what we call anti-competitive market distortions on the economy in terms of correlating it with GDP per capita, those models are focused on those three pillars we find.

It goes to your point about $50 million versus $100 billion. We find if you do it that way, you actually pick up these dynamic effects and you pick up bigger effects that flow through the whole system. Is there any possibility in the future of cost-benefit analysis extending to cover these kinds of things so that some of those bigger effects that you talk about can actually be picked up internally within the system?

Casey: I'm bristling a little bit at your phrase extending. This is already in--

Shanker: It's already there. [laughs]

Casey: Our federal government has already said that they're supposed to do that. Circular A-4 says you need to have opportunity costs, need to consider that one regulation is piling on top of another or piling on top of taxes. I pushed again. I said, "Look, your own guidance says you're supposed to do it. Just do it." They were very modest. The bureaucrats are used to their way of doing things. They put out a Federal Register proposal on how to have a very simple accounting for the fact that regulations pile on top of other regulations and on top of taxes. Then the president changed from Trump to Biden, and that never got any legs.

There's a very simple methodology, not perfect because it's simple, but it's a lot better than the alternative, which is to treat all those costs as zero, which, as you said, they're so much farther from zero than the cost that they do look at that it's almost laughable. It needs to be done. If that's what extending means, yes, it needs to be done. It doesn't require any new guidance. It requires a new discipline to follow their own rules.

Shanker: Right. How you actually calculate these things and how you pick up the dynamic effects that they don't tend to the model?

Casey: I don't know what I would quibble because, again, they have methodologies for doing that they ignore. Their methodology is multiplied by zero. That's not the methodology that's in the guidance. The guidance says to do something other than anyway, here's a simple way you can do it. Also, in a number of areas, you have opportunity costs are there in the market.

For example, with the regulation of automobile emissions, there are trading of emissions among companies. We know very precisely what is it going to cost if we raise that emission standard because they can go out in the market and say, well, companies can already change their emission standards by going into the market. We know what it would cost if the government said, "Look, all your companies have to change your standards."

Shanker: To do that.

Casey: There's tons of opportunity to do this without a lot of fancy calculations.

Shanker: You mentioned an idea of a sort of CBO office to sort of focus on this. How do you think officials can be involved in these processes, can be made to do what they're supposed to be doing? You were on the inside, you saw them in operation. What do you think it would take to make this happen?

Casey: I'm optimistic and I used my model of the budget, the ordinary budget on taxes and spending. You have the OMB in the executive branch preparing a budget. Then the Congress prepares another one, CBO, doing a lot of that. CBO knows that OMB is going to do it. That keeps them honest and vice versa. OMB knows that CBO. That competitive process, I think, could go a long way. A competitive process within the government.

I would think now EPA or FCC could not be so ridiculous or HHS cannot be so ridiculous about the cost of its regulations if it knows that CBO is going to go out there and give its own story. Hopefully, they'll be disciplined to say, "I better not ignore this factor because CBO is going to bring it on and shine a light on it."

Shanker: Yes. I'm struck by some of the similar conversations we're having actually over on the other side of the pond in terms of the role of the Office of Budgetary Responsibility and some of those entities that are supposed to look at these things. Competition is good in all things, including in government review of regulations, no doubt.

Final question from me. One of the things that we found very interesting was, and it's, I think, the first machine learning study that was done by Singla of Goethe University looked at the impact of federal regulation on market power increase. It goes back to our conversation about incumbents using federal regulation to improve their market position and found that I think 31% to 37% of market power increases could be explained by federal regulation, which I think is counterintuitive to most people. Does that number, that 31% to 37%, ring true with you? Is that a ballpark? 

Are we talking about the right sort of number there on how?

Casey: That 37% as I understand it, the numerator has a regulation-induced increase in market power and the denominator has some total increase in market power from all factors. I know the denominator is under a lot of dispute, so I don't know exactly how they did it, but I agree that it's going to be significant because I've just seen it's so normal for regulations to be there to discourage competition. Even a lot of these environmental regulations, they're sold as environmental, but then you can see more clearly, no, there's special interests who are going to profit in a very narrow sense from the regulation.

We've seen this around, electric cars, the hybrid cars don't count. Even though they help a lot with evading a certain type of pollution, they don't count. Then they're putting tariffs on electric cars. It's clear this is about the electric car makers, not about what is advertising. We could go case after case after case, and so maybe the 37% is a low number.

Shanker: Possibly. Possibly.

Casey: Now, maybe it's, when you do a study and, my conclusion is there's a lot of anti-competitive part of regulation, then you might be conservative and say, look, I'm going to try to undercount the amount, and I'm still coming up with a big number. Maybe that's their rhetorical approach. Then 37% is a good way to communicate what they're doing.

Shanker: Yes, I think what's interesting, and you mentioned the sort of tariffs on EVs, and there is a connection here with trade policy as well, obviously. Increasingly, trade policy is starting to get interested in conditions of domestic regulation and conditions of domestic competition, because when tariffs come down, those become the things that make bigger differences.

Many commentators essentially have said, these domestic market condition changes based on regulatory changes don't actually move the needle that much. It's still the border measure, the trade barrier that's the big, the thing that really moves the needle. This is sort of nice to have icing on the cake, and there really isn't that much of a difference between what you might call a pro-competitive regulatory environment and an anti-competitive regulatory environment.

What would your response to that sort of way of thinking, which tends to come out of the trade world, and I suppose everyone is cursed by if your tool is a hammer, everything is a nail. They may focus naturally on their area. My contention throughout the last 25 years and working with Alden on competition has been that actually these domestic regulatory effects are far, far bigger in terms of their effect on the economy than even border trade barriers might be. What's your sense of how that plays out?

Casey: Really domestic regulations, as you're calling them, they're restriction on trade between people living in the same country. Mutual citizens are restricted in their trade. We know just from, you don't want to call it the gravity result or just common sense, you tend to trade with the people that are close to you. There's a massive amount of trade within the country compared to across borders.

Not that there's none across borders because that's significant in some sense certainly in a historical realm, but still the vast majority of what we Americans buy is from other Americans. These regulations are interfering with all that, whereas the tariff is going to primarily interfere with those other trades, internationally.

That varies by the size of the place that we're talking about. In a small country, the propensity for any given trade to be with a foreigner could be much higher. They both have protectionism elements. There's companies wanting to restrict trade within the country to raise their bottom line, and they want to restrict imports to raise their bottom line. There's no doubt that both are of the same flavor but to dismiss that, and I'm a little surprised in my, surprised is the wrong word, maybe disappointed in my profession, great uproar about interfering with trade across borders, international borders. Then interfering with trade within the country with a minimum wage law or something, they're not only might they not be phased, they might support it.

Shanker: Yes, there seems to be a disconnect between those two things.

Casey: There seems to be a disconnect.

Shanker: I think ultimately it comes down to, what are we trying to maximize here? Are we trying to maximize voluntary exchange however it occurs, within, inside a country, or between countries? That's sort of irrelevant really. That's one of the reasons we call our two pillars international competition and domestic competition, because it's really all about competition.

Voluntary exchange without distortion is what we should be going for. There's a very big domestic regulatory component to that. I would argue bigger sometimes than the trade component is now as tariffs have come down. I think there does seem to be a difficulty in bringing these two worlds together, because those of us who've tried to do it over the last 30 years, it's not been a very happy experience.

I think what you said there is absolutely right and rather sad in a way that the same people who worry about a distortion that affects international competition do not react at all to the same distortion effect if it's purely domestic. I think that, well, we continue to hope that will change. Those are the questions that I wanted to raise, Alden. I think this has been a great discussion. I'm going to hand back to--

Casey: Let me add there, part of the reason for the inconsistency, I think, is something we talked about earlier in this chat, which is the sheer number. Something like tariffs at least seem easy to summarize. It can have some weighted average tariff rate, which has been extensively analyzed. You can look, it's come down over the years, et cetera.

The regulations are tougher. As we said, there are thousands of new ones. They're changing much more frequently than tariff policy or tax policy. We tend to analyze what we can measure. That's why the type of work that you guys do, I think, is so important that you're helping people measure. When you help them measure, then they'll analyze it. The analysis has a downward-sloping demand curve, too. If you make the analysis cheaper, you'll see more analysis of the regulation area.

Shanker: Yes, it's interesting, actually. Of all the models that we've used, econometric models and even an agency-based model and so forth, the OECD, when they looked at this, the Australians, when they looked, everyone's coming to the same sort of broad number, which is that domestic regulatory barriers to trade, domestic trade, tend to be three to four times the order of magnitude of the effect of the same type of distortion placed at the border typically for G7 developed countries.

That number may be considerably bigger for developing countries or if you look at a country like China with lots of distortions internally and state-owned enterprises and all of these things, that these numbers may be much, much bigger. We will continue to work on that, the quantum of distortion, and to try to show the cost of this because I don't think-- it's certainly not well understood in the trade world. It's probably not really very well understood in the political world either.

It's been great to talk and I'm going to hand back to Alden to close us up here, unless you have anything additional you want to throw into the mix.

Alden: Right. Go ahead.

Casey: Go ahead.

Alden: This discussion I think is fascinating about the costs of regulation. One thing I also sense is some of the biggest costs are by slowing innovation. There's a famous studies for decades, Federal Communications Commission Regulation, state regulation, protected the AT&T monopoly in telephony, local and long distance. It prevented decades of cellular technology from developing in competition and improved technologies that would lower the cost.

I think after the fact, a number of economists suggest over decades, it was trillions of dollars in terms of lost welfare for consumers. That's a huge amount, but it was all sorts of hidden. For decades, you just had the people would go to the monopoly and it was sort of people did not realize it's like the seen in the unseen, the scope of the lost benefits they were getting because innovation was very slow and prices certainly were higher than they needed to be. Do you have any thoughts about that, Professor?

Casey: That would be from the research front. There needs to be more work on that. That tends to be ignored. I will confess myself, ignored in the sense that, I don't always have a tool for dealing with that, so it gets left out or maybe mentioned as a qualitative factor. I think it's important in the areas when we have been able to quantify it, it's a big deal.

Pharmaceutical research would be one. Going back to Peltzman and even before, we have new cures that don't come about, come to market because the regulatory barriers are too high. We know this to be the case. That's an area where measurement is not easy, but we have some leverage on the measurement. Just imagine all the types of innovation that's much tougher to measure. It doesn't mean it's not being stifled, just that we're not so easy to recognize and quantify it.

Alden: Right. That's important. The basic research agenda and, I think just to sum up what you've been saying and your estimates, Professor, and some of the things Shanker was saying is that these costs of domestic regulation can be seen as a tax. Just as inflation is a tax, it's a tax that often is borne by lower and middle-income Americans by particularly hard hit by that. They may not be able to evade it as easily as very wealthy people. You've got that big tax. I just mentioned it because I think both candidates for president have said they're interested in helping lower and middle-class Americans have a lower tax burden.

To me, then, if you can point out perhaps and correct me if I'm wrong, but I just see the scope of regulation is really a tax on average Americans. If you look at it that way, it perhaps strengthens the case about why regulatory reform is needed.

Casey: Yes, I think an easy way to make the case without having to get into a lot of numbers, just look at what gets the big regulations. It's necessities. Internet is a necessity in the sense that somebody who's 100 times richer doesn't have 100 times more internet. They may just have five times more internet. Automobiles would be or transportation for sure. A large range of automobiles would be a necessity. Prescription drugs necessity.

You have the government butting into all these markets for necessities. It's going to be hard to escape the conclusion that from an incidence perspective, a fairness perspective, if you want, it's going to look a lot like a gas tax, gas is another necessity, gasoline. That's what I found in my quantitative work that tries to take it more carefully. It looks very much like a gas tax, which is very regressive.

The lowest quintile divide people into five income groups. The lowest quintile bears regulatory costs at five times the rate adjusted for their income than the top quintile. I said five times, seven times. There's five categories and it's a seven-to-one cost ratio. If it's 1% cost for the highest quintile, it's a 7% cost for the lowest quintile. Then the gas tax lines up very closely with that.

Alden: Very interesting. This gives us a lot to think about. I want to thank you, Shanker. Thank you, Professor Mulligan, both of you for your words of wisdom on regulation and why it is important for the average American, our viewers, not just a bunch of academics, but why people should be concerned about this. Now, Professor, you provided our listeners with valuable insights on the nature and huge economic burden of the US regulatory system and highlighted a pathway, perhaps, to badly needed regulatory reform.

I think we've also highlighted, you mentioned, Carter, this is not a partisan issue. It's an issue about concern for the American people, including the lower and middle income Americans in particular. Let's hope that the next administration heeds your advice and takes prompt action to try and reduce these cost burdens. On behalf of Shanker Singham, and myself, thank you, you in the audience, for listening. I hope you found this enlightening. Goodbye.