New Research on Regulation and the Effects of Debt on US Economic Growth

Research Round-Up: April 15, 2019

Designing a Regulatory System for Future Generations

James Broughel | State Testimony

From the testimony: "Regulation affects nearly every aspect of modern human life. Toothbrushes are treated as medical devices and are regulated by the FDA. The amount of water toilets use when they flush is regulated by the Department of Energy. The EPA regulates shower heads. And the Consumer Product Safety Commission even regulates matchbooks. States impose countless additional restrictions on top of these federal mandates.

While many of these rules have benefits associated with them, the accumulation of regulations also slows economic growth. It would be one thing if the burdens of reduced growth fell primarily on current citizens—they would bear the consequences for any mistakes made by the leaders they elected. But in fact, the burdens of the current generation’s mistakes fall primarily on others—people in the future—when regulations slow economic growth.

Regulatory cleanup is therefore more than a matter of simple good housekeeping. Managing regulatory burdens is necessary if the current generation is to be a good steward of civilization and leave behind the best possible world for future generations.”

A Snapshot of Alabama Regulation in 2019

James Broughel | State Snapshot

From the snapshot: "It would take an ordinary person more than two and a half years to read the entire US Code of Federal Regulations (CFR), which contained nearly 104 million words in 2017. The sheer size of the CFR poses a problem not just for the individuals and businesses that want to stay in compliance with the law but also for anyone interested in understanding the consequences of this massive system of rules. States also have sizable regulatory codes, which add an additional layer to the large body of federal regulation. A prime example is the online version of the 2019 Alabama Administrative Code (AAC).”

New Evidence on Debt as an Obstacle to US Economic Growth

Thomas Grennes, Qingliang Fan, and Mehmet Caner | Working Paper

From the abstract: "The US government debt is now in uncharted waters. From the founding of the nation until 1968, government debt moved up and down without a trend, but over the past 50 years, debt relative to the size of the economy has increased continuously. The United States does not appear to have a coherent debt policy. It is not Greece, and there is no evidence of a likely default on US government bonds in the near future. However, there is evidence that Americans have already borne the costs of high debt levels, and without a reform of policy these costs will continue in the future. Using a new econometric technique for threshold autoregression and a debt measure that includes private debt as well as public debt, we estimate that in the period 1995 to 2014, US economic growth was more than 1 percentage point lower than it would have been at a debt level below the threshold. Other Organisation for Economic Co-operation and Development (OECD) countries also had lower growth rates as a result of high debt levels. Many countries have recently adopted some form of fiscal rule, including balanced budgets, intended to limit debt and raise growth rates. Fiscal rules involve a tradeoff between limiting debt and preserving flexibility to respond to economic shocks. In this paper we discuss problems related to designing optimal fiscal rules.”