The Age of Regulation Started Ten Years Ago

By a simple measure, the Age of Regulation began 10 years ago.  As part of my paper on countercyclical regulatory policy, I looked at an interesting measure of regulatory burden: The number of employees in federal regulatory agencies as a share of  the number of employees in the private sector.  Think of this as the regulatory dependency ratio–the number of regulators per private sector worker.*

You can see in the graph below that this regulatory burden indicator stayed within a fairly narrow range between the mid-1960s and 2000. In particular, it fell through most of the Clinton years.

But in the aftermath of 9/11, all of a sudden there was a surge in federal regulatory employment to historic levels, relative to the size of the private sector.  Most  of that jump was from an increase in security-related regulation–Homeland Security, TSA, and similar.  As anyone who flies knows,  the increase in security has done exactly what regulation usually does–slows down business and increases costs in exchange for some non-economic goal. In this case, the non-economic goal was straightforward and successful–stopping another terrorist attack on American soil.

My guess is that most Americans still think that the increase in security-related regulation was worthwhile.  Hell, I like knowing that there’s not a bomb on my plane.

But I think that we have to acknowledge the possibility that the  weakness in U.S. economy over the past decade, and especially the innovation shortfall, was related to the growth in regulatory burden. And it maybe that under these circumstances, countercyclical regulatory policy is precisely the right way to kickstart the economy.

One final note: The growth in federal regulatory jobs is driven, in large part, by TSA and Homeland Security. But these agencies are not the only part of the federal regulatory sector that has grown faster than the private sector, as it turns out.   The chart below shows the ratio of non-Homeland Security federal regulatory employees to private sector employment rose from 2000 to the recession year 2009.  Over that stretch, FTE employment fell in the private sector.  Meanwhile, notable regulatory agencies such as the SEC and the FTC gained workers.  

In my view, these numbers make th case for countercyclical regulatory policy more compelling.

* For the federal regulatory employment figures, I used the appendix data from “A Decade of Growth in the Regulators’ Budget:Years 2010 and 2011” by Susan Dudley and Melinda Warren. I also did spot checksof several departments to make sure that the published figures agreed relatively well with the Dudley/Warren data (which they did).

Comments

  1. This is interesting, but I think it’s a poor measure. For one thing, big jumps, as you say, tend to reflect new levels of effort in particular sectors; but what’s being done in particular sectors doesn’t necessarily relate to the overall regulatory burden on doing business. (How is TSA regulatory, by the way?) I realize that the actual content of the laws and regulation is a lot harder to quantify, but I don’t think there’s a way around it.

    More prosaically, the driving-up at the Obama administration is probably exaggerated by the great drop in private-sector jobs around them, which has nothing to do with regulatory burden.

    • Mike Mandel says:

      The TSA is regulatory precisely because it promulgates rules and procedures that you have to follow when you fly. These impose a significant cost on airlines and passengers.

  2. Your analysis is flawed. This also corresponds to the biggest loss of productive private sector employment ever, due to the offshoring of so many jobs in the last 15 years. It’s simple to show an increase in the percent of regulatory jobs against private sector employment, if private sector employment goes down and regulatory jobs stays static. Facts are, we now have a bigger regulatory problem than ever before, due to this offshoring. Want to ensure your seafood is safe to eat? Btter start creating inspectors in China or Vietnam then, or ensuring the local inspectors over there are capable or not being bribed. When that activity was domestic, you could actually inspect yourself at relatively low cost. Our problem is that we are NOT penalizing countries who don’t have the same level of safety or environmental development up to our standards. Yes, you can bring your cheap products in, but if your processes don’t conform, you get hit with a penalty/surcharge until you bring yourself into line with our standards. We don’t do that, so we’ve handed them a cost advantage to begin with, then exacerbate it by having to do more inspection ourselves at our own cost after the fact.

  3. What the Rortybomb said, “So there’s a 0.002% growth in the non-Homeland Security regulatory burden over the past 9 years if you look at the entire labor force.”

    Adjust by labor force size (including unemployed of which there are a LOT more in 2009 than in 2000). Understand that govt employment is “sticky” downwards and the Readers should read the link above for a better writeup than I provide.

    The problem during the Bush years isn’t that regulation is increasing (or even the “burden” of regulation) it is that the job creation machine was broken so the denominator stayed pretty constant. Check job growth during Clinton years vs. Bush (who only in the last few months of his 8 year term ended up getting to “We’ve got more jobs at the end of term than were there when I started”.

  4. John Progressive says:

    Just read the following article in the Politico

    http://www.politico.com/news/stories/0711/58522.html

    “Those who have moved on acknowledge some frustration with the glacial pace of governmental bureaucracy.”

    And there you have it. The problem they SHOULD have been addressing was staring them in the face and they could not see it. I am not sure how many millions of pages the Code of Federal Regulations, Federal Register, Federal Statutes, etc. have grown to but, well, let’s just say they have grown to the point that the parasite (government bureaucracy) is killing the host (business and industry).

    Had these “bright boys” been focusing on the problem they themselves were slamming into they would have concluded the following. We need regulations to protect the environment, make the work place safe, ensure the foods we eat are produced in a hygienic manner, etc. However, there are so many overlapping, redundant, and in some cases contradictory rules and regulations the GOALS of these rules and regulations have become secondary or get lost in the minutiae of the words. We have the technology to profoundly change the fossilized approach to bureaucracy by developing a GOALS oriented approach to regulation that will reduce redundancy, eliminate millions of pages of regulations and meet the GOALS of the federal statutes at astronomically lower cost. This will reduce the regulatory burdens on existing business and industry, and remove the titanic barriers to entry that have prevented many small, innovative companies from entering the market.

Trackbacks

  1. […] burden in one graph November 18, 2010 · Posted in The Capitol  Tweet Michael Mandel has the […]

  2. […] Economic growth and the growing regulatory burden.  (Mandel on Innovation and Growth) […]

  3. […] of exciting stuff around this post from Michael Mandel post, The Age of Regulation Started Ten Years Ago, including comments from Ezra Klein and Tim […]

  4. […] I saw Ezra Klein's citation of Michael Mandel's chart on the growth of the "regulatory burden" over the last ten years, I immediately thought: there's a […]

  5. […] 24, 2010 This morning, Paul Krugman makes an oblique reference to my November post “The Age of Regulation Started Ten Years Ago”.  He writes: Have you heard the one about how there’s been an explosion in the number of federal […]

  6. […] post I wrote: This morning, Paul Krugman makes an oblique reference to my November post “The Age of Regulation Started Ten Years Ago”. He writes: Have you heard the one about how there’s been an explosion in the number of federal […]

  7. […] on The Age of Regulation Started Ten Years Ago to read Mandel’s full […]

  8. […] First, the regulatory state started growing under President George Bush, as I showed in my posts The Age of Regulation Started Ten Years Ago   and Homeland Security and the Regulatory Burden.  Homeland Security accounts for roughly 90% […]

  9. […] First, the regulatory state started growing under President George Bush, as I showed in my posts The Age of Regulation Started Ten Years Ago and Homeland Security and the Regulatory Burden.  Homeland Security accounts for roughly 90% of […]

  10. […] First, the regulatory state started growing under President George Bush, as I showed in my posts The Age of Regulation Started Ten Years Ago and Homeland Security and the Regulatory Burden.  Homeland Security accounts for roughly 90% of […]

  11. […] The Age of Regulation Started Ten Years Ago (innovationandgrowth.wordpress.com) […]

  12. […] First, the regulatory state started growing under President George Bush, as I showed in my posts The Age of Regulation Started Ten Years Ago and Homeland Security and the Regulatory Burden.  Homeland Security accounts for roughly 90% of […]

  13. […] federal regulatory burden is tricky, but Michael Mandel at the Progressive Policy Institute has an interesting approach. He uses estimates of people employed as regulators, as counted by Washington University in St. […]

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