How costly is the burden of government regulations upon the typical American?

For anyone with any real world experience in business, it’s well known that it costs money to comply with government regulations, and in a lot of cases, it can be extremely costly.

But how costly they can be is something that can be tough to determine. Recently though, two U.S. economists, John Dawson and John Seater, took on the task of quantifying just how costly over the years from 1949 through 2005 and published their results. Here’s the key takeaway from their conclusion:

Regulation’s overall effect on output’s growth rate is negative and substantial. Federal regulations added over the past fifty years have reduced real output growth
by about two percentage points on average over the period 1949-2005. That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011. That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level.

But what does that reduction in Gross Domestic Product, which is really a measure of the nation’s income, mean for the typical American household? They quantify that loss as well:

In 2011, nominal GDP was $15.1 trillion. Had regulation remained at its 1949 level, current GDP would have been about $53.9 trillion, an increase of $38.8 trillion. With about 140 million households and 300 million people, an annual loss of $38.8 trillion converts to about $277,100 per household and $129,300 per person. Furthermore, our estimates indicate that the opportunity cost will grow at a rate of about 2 percent a year (the average reduction in trend over the sample period) if regulation is merely kept at its 2005 level and not increased further.

To put those numbers in context, the median income earned by an American individual in 2011 was $26,588. The median income earned by an American household in 2011 was $50,054.

More than anything else, it’s the negative compounding effect of accumulating regulations that imposes such a costly burden on typical Americans, as it makes all Americans far poorer than they might otherwise be.

But more to the point, this dynamic points to a low or no-cost way by which the U.S. government could do something beneficial to get the economy growing faster, which would make it much, much easier to deal with the burden of the nation’s growing debt: striking large numbers of rules and regulations from the Federal Register.

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