What if the United States Remained Committed to its Principles of Limited Government in the 20th century?

An Even More Prosperous America then the America we have today.

The United States today is obviously, at least not in the Economic sense, a beacon of Limited Government. The United States ranks 17th in the Heritage/Wall Street Journal Index of Economic Freedom. For the first time in 234 years in 2010, the United States was no longer considered a “Free Economy” and was considered “Mostly Free”. A score of 80 or above separates the “free” economic nations from the “mostly free.” Our score at that time was 78.0, and we have declined steadily ever since now scoring a miserable 75. At least in terms of Economic Freedom, the Obama Administration has fundamentally transformed the United States of America.

The Tax Burden score of the United States is 65.3 with the Top individual income tax rate is 39.6 percent, and the top corporate tax rate remains among the world’s highest at 35 percent. The overall tax burden equals 26.0 percent of total domestic income. The United States is ranked 154th in terms of its Tax Burden with 1 being the lowest in terms of Tax Burden and 180 being the Worst.

In terms of Government Spending at all levels, overall it has amounted to 38.3 percent of total output.Compared to 9.4% of the GDP in 1917 100 years ago when the United States was in the midst of World War 1. The United States is ranked 123rd in this Aspect.

So what if the United States did remain a Beacon of Limited Government and Economic Freedom as it did in the late 18th and 19th centuries?Or even the 1920s.

In a research paper that appears in the June 2013 issue of The Journal of Economic Growth titled “Federal Regulation and Aggregate Economic Growth,” economists John Dawson (Appalachian State University) and John Seater (North Carolina State University) examine the relationship between the growth in regulations (measured by the pages of federal regulations) since 1949 and economic performance (measured by real GDP growth). As the authors point out in their introduction.

Macroeconomists typically divide government economic activity into four broad classes: spending, taxation, deficits, and monetary policy. There is, however, a fifth class of activity that may well have important effects on economic activity but that nevertheless has received little attention in the macroeconomic literature: regulation. Although microeconomists have analyzed both the causes and effects of regulation for decades, macroeconomists have joined the discussion only much more recently, with a number of empirical studies suggesting that regulation has significant macroeconomic effects.

The authors consider only the number of pages of federal regulations (which increased almost seven-fold from 19,335 pages in 1949 to 134,261 pages by 2005) as their measure of the burden of regulation and explain that.

Inclusion of state regulation would be highly desirable, but data collection is an enormous task, far beyond our resources. The only way to obtain time series data on the volume of state regulation is to go to each state capital and search the state archives for old editions of state codes of regulation. With fifty capitals spanning distances of literally thousands of miles, we had no choice but to omit state regulations from our measure.

But even without considering state-level regulations, the estimated adverse effect of increasing regulation on economic growth since 1949 has been staggering, here’s part of the 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[annually] 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 (see chart above).
Inclusion of state regulation would be highly desirable, but data collection is an enormous task, far beyond our resources. The only way to obtain time series data on the volume of state regulation is to go to each state capital and search the state archives for old editions of state codes of regulation. With fifty capitals spanning distances of literally thousands of miles, we had no choice but to omit state regulations from our measure.

But even without considering state-level regulations, the estimated adverse effect of increasing regulation on economic growth since 1949 has been staggering, here’s part of the 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[annually] 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 (see chart above).

Ronald Bailey provides some excellent commentary on the study in a Reason article titled “Federal Regulations Have Made You 75 Percent Poorer,” where he makes an important calculation of how regulations affect us at the household level:

As a result [of the increase in federal regulations], the average American household receives about $277,000 less annually than it would have gotten in the absence of six decades of accumulated regulations a median household income of $330,000 instead of the $53,000 we get now.

They conclude, “is 28 percent of what it would have been had regulation remained at its 1949 level.” The proliferation of federal regulations especially affects the rate of improvement in total factor productivity, a measure of technological dynamism and increasing efficiency. Regulations also affect the allocation of labor and capital by, say, raising the costs of new hires or encouraging investment in favored technologies. Overall, they calculate, if regulation had remained at the same level as in 1949, current GDP would have been $53.9 trillion instead of $15.1 in 2011. In other words, current U.S. GDP in 2011 was $38.8 trillion less than it might have been.

The Bureau of Economic Affairs estimates that real GDP in 1947 was $1.8 trillion in 2005 dollars. The real GDP growth rate between 1949 and 2011 averaged 3.2 percent per year. Compounded over the period, that would yield a total real GDP of about $13.3 trillion in 2011; that’s the same figure the bureau gives for that year. If regulation had remained fixed at 1949 levels, GDP growth would have averaged 2 percent higher annually, yielding a rate of about 5.2 percent over the period between 1949 and 2011. Compounded, that yields a total GDP in 2005 dollars of approximately $43 trillion, or $49 trillion in 2011 dollars, which is in the same ballpark as the $53.9 trillion figure calculated by Dawson and Seater.

But let’s say that the two economists have grossly overestimated how fast the economy could have grown in the absence of proliferating regulations. So instead let’s take the real average GDP growth rate between 1870 and 1900, before the Progressives jumpstarted the regulatory state and America still had its long Tradition of Limited Government. Economic growth in the last decades of the 19th century averaged 4.5 percent per year. Compounding that growth rate from the real 1949 GDP of $1.8 trillion to now would have yielded a total GDP in 2013 of around $31 trillion. Considerably lower than the $54 trillion estimated by Dawson and Seater, but nevertheless about double the size of our current GDP.

All this means that the opportunity costs of regulation — that is, the benefits that could have been gained if an alternative course of action had been pursued — are much higher than the costs of compliance. For example, the Competitive Enterprise Institute’s report Ten Thousand Commandments 2013 estimates that it costs consumers and businesses approximately $1.8 trillion about 11 percent of current GDP to comply with current federal regulations. That’s bad enough, but it pales in comparison to the loss of tens of trillions in overall wealth calculated by Dawson and Seater.

Dawson and Seater explicitly do not attempt to separately measure the benefits of regulation in their study, only its overall effects on output. But the Office of Management and Budget does claim to measure the costs and benefits of federal regulation. In the most recent Office of Information and Regulatory Affairs (OIRA) report, the highest estimates for costs and benefits for regulations adopted from 2002 to 2012 are $84 billion and $800 billion respectively. Let’s be extremely generous in calculating regulation’s benefits and assume that they provide not just $800 billion in total benefits over 10 years, but that much in just one year. Then, just to be sure that we haven’t overlooked any non-monetized benefits unaccounted for the OIRA, and to take into account of the fact that number of pages in the CFR have risen six-fold, let’s multiply that by 6, yielding an estimated annual regulatory benefit of $4.8 trillion.

That’s just a bit more than a quarter of the current GDP. Recall that Dawson and Seater have calculated that if the regulatory burden had remained the same as it was in 1949, the U.S. economy would be about $38 trillion bigger than it currently is. So the upshot of this wildly optimistic set of assumptions regarding the benefits of regulation is that Americans have foregone $33 trillion in income that we otherwise would have had. Or in the alternative case, where a lower rate of growth results in a GDP of only $31 trillion, that would mean that Americans have foregone about $10 trillion in income due to overregulation.

Whatever the benefits of regulation, an average household income of $330,000 per year would buy a lot in the way of health care, schooling, art, housing, environmental protection, and other amenities.

The Study Measured is not measuring 1890 level. Not even 1930 level. Only federal regulations. Not even considering other violations of economic freedom, like the higher Tax Burden acquired across the 20th century. And the 60-year sample period taken by the study ends in 2005, before Obama and in the middle of Bush.

Surely if we measured Regulations of Pre-Progressive Era America, its Tax Burden State and Federal Regulations. The GDP as well as Average Household Income would be significantly higher then they are today. So what would America look like today had there been no Regulatory State?

Some examples of the observable consequences of this massive increase in income (just considering an increase to 1 million USD), based on data on income elasticity of demand:

  • Since consumption of automobiles cannot increase 120-fold, we have to instead assume massive advancements in transportation technologies — think flying cars, etc.
  • Human life 20 to 24 times more valuable, implying much greater self-imposed safety and hygiene standards, etc. With such high value, we can assume that transhumanism has been developed and is available to the majority of the population. Poverty would be defined as the inability to afford immortality.
  • Since book consumption cannot increase 58-fold, we have to assume massive improvements to the education system. Maybe brain-computer interfaces.
  • Healthcare production/consumption would increase 8-fold, indicating massive advancements in the industry.

An Average Household income of lets say 500,000–850,000 means living a hundred years in the future and an average GDP of 70–100 Trillion. America today would be a futuristic country with massively higher living standards then the Rest of the World. With such a large advantage even greater then the Advantage enjoyed in the 1950s. There would be no doubt among Americans whom the Greatest Nation in the world was, which meant no Social Democrats wanting to turn America into Sweden or Denmark.

What we could have had today:

The Answer for American Conservatives is Clear. While we must also reform the bloated out Welfare State. As well as work on Tax Reform. One of the biggest issue that needs to be reformed is the Regulatory State.

President Donald Trump’s proposal to cut 2 Regulations for 1 added is a start in Regulatory Reform but not enough. American Conservatives need to get serious about Cutting Regulations down to the founders View, Limited Regulations. And start Rolling back Progressive Era Regulations which have hurt Americas Economic Progress.

For us to Restore America to our Founders Vision. We must Restore our Free Market Oriented Economy as well as Return to our Federalist Roots. Once we do so the gap between us and the rest of the world won’t be as close as it is now.

One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.