Stifling the Economy

Sex scandals have drowned out the real scandal of 2016, which is the slow economic growth experienced since the 2008 financial crisis. This is the slowest recovery from a recession in history, and that has hurt tens of millions of Americans. Recent articles in the New York Times and Wall Street Journal have asked why the economy is growing so slowly, but neither answered the question.

The answer seems obvious to the Antiplanner: the economy is growing slowly because it is being stifled by a government doing the same thing the government did during the Great Depression (as described by Amity Shlaes), which is encumbering businesses with regulation while spending federal dollars on “stimulus” projects that aren’t very stimulating.

Here’s a true story. During the Depression, the railroads complained that they were heavily regulated by the Interstate Commerce Commission while the airlines, truckers, and bus companies were not. President Roosevelt named Joseph Eastman, a long-time member of the Interstate Commerce Commission, his “transportation czar” (formally, the “federal coordinator of transportation”). Eastman realized he had two alternatives: deregulate the railroads or overregulate everyone else. As someone comfortable with regulation, he choose the latter.

For example, urban rail transit ridership, which was heavily regulated by state and local governments, was rapidly declining. Intercity passenger ridership, which was heavily regulated by federal and state governments, was also declining. But intercity bus ridership, which was unregulated by the feds and only lightly regulated by the states, was growing despite the Depression.

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From Eastman’s point of view, this solved the problem. Everyone was now equally regulated and equally stifled. From the economy’s point of view, this only made the problem worse.

Years later, the Transportation Act of 1958 made some token deregulation efforts and offered the railroads hundreds of millions of dollars in loans to rebuild terminals and buy new equipment. As George Hilton pointed out ten years later, the results were negligible as the Interstate Commerce Commission “does not know what it is doing.” Only when Congress finally stripped the ICC of much of its regulatory power in 1980 did the railroads truly recover. Congress completely abolished the ICC in 1995, one of the few cases in American history of a federal agency being abolished, but the resulting dramatic benefits for both railroads and consumers should inspire more such deregulation.

In the present day, we have Sarbanes-Oxley, Obamacare, minimum-wage laws, and a myriad of federal regulations that cost trillions of dollars per year (not to mention state land-use laws). Many of these regulations fall hardest on small businesses, which have traditionally been the greatest source of economic growth in the United States. On the other hand, big companies may actually benefit from regulation’s stifling of their competition, though the economy as a whole is poorer for it.

Much of the rest of the developed world is encumbered by similar regulations. For years, our competitive advantage over Europe was the fact that we were less regulated. We are losing if we have not already lost that advantage. At least one of the presidential candidates has promised to significantly increase regulation, while the other one has promised to deal with symptoms, not causes. Unfortunately, economic growth is not as sexy as sex itself, so the debate on this subject has failed to inform many people of the choice they will be making.