by John Hood
When liberals and conservatives debate the issue of how best to promote economic growth and opportunity, they usually talk about their differences on spending and taxes.
Should the government keep taxes higher in order to finance schools, roads, and other public services, even if the taxes discourage some private investment and entrepreneurship? Or should the government keep taxes lower, to encourage more capital formation and business starts, even if it means spending less on some public services?
These are important questions, to be sure. But tax rates and spending levels are hardly the only policy choices that influence the economy. Indeed, at the state and local level in particular, it is entirely possible that government regulations have a greater effect on economic growth and opportunity than fiscal policies do.
I keep and update a list of every study on state or local economic growth that has been published in academic journals since 1990. I’m just that nerdy. At present, my count is approaching 800 different studies. For the most part, they have been conducted by university-based scholars — economists, political scientists, business professors, or other social scientists — and constructed around sophisticated economic models that adjust for certain non-policy factors (such as climate or geography) and then look for statistically significant relationships between policy choices and economic outcomes.
Most of the studies address the fiscal-policy questions I posed earlier. They look for connections between, say, spending more money on education or reducing income-tax rates on the one hand and changes in employment or personal incomes on the other hand.
In nearly 200 cases, however, the studies have examined at least one form of regulation. Some have probed whether increases in state minimum wages result in net economic gains for workers. Others have explored whether occupational licensing has a measurable effect on the formation of new businesses, or whether costs of complying with air-quality rules are large enough to affect job creation in a given jurisdiction.
Based on the empirical evidence to date, fiscal conservatives are quite right to believe that lower taxes and smaller government budgets are good for state economies. That’s what most of the studies conclude. But the evidence is even stronger for government regulation. In fact, 68 percent of the studies published since 1990 detected a negative effect of state or local regulation on economic growth.
Here in North Carolina, the good news is that Gov. Pat McCrory and the General Assembly haven’t just been focused on taxes and budgets. In each of the past several years, they’ve enacted regulatory-reform bills to lighten the load on households and businesses. Some of their reforms have been technical or narrow. Others have had a sweeping impact, such as the recently enacted “regulatory sunset” provision that requires prior state rules to be revisited, studied, and retained — or else they go away.
As the 2016 legislative session winds to a close, state lawmakers are negotiating the details of yet another regulatory-reform bill. Each chamber has its priorities. The House version of the bill addresses several specific issues, such as whether a company that offers a franchise to someone to own and operate should be considered by the government to be that person’s employer (it ought not to be). The Senate’s version contains a critical provision that subjects regulatory agencies to greater oversight by elected officials. If a proposed rule would cost the economy $100 million or more over a five-year period, the Senate’s bill would require specific legislative approval. If a proposed rule would cost $10 million or more over five years, it would require specific approval by the governor or, when appropriate, by some other Council of State member elected by voters.
We all ought to be rooting for lawmakers to work out their differences on regulatory reform this year. Yes, the final details of the state’s $22.2 billion General Fund budget matter. But according to one estimate, state regulations cost North Carolinians $25 billion a year. That represents a lot of lost freedom. Time to restore more of it.