The Regulatory Burden

A new study by Nicole Craig and Mark Craig, professors of economics at Lafayette University, estimates that the cost of federal regulations is $2 trillion. That amounts to billions of hours in compliance.

This sum represents a tragic loss. To see why, just imagine if entrepreneurs and innovators were free to spend those billions of hours and trillions of dollars on creating the “next big thing” — everything from self-driving cars to wireless electricity.

Sadly, we don’t even have to imagine the cost of regulations; we can read about it almost every day in the news. Consider here two recent examples.

Exhibit A: Silicon Valley vs. FDA

According to The Associated Press, tech giants in Silicon Valley are “pouring billions into gadgets and apps designed to transform health care. But the tech giants that have famously disrupted so many industries are now facing their own unexpected disruption: regulation.” The article quotes Google co-founder Sergey Brin: “‘Health is just so heavily regulated,’ Brin told industry executives in July. ‘It’s just a painful business to be in.’”

The predictable result is that some companies will decide not to bother with the field at all. Remember this the next time you are wondering why medical devices are so expensive.

Exhibit B: Taxi regulators vs. Uber & Lyft

According to SFGate, taxi companies in San Francisco have lost 65 percent of their business to Uber and Lyft over the past 15 months.

It’s hardly a mystery why Uber and Lyft are outcompeting the taxi companies: in recent years, they have done more to innovate in the transportation market than the taxi companies have done in decades. Nor is the reason for this lack of innovation in the taxi market a mystery. Because of regulation, taxi companies resemble regulated utilities, with government-enforced fares and procedures and almost no competition from outside the market.

Predictably, taxi drivers in San Francisco are pushing back and calling for Uber and Lyft to be smacked down by local regulators. Remember that the next time you can’t get a cab in San Francisco.