Government regulation is a potent mechanism for the reallocation of resources in society. Although consumers and businesses spend a good deal of money complying with those regulations, government has little information on compliance costs and whether or not the benefits to society outweigh those costs.

• Federal regulators are supposed to estimate the economic effects of major new regulations; but there is no systematic public accounting of overall effects.
• Direct compliance spending on federal regulations is now estimated to exceed $600 billion annually (in 1991 dollars), in addition to the budgets of federal regulatory agencies.
• This is an average of more than $6,000 per household annually, up from $5,643 in 1984.

Regulations can be grouped into three broad categories: social, economic and process.

• Social regulation includes environmental and other risk-reduction requirements that aim to control hazards to consumers and workers.
• Economic regulation comprises government controls on labor markets, product prices and availability, including import restrictions and farm price supports; about two-thirds of the economic regulations are wealth transfers, while one-third deal with direct resource use.
• Process regulation covers paperwork and red tape -- mostly attributable to tax compliance -- unrelated to any other social or economic objective.

But the direct compliance cost of $600 billion is only perhaps one-third of the total cost. Indirect costs include such things as the loss in productivity of businesses and individuals due to the less efficient use of resources, and limits on innovation and growth imposed by regulations.

Regulatory costs declined gradually for 10 years during the Carter and Reagan administrations; but since 1988 they have risen sharply. Because of new social regulations and slower economic growth, regulatory spending as a share of gross domestic product (GDP) rose from a low of 8.4 percent of GDP in 1988 to 9.5 percent in 1994.

Source: Thomas D. Hopkins, "A Guide to the Regulatory Landscape," Jobs & Capital, Fall 1995, Milken Institute for Job & Capital Formation, 1250 Fourth Street, Second Floor, Santa Monica, CA 90401, (310) 998-2600.

Some $1.3 trillion in total U.S. economic activity is lost each year due to federal regulation, according to research from the Center for the Study of American Business at Washington University.

Richard Vedder's study estimates how, since the beginning of President Johnson's administration in 1963, regulatory costs have exploded.

• While gross domestic product in 1993 was $6.3 trillion, if regulation had been held at its 1963 level, it would have been $7.3 trillion in 1993.
• Productivity growth has fallen from an average 2 percent a year during the period 1950-94 to about 1 percent -- due largely to an explosion in regulations.

One often-used measure of the rate of increase in federal regulation is the number of pages in the Federal Register.

• From 1965 to 1980 the number of pages published each year rose from 17,000 to 80,000.
• During the Reagan years, the number of pages were whittled down until they reached 53,480 in 1985 -- with the economy growing as the pages shrank.
• In 1994, the number had jumped again to 70,000 -- as the economy's underlying pace again slowed.

An indirect way to measure government's regulatory growth is to take a look at government spending as a percentage of total GDP.

• In 1950, it was about 16 percent.
• Last year it was close to 22 percent -- a relative gain of about 38 percent over the period.

Source: Perspective: "The Cost of Rules," Investor's Business Daily, March 29, 1996.

New and smaller U.S. businesses face many hurdles. But those hurdles become mountainous obstacles when the challenges of the regulatory state are added in.

• Economists estimate that it costs U.S. businesses $600 billion a year to comply with all the rules and laws imposed by government.
• While large companies have the advantage of economies of scale and can spread out the costs of compliance, smaller and medium size firms are at a competitive disadvantage when it comes to regulatory costs.

Rochester Institute of Technology economist Thomas Hopkins has quantified those costs in a recent report for the Small Business Administration:

• For firms with 500 or more workers, regulations cost $2,921 per worker.
• For those with 20 to 499 workers, the costs average $5,195 per worker.
• But for those with less than 20 employees -- the dynamic start-up firms that drive the economy -- costs are $5,545 per employee.

Hopkins says that such high costs discourage the start-up of new firms, and make it less likely that those that are started will survive and succeed.

While firms with fewer employees are occasionally exempted from compliance with some laws relating to the workplace, they must comply with tax laws, environmental rules and most other regulations. So some smaller firms avoid hiring more workers if those hirings would subject them to more Washington red tape.

• A recent poll by the National Association of Manufacturers revealed that almost half its smaller members delayed hiring new workers because of potential greater regulation.
• Another 23 percent said that the cost of red tape had caused them to cut their work forces.

In another study, 52 percent of mid-sized firms named government regulation as their biggest challenge.

Economists and other experts recommend subjecting all regulations to strict cost-benefit analysis, so that regulations do not cripple the ability of American firms to create good jobs and increase wages.

Source: Perspective, "Big Costs, Small Business," Investor's Business Daily, April 30, 1996.

• Federal agents can seize private property under more than 100 different statutes - and it is up to the citizen to prove the property was obtained lawfully, rather than up to the government to prove the owner's guilt.
  
  
• Under the Superfund Program, EPA lawyers have gone after Boy Scout troops, public schools and pizza parlors, holding them responsible for multimillion dollar clean-up costs.
  
  
• The EPA can assert jurisdiction over any land with a wet area where birds might choose to rest (the "glancing geese" test) - and prohibit the owner from using the land.
  
  
• A Los Angeles Commission ruled that an on-stage shower stall at a strip show be closed since it would not be accessable to a stripper in a wheel chair.
  
  
• When the Equal Employment Opportunity Commission in a 'discrimination' action forced a small metal-forming shop in Chicago to run advertisements for blacks to file claims for compensation - even those who had never applied for a job - 451 people filed claims (including several in prison) and were awarded windfall payouts by the company.