Stagnation by regulation in America's kudzu economy.

• Author: Yandle, Bruce
• Position: REFLECTIONS - Essay

Specular stagnation is the latest term of art used by economists to describe the U.S. economy's anemic gross domestic product (GDP) growth path, sluggish productivity, pale record of capital investment, and recent decline in labor-force participation. (1) The characterization is at home with Keynesian thinking. Indeed, the term was coined in 1938 by Alvin Hansen, America's leading exponent of Keynesian economics (Bernanke 2015). The expression is now in vogue because the economy seems to be unaffected by policy makers who, like the Wizard of Oz, believe they can wisely and magnanimously push buttons on a veritable fiscal and monetary video game that prompts the economy to respond beneficially.

Alas, the video game, the much vaunted device with monetary and fiscal policy control buttons, no longer seems to be working, if it ever did. I argue that regulation is a principle reason for this, and there is a large amount of evidence to back me up. (2) On any given day, countless purposeful people attempting to make an almost infinite number of incentive-affected decisions are discouraged, constrained, or unduly advantaged by the number and extent of government rules and regulations that must be satisfied before decisions are implemented.

We have an entangled economy where all meaningful decisions are constrained by federal regulation (Smith, Wagner, and Yandle 2011). Put another way, we have a kudzu-like economic landscape with government-introduced vines growing in all directions.

Kudzu, native to Asia, was introduced in the 1930s to American agriculture by the Soil Erosion Service of the U.S. Department of Agriculture (USDA), which paid farmers for planting kudzu tubers. Some 1.2 million acres were planted. What had been eroded fields that could not support cultivation became kudzu-covered fields that still could not support cultivation (Britton, Orr, and Sun n.d.). Alas, the kudzu-like spread of regulation has had a similar effect: stagnation by regulation. Within the kudzu family, command-and-control is the most constraining, prosperity-limiting form of regulation. Its rules specify techniques and technology and provide details on how work is to be done; it is an approach that chills competitive discovery of lower-cost and more effective ways to maintain order while sustaining economic growth. If, for example, the command-and-control approach were replaced by performance standards-easily understood outcome-based goals-then, as Philip Howard puts it, the simplified approach would open "cognitive doors, now blocked by countless rules, to the deep store of unconscious instinct and creativity that resides in each person" (2014, 54). This essay reaches the conclusion that stagnation can be remedied only by cutting back the kudzu-like constraints and ending regulatory programs that promote their growth.

When Did the Kudzu Planting Start?

The kudzu economy did not start with the Obama administration or with the Bush II, Clinton, Bush I, Reagan, Carter, or Ford administrations, though each of them contributed to it. The origin is found in the administration of Richard Nixon. Nixon politicked for and endorsed the establishment of the U.S. Environmental Protection Agency (EPA) and the National Highway Traffic and Safety Administration in 1970; the Occupational Safety and Health Administration in 1971; and the Consumer Product Safety Commission in 1972. Moving environmental and other controls from the states to the federal level was not without controversy (Whitaker 1976), but broad interpretations of the Commerce Clause laid the foundation for the rise of the federal regulatory state. (3) The newly established agencies became the vehicles for promulgating regulations embodied in major pieces of legislation that underlay the formation of America's regulatory state.

The evidence of kudzu growth is seen graphically in figure 2 in the count of Federal Register pages. The massive growth seen from the 1970s forward, interrupted during the Reagan administration, when major constraints were imposed on the regulatory state but with recovery thereafter, was driven largely by progressive implementation of complex statutes specifying rules to be written but also by new initiatives inspired by growing regulatory entanglements generated along the way. For example, subsequent to the EPA regulation requiring all newly built autos sold in the United States to be equipped with catalytic converters, the agency issued regulation banning the sale of leaded gasoline because, unfortunately, the tetraethyl lead disabled the catalytic converter (Newell and Rogers 2003). This EPA ban occurred after the agency had mandated unworkable gas-tank configurations designed to limit the entry of fuel hoses from tanks that dispensed leaded gasoline, yet another regulation that did not work out as planned. Much later, when too little progress was made in reducing the ambient level of nitrogen oxide from stationary sources, the EPA brought suit against producers of medium diesel engines-the sort used in transport trucks--requiring them to meet tougher technology-based emission limitations. The regulation-by-litigation episode shifted the kudzu burden from stationary to mobile sources (Morriss, Yandle, and Dorchak 2008).

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