Policy Creep: How Excessive Rules Stifle Economic Growth

The Paradox of Prosperity: When More Policies Mean Less Growth

In our continuous pursuit of simplicity – a drive to comprehend and manage the complexities of our world – an intriguing correlation emerges: the proliferation of policies often inversely impacts societal prosperity. Specifically, an abundance of governmental policies tends to correlate with reduced economic vitality. This principle is further underscored by a significant corollary: policies that are easily altered or subject to broad discretion typically exert a more detrimental effect than those firmly enshrined in law.

One might ponder the perplexing trajectory of US GDP growth since World War II. Despite being a beacon for immigration, which inherently boosts consumption, production, and GDP, and a crucible for countless innovations, scientific discoveries, and the transformative power of the internet, economic expansion has notably decelerated. Historically, periods of relatively free trade also broadened market access, fostering both export opportunities and efficient import acquisition. Given the surge in patents, advanced degrees, and an expanding populace – all traditional drivers of economic progress – coupled with decades of accumulated expertise in managing businesses and national economies, why has economic growth halved from an average of 4% annually in the latter half of the 20th century to approximately 2% today?

Monetary Policy and the Erosion of Future Growth

A critical factor in this economic deceleration, beyond the observable expansion of regulatory frameworks, lies within the realm of monetary policy. Since 1971, the United States has operated with a fiat currency readily susceptible to political manipulation. Politicians frequently favor lower interest rates, as they create an illusion of prosperity that can bolster re-election prospects. However, these artificially low rates stimulate borrowing, essentially front-loading future GDP growth by drawing from tomorrow's sales and investments into the present. This practice involves incurring debt with the expectation of repayment from future earnings.

More than five decades on, we now inhabit the "future" from which that GDP growth was preemptively extracted. The nation shoulders the burden of debt accumulated from past economic activity, yet without the corresponding new sales. While direct debt repayment might not always be evident, the economy is continuously channeling current GDP towards servicing the interest on this historical borrowing, effectively devoting present resources to expenditures that have long since occurred.

This situation is poised for exacerbation. The Federal Reserve, traditionally tasked with independence from political cycles, faces increasing pressure. Recent appointments and political rhetoric suggest a potential shift towards greater executive influence over monetary policy, akin to practices observed in economies like Zimbabwe, Venezuela, or Argentina, where central banks are pressured to accommodate political demands through inflationary money creation. Such developments could further erode the credibility and effectiveness of monetary policy, deepening the long-term economic challenge.

The Pervasive Impact of Policy Creep

Beyond monetary considerations, another significant impediment to economic dynamism is "policy creep." This phenomenon describes the incremental and often unnoticed expansion of governmental rules, regulations, and administrative processes. As explored, the more policies a government enacts, the less autonomy individuals and businesses retain to pursue their own initiatives, thus diminishing overall freedom and efficiency.

Historically, as governments mature, expand, and become more centralized or influenced by specific elites, they invariably accumulate more policies. A stark illustration can be found in the late Austro-Hungarian Empire, which famously employed a third of its population and maintained a tax code spanning three colossal volumes, printed in minuscule type across two columns per page. With 15 official languages, including Yiddish and Ruthenian, parliamentary debates often unfolded in tongues unintelligible to many delegates, highlighting an extreme form of bureaucratic ossification.

Modern Manifestations in the United States

While less overtly baroque, US federal policies exert a similarly stifling effect. They frequently obstruct action or render it significantly more cumbersome and costly, invariably decelerating economic progress. The Federal Register serves as a concrete chronicle of these expanding policies. In 1980, it comprised approximately 70,000 pages; by last year, this figure had surged to 107,000 pages. Each page encapsulates a new rule, regulation, or prohibition that businesses must navigate. These directives can range from specifying the permissible height of manure piles for farmers to mandating the precise elevation of toilet seats in commercial establishments, or detailing intricate procedures banks must follow when suspecting money laundering. The sheer volume of these "dos and don'ts" is staggering.

For large corporations, the costs associated with administration and compliance become substantial. For smaller enterprises, lacking the resources for dedicated legal and compliance teams, keeping abreast of and adhering to this constantly evolving regulatory landscape can be an almost insurmountable challenge. This regulatory environment, akin to a complex golf course riddled with countless traps, creates an economy where businesses frequently miss crucial opportunities and struggle to find clear pathways for innovation and growth.

Conclusion: The Imperative for Simplicity

Ultimately, the evidence suggests a powerful economic truth: simplicity fosters prosperity. Conversely, a continuous expansion of changeable, discretionary policies, coupled with the long-term ramifications of politically influenced monetary decisions, inevitably leads to slower economic growth and diminished opportunities. Reversing this trend necessitates a critical re-evaluation of the quantity and nature of governmental intervention, prioritizing frameworks that enable freedom, innovation, and genuine, sustainable economic expansion over bureaucratic accretion.