The Hidden Hold Up to American Innovation – Foundation for Economic Education

Imagine being able to find housing in San Francisco for the same price as in Pennsylvania or being able to travel between cities in a fraction of the time it takes to drive—without the hassle of flying.

What if life-saving medical centers were built in communities where access to health care is sparse? This could be commonplace in America, but right now there’s a bit of a hold-up.

Like many of the other issues plaguing America’s economy, our innovation problem has a lot to do with red tape. At the moment, regulation costs are bleeding us dry, amounting to around $4 trillion in 2012 alone. The price tag keeps growing, as does the number of regulations. The amount of money America spends on regulation amounts to what could be the GDP of the ninth-largest country in the world. That’s an inordinate amount of money to simply disappear from the American economy.

Even more devastating, perhaps, is the loss of the innovation that would have happened had regulation not stopped it in its tracks.

What Could Be?

In 2017, Elon Musk announced the creation of a hyperloop train between New York City and Washington, DC. This hyper-speed train, he claimed, would change the five-hour commute between the cities into a 29-minute trip. That would have changed the game for people who live or work in New York and DC. Value lost in society from regulation isn’t limited to futuristic transportation. Every part of the American economy is affected.

Pretty quickly, however, East Coasters learned they would not have the opportunity to cut their travel time to 10 percent of what it is—because of regulations. Musk would have to get approval from dozens of government agencies and local governments in order to build the hyperloop, rendering it nearly impossible to execute.

Even now, as Tesla looks to build underground “loops” to connect Baltimore and Washington at higher speeds, the regulatory rule-making process slows and limits growth to only what agencies can predict. Fortunately, innovators can think bigger than that. Unfortunately, they’re not allowed to.

Value lost in society from regulation isn’t limited to futuristic transportation. Every part of the American economy is affected.

For example, housing could be significantly more affordable than it is, especially in urban areas. Housing prices are significantly higher in areas where regulations are high, which administrations on both sides of the aisle recognize.

Looking at cities like New York, San Francisco, and Boston, where housing prices are through the roof and those who commute hours every day feel the shortages, there could be significant hope for affordable housing to blossom in those cities, but regulatory politics holds it up. Consumers are the ones who pay for this mess in the end, especially low-income consumers.On average, 27 regulations have been quietly added for every one law passed over the past decade in America.

Medicine and hospitals, too, could offer more solutions to society if doctors didn’t need to navigate telemedicine restrictions or kneel to certificate-of-need laws before building out service for those most in need of medical care. Or, even better, the doors could be opened for medical companies and hospitals to innovate and find new ways to deliver medical care more quickly and cheaply.

Cutting Back the Tape

While identifying the problem and idealistic solution of draining trillions is easy, fixing the problem is no small feat.

It would require “House of Cards”-esque maneuvering of special interests, entrenched bureaucratic agencies, and politicians. Because Congress handed over regulation-making rights to federal agencies, regulation is rarely held accountable by either those who make the laws or those who have to abide by them.

America has a problem, and our innovation, forward progress, and cultural way of life are being lost.

Further, special interests have far too much of a say at the rule-making table. As a result, agencies are prone to making rules or holding up innovation without the approval of either voters or legislators. If governments are going to impede producers’ ability to innovate in society, shouldn’t they at least do that through the people citizens elected to represent them?

On either side of the aisle, you should hope for a system where the laws and rules of society are made and held accountable to either cultural standards or the standards of efficiency. And rules made ex nihilo from an agency and that are rarely revisited by lawmakers or the public aren’t the type of laws we want to have. On average, 27 regulations have been quietly added for every one law passed over the past decade in America.

America has a problem, and our innovation, forward progress, and cultural way of life are being lost. Individuals aren’t encouraged to venture out on their own and make it by their own merit or contribution to others.

Regulation, for instance, hurts small businesses more than other types of businesses. American innovators shouldn’t need permission slips to create something helpful to consumers. They should be given the freedom to serve others in the market with as little hindrance as possible.