In many ways, the circumstances surrounding the 1980 presidential election mirror those surrounding the 2016 elections: America’s economy in the doldrums and an electorate hungry for change. But the 2016 elections allow us the hindsight of nearly four full decades of history, and teach us that if we aren’t willing to learn those lessons, we are doomed to repeat them.
The 1980 election brought us three candidates—incumbent president Jimmy Carter, former California Governor Ronald Reagan, and former Congressman John Anderson. Anderson had failed to gain traction as a liberal Republican in the primaries, though his running as an independent had brief moments where it seemed he might actually make an impact in the campaign. Ultimately, Anderson ran a distant third in the three-way election.
But it’s the backdrop of this election which sets the context for this essay on the administrative, or regulatory, state. The three primary issues of the election were US-Soviet relations (which had taken an alarming turn with the Soviet invasion of Afghanistan a year earlier), the Iranian Hostage Crisis (which President Carter seemed incapable of solving), and the US Economy.
Though primarily focused on how things like tax policy, inflation, and the energy crisis were impacting the sluggish economy (and, by extension, jobs and competitiveness), then-candidate Reagan also knew that America was facing a growing problem from the administrative state.
In concept, the American government consists of three separate, but co-equal branches. Technically, for instance, the legislative branch is supposed to create laws, while the executive branch is in charge of administering those laws. When Congress passes a law, it then goes to the executive branch to set up the regulations underpinning those laws (where the “rubber meets the road” as it were). These laws don’t really take shape until the agencies responsible for enforcing them set up the specifics under which they are to be enforced.
For example, the Clean Water Act, one of three primary environmental laws created in the early 1970s (the other two being the Clean Air Act and the Endangered Species Act), says that “navigable waterways” of the United States are not to be polluted. But Congress didn’t define what a “navigable waterway” was, nor, specifically, what “pollution” meant. They left it to the newly-created Environmental Protection Agency to define, via an evolving administrative process.
The more-vague Congress is, the more power the administrative state has—and it allows for two kinds of mischief: those with extreme political agendas who join government are cloaked with immense power to see those agendas enacted; and those who have power, money and influence can manipulate those rules for their personal benefit (the very definition of cronyism).
So it should come as no surprise when, after 20 years, extreme environmentalists who joined the federal government had managed to redefine “navigable waterways” to include, not only streams and wetlands that were clearly “non-navigable;” but to also include dry patches of sand in places like the high desert of Nevada!
This is allowed to happen because, by and large, Americans are unaware of the power that the unelected bureaucracy has—and it is a power that reinforces itself over time. As bureaucrats expand the administrative state unchallenged, they are able to build upon prior advances into individual life.
The Administrative Procedures Act is supposed to act as a check on this power—it is a series of rules governing how legislation is turned into regulation, and how those regulations change over time. If (and only if) utilized by the regulated public, it is a powerful tool to keep government from advancing and growing over time. But because the administrative state has grown so large in the last sixty years (and we’ll talk about those impacts in a moment), it is harder and harder for people to have a meaningful impact on the regulatory process.
But that impact can be had. Two years ago, the Internal Revenue Service, in response to a very public embarrassment over improper targeting of conservative groups, attempted to codify the criteria they had used to harass oppositional speech. An unprecedented number of people sent “comments” to the agency—more than twice the number of comments submitted on any IRS rulemaking in the prior seven years, combined—and the IRS was forced to withdraw their rulemaking.
As a society, only now is the assessment of regulatory impacts on society becoming a mainstream inquiry. It was controversial when then-candidate, and later President, Reagan suggested that America had a problem with the impact of regulations, and he dared suggest the implementation of one regulatory assessment tool, cost-benefit analysis (in which the fiscal benefits of a regulation are measured against its costs).
But the entire purpose of regulations is to eliminate the incentive to do something someone in society deems as wrong or harmful by raising the cost of doing that activity—generally though some kind of prescriptive mandate. And America was struggling with serious environmental issues, necessitating some kind of regulatory action. We had cities choking with smog, rivers catching on fire, and our national symbol, the Bald Eagle, was dying off.
The enactment of those first three major environmental laws was going to change the way American industries did business… and by definition that change was not going to come without cost. Given everything that was happening in the world at the time, it was no surprise that when times were turning tight for the American economy, America’s massively rising regulatory costs were going to have an impact.
President Reagan tried to take steps to curb this, and right America’s economic ship. When it came to regulation, he was less successful than he was in other areas, and while America’s economy improved, heavy industry in America continued to suffer to the point of a very real collapse.
In numbers, direct federal regulatory costs are now north of $2 trillion annually. Since we know that regulations hit smaller firms harder than they do larger firms (regulations cost 50% more for firms with fewer than 20 employees), this explains why hiring for America’s small businesses (the traditional engines of the American economy) has stalled. It also explains why tax reform and stimulus packages have produced little economic benefit.
These regulations also have a cumulative impact. According to a recently-released study by the Mercatus Center, if the US regulatory state had remained steady since 1980 (ie, had President Reagan been successful in implementing meaningful regulatory reform), US GDP would be 25% larger than it is now, a net gain of $4 trillion!
The Mercatus study confirms earlier work by Appalachian State and North Carolina State University economics professors John W. Dawson and John J. Seater on the impact of regulation on aggregate economic growth (and lost opportunity costs). Their study confirmed the role that the administrative state played in the economic slowdown of the 1970s and beyond, and suggested had the US not adopted any new regulations past 1949, our economy would be $54 trillion in size!
We recognize that some regulation needs to exist to protect individual rights, to protect people from harm etc. But we also have to recognize that these rules have an impact. Both the Mercatus numbers and the NCSU/Appalachian State numbers would indicate that even a modest reform of regulations could produce tremendous benefit in terms of jobs—that had we gone the route envisioned by President Reagan, for instance, and added $4 trillion to the economy, we could have created more than enough jobs to wipe out both the generally-accepted unemployment number of roughly 5%, as well as jobs for the roughly 60 million jobs-age Americans who are “out of the workforce.”
But what is clear is this: the greater the administrative state, the greater the impact on the American economy, and on society as a whole, and that looking back on the election of 1980 it is clear: Reagan was right.
 This number is extrapolated from the Small Business Administration’s Office of Advocacy semi-decennial assessment of the impact of regulations on the US economy. From 2000-2005, regulatory costs grew by 10%, from $975 million to $1.1 trillion. From 2005-2010, costs grew 35%, to $1.75 trillion. SBA did no regulatory assessment in 2015, but regulations continued to grow on the 2005-2010 pace. At a minimum, Institute for Liberty estimates that regulatory costs are approximately $2.2 trillion annually.
 http://www4.ncsu.edu/~jjseater/regulationandgrowth.pdf . The study indicates that for every dollar in direct regulatory costs, there is a $19 multiplier in lost opportunity cost.