For the United States to regain the commanding heights it occupied during the 1980s, it needs regulatory reform. Many sectors of the economy, including health care, education, and energy, have exhibited decades of low productivity and little innovation partly because they have been weighed down with regulations that make it difficult to displace incumbent practices with new and better methods. Over-regulation also threatens new technologies such as drones, driverless cars, and medical apps that, if properly developed, could deliver huge economic and social benefits.
The United States desperately needs to improve the productivity of its economy for several reasons. Most important, higher productivity is directly tied to better living standards. It also reduces the strains of globalized competition and improves government finances, making it possible to honor more of our commitments to retirees. Finally, higher productivity, and the faster economic growth that comes with it, has broad strategic advantages at a time when the United States is facing a growing number of international challenges.
Higher productivity in turn depends upon innovation: the constant introduction of faster, better, and cheaper ways of doing something or of doing something entirely new. Yet many regulations impede innovation in an attempt to impose order and reduce risk. This tendency is especially damaging for internationally competitive sectors because U.S. companies can lose market share if forced to compete with foreign companies that face fewer regulatory costs. In order to escape these costs, they may be forced to move their production and other activities abroad.
All markets need regulation in order to reduce negative externalities, establish a level playing field, and give both companies and consumers more certainty on how laws will be enforced. But the U.S. regulatory system has increasingly become an ever-growing jungle that is overly complex, costly, and outdated. New regulations are constantly being issued, often with little attempt to make them consistent with existing rules. Agencies seldom revisit past rules to see whether they still make sense. And few agencies seem to take existing cost/benefit mandates seriously.
Even in the best of times, regulators operate under several disadvantages when trying to get mles right. Many of these will worsen in the next few decades. The first is the information disadvantage that agencies face. Regulated companies usually have more resources...