How DOGE Could Power US Growth

Just how much do ill-constructed regulations cost the US economy? That’s one of the great economic unknowns. It’s also a question of pressing interest as President Donald Trump gets his Department of Government Efficiency off the ground. It may be years before we can answer it with any confidence, but in the meantime, the experience of Argentina, which has been undergoing its own regulatory audit, may be edifying. As the Wall Street Journal’s Mary Anastasia O’Grady reports, “Argentina’s deregulation czar, Federico Sturzenegger . . . [has] discovered a rough rule of thumb: Where deregulation happens, prices decline in the range of 30%. He has seen it in textiles, logistics and some agricultural products.”

Removing rent controls in Buenos Aires has lowered rents by about the same amount. The supply expansion overwhelmed the actual price control.

A price decline of 30 percent tells us that the economic benefit of deregulation is at least 30 percent of current income. Real GDP is price x quantity, so even if the quantity of the deregulated good does not change, a 30 percent decline in prices gives people that much more real income to spend on other things. And it’s a lower bound. If rents, textiles, and logistics decline in price by 30 percent, rent-paying businesses, clothes makers, and everyone who sends something anywhere by truck can expand their businesses.

Even 30 percent is a lot. That’s a decade of 3 percent extra growth. That’s the difference between the United States and most of Europe.

O’Grady reports that Sturzenegger uses price differentials between the international and domestic market as a way to “prioritize his agenda.” Measuring regulation costs that way in the US may not be as easy, since many goods come from equally regulated markets. But perhaps America should look at inexpensive Chinese imports, and instead of just screaming the usual “subsidy,” “unfair,” “overcapacity,” “currency manipulation,” “dog ate my homework” sorts of excuses, realize some of the price difference reflects regulatory roadblocks to getting things done. (Some of those regulations are worth it, of course. But not all.)

We can also look across states. Houses in California are expensive entirely due to regulations restricting housing construction, thereby keeping supply artificially low. Sky-high prices are themselves a big cost of those regulations, but they also result in people who can’t take good jobs and businesses that can’t find nearby workers.

Why do economists not pay a lot more attention to smarter regulation? (I like to avoid the term deregulation, as regulation is not about pouring more in or less. It’s about a very hard job of creating smart rather than counterproductive policies.) Well, as in the famous streetlight effect where the drunk man looks for his car keys under the lamppost and not across the road where he dropped them, economists naturally focus on what we can measure. It’s hard to measure the economic damage of regulations. It’s hard to see all the businesses, products, and services that might be there if regulation had not stifled them.

Many studies count up the number of regulations, or the paperwork time devoted to filling out forms. That’s obviously a tip of the iceberg of economic damage. In that context, this idea of just looking at prices in more- versus less-regulated areas offers promise. Of course, it depends on finding a less-regulated area!

Can the cost of regulation really be that large? Many economists are skeptical precisely because we don’t have good measures. A while ago, I looked at this question another way. The graph below shows the correlation between the level of GDP per capita and the World Bank’s 2018 ease of doing business measure. A score of 100 reflects the best observed policy in each category, and therefore is achievable.