In a recent Discourse article, Patrick McLaughlin analyzed the economic impact of states cutting their regulatory red tape. Economists generally claim that burdensome regulations can reduce overall economic output, but direct evidence of a relationship between the two strengthens these assertions.
Mclaughlin begins by laying out the history of the modern movement for cutting back on regulations, mentioning how, in 2001, British Columbia began deregulating to the degree that it cut back 40% of its province-level regulations in three years. This change caused British Columbia to become an economic leader and increased economic growth by over 1%. Because of this correlation between deregulation and economic growth, several American states quickly followed suit.
The first was Kentucky, but five other states also qualify as “reform states” under Mclaughlin’s metrics. He began measuring deregulation policies starting in 2016, using a partially A.I.-fueled “State RegData Project.” His findings show that when reform states began deregulating over a defined “RegData” period, which was most recently updated in mid-2023, they experienced an above-normal economic growth rate. While status quo states only experienced a 1.87% growth rate during this period, reform states’ economic growth was at an average of 2.09%, a difference of about 0.22% economic growth over a seven-year period. Mclaughlin notes that while this may not appear to be a large number, it means a lot for an entire state’s economy, and the economic growth increase would compound to much larger numbers over longer periods of time.
While this research is not dispositive regarding the issue of regulatory reform’s relationship to economic growth, it does show that widespread regulatory reform could significantly increase the productivity of state economies. With this evidence showing a direct correlation, hopefully, many more states will implement deregulatory programs to cut unnecessary red tape before they lose business to more pro-business states.
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