The performance of the American economy during the 1970s was distinctly inferior to the record of the previous decade. A prominent hypothesis is that oppressive government regulation was largely responsible for the poor performance of the 1970s. This article examines that hypothesis with respect to a key marcoeconomic indicator: the rate of productivity growth.
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References
1.
1. See the Economic Report of the President, 1980 (Washington, DC: U.S. Government Printing Office, 1980).
2.
2. Of course, regulations are not the only means by which the state may affect economic efficiency. Tax policies, monetary and financial policies, and the impact of official statements on public attitudes toward work and risk-taking are also important.
3.
3. See J. Mark, Testimony Before the Congressional Joint Economic Committee, in Special Study on Economic Change: Hearings Before the Joint Economic Committee, part 2 (Washington, DC: U.S. Government Printing Office, 1978), pp. 476-486.
4.
4. See M. Evans, Testimony Before the Congressional Joint Economic Committee, in Special Study on Economic Change: Hearings Before the Joint Economic Committee, part 2. (Washington, DC: U.S. Government Printing Office, 1978), pp. 596-615.
5.
5. Basic data on the number of major pieces of regulatory legislation are found in Directory of Federal Agencies, Center for the Study of American Business, Formal Publication no. 31 (St. Louis, 1980). Our measure is calculated from these data.
6.
6. The second and third measures are derived from agency data published in the Budget of the United States Government.
7.
7. The equation estimated is as follows: ln(TFP) = lnA + αR + βT + γln (Q/Q*) + δ1n(Q/Q*)-1 + u where α,β, γ, and δ are parameters, TFP is total factor productivity (a measure that differs from labor productivity by a factor reflecting the ratio of nonlabor to labor inputs, K/L); R is regulatory intensity (which enters the equation in lagged form); T is an annual time variable; Q is actual manufacturing output; Q* is a measure of the level of output that would have been produced in the absence of cyclical influences; u is a random error term; and (Q/Q*)-1 refers to (Q/Q*) lagged one year. For details of the estimation procedure, see G. Christainsen and R. Haveman, “Public Regulations and the Slowdown in Productivity Growth,”American Economic Review, 71:320-325 (May 1981).
8.
8. Reduced growth in the ratio of nonlabor to labor inputs was estimated to be responsible for about 15 percent of the slowdown. Cyclical influences could account for anywhere from 0 to 15 percent of the decline.
9.
9. See G. Christainsen, F. Gollop, and R. Haveman, “Environmental and Health-Safety Regulations, Productivity Growth, and Economic Performance: An Assessment,”Joint Economic Committee, U.S. Congress, 1980. We also tested this assertion by estimating an equation for the level of labor productivity that included a term for the interaction of R and K/L. The regression coefficient for the term was not statistically significant.
