Patrick McLaughlin is a senior research fellow at the Mercatus Center at George Mason University and co-creator of RegData.
Since the recession began in 2008, attempts to grow and improve the economy have been studied and hotly debated.Yet one critical component of the economy—regulation—continues to elude measurement. Questions like, "Do regulations kill jobs?" continue to be difficult to answer, because of the lack of metrics available for these rules.
When working with a complex system, whether it's the economy, or even a baseball team, it is important to measure its inputs and components if you want to advance the performance of that system. RegData is a new database that does just that. RegData offers novel metrics of an important and growing input—federal regulation—and takes the first step in using a Moneyball approach to improving the regulatory system. This tool creates statistics based on the actual text in federal regulation, and these statistics are starting to be used by researchers to create a better understanding of the causes and consequences of regulation.
Sometimes there are obvious reasons to create new ways to quantify complex subjects. In the movie (and book) Moneyball, an unorthodox baseball manager used recently-developed metrics of player talent to gain an edge. This approach permitted a small-market team to make the playoffs in four consecutive seasons despite one of the lowest payrolls in baseball. How did he do it? As that manager said, it's a matter of evaluation of evidence: "Anyone […] with a 401(k) has a choice. They can choose a fund manager who manages their retirement by gut instinct, or one who chooses by research and analysis. I know which way I'd choose."
But what about evaluation of the performance of the regulations created by the federal government? There is plenty of incentive to try to make regulations better: Studies estimate that their annual costs to the economy range from $57 billion to $1.8 trillion. Despite the large stakes and even greater uncertainty about the consequences of regulations, however, there have been few serious attempts to quantify regulations in a way that permits evaluation of their effects on the various sectors of the economy. Most studies are designed to indirectly measure the overall quantity of federal regulation. For example, a few studies (including some of my own previous work) count the number of pages of regulations published, while others count the number of final rules created. Both of these metrics have their drawbacks, and may miss the true scope of today's regulatory burden. RegData improves upon these methods in two key ways. First, it quantifies regulations based on the actual content of regulations, by counting the number of restrictions in regulations' text. Second, RegData uses text analysis to assess the applicability of regulations to each industry, similar to how search engines determine the relevance of Web pages to search terms based partially on Web page text.
So what can be done with these new measures of regulation? For one, we can start learning about how regulations affect different sectors of the economy. RegData measures regulation of sectors of the economy using a well-known and widely-used industry classification system, used by many other datasets, such as the Bureau of Economic Analysis's Industry Accounts and Bureau of Labor Statistics's Business Employment Dynamics. Researchers can combine RegData measures of regulation with measures of sector performance to learn more about the effects of regulation in industries like manufacturing or rail transportation. Second, we can look at the causes of regulation. How does lobbying by trade associations, for example, affect the growth and nature of regulations affecting their sectors? The quantification of regulation by sector creates the possibility for researchers to see how a regulatory treatment received by one sector affects its performance in comparison to another sector that did not receive that treatment. These contrasts and comparisons will allow us to gradually improve our regulatory system.
While quantifying regulations is just the first step towards grasping the true impact these rules have on the economy, these measures provide a more accurate picture of today's economic state. Almost sounds like science, doesn't it?