If the extent of federal regulation activities in U.S. product and labor markets can be measured by the sheer volume of published regulations, then the scope of regulation has increased by more than 500 percent since 1950. To satisfy health and safety, environmental, labor, and various other regulations, companies must shift resources away from producing goods and services. Consequently, the regulation of economic activities entails an opportunity cost for society: forgone production of real GDP.

John Dawson of Appalachian State University and John Seater of North Carolina State University have estimated the degree to which federal regulations have reduced real GDP growth. They have calculated that the trend rate of annual growth of real GDP is almost 1 percentage point lower due to regulatory growth. If there had been no increase in federal regulations since the early 1950s, the economy’s long-run aggregate supply curve would have shifted much further to the right over the past five decades. U.S. real GDP would be at least 40 percent higher today.

How do various activities involved in satisfying federal regulations get counted in real GDP?