Regulatory Nonsense

Seven Must-Read Articles Debunking Conservatives’ Antiregulatory Agenda

The conservative echo chamber keeps repeating the false argument that regulations kill jobs, write Kristina Costa and Michael Linden. Everyone else begs to differ.

Conservatives are working around the clock to convince Americans that government regulation is at fault for the slow pace of domestic job creation. They’ve set up this straw man to distract attention from the fact that they don’t have a credible plan to actually boost employment, and that they oppose the American Jobs Act, which independent economists say will create as many as 1.9 million jobs.

But the more conservatives push this line, the more scrutiny it’s getting. The results aren’t pretty. Over the past several weeks, numerous reports expose this antiregulatory agenda for exactly what it is—intellectually bankrupt, economically nonsensical, and utterly without basis.

These reports come from a wide range of sources, including official government agencies, nonpartisan think tanks, and even national media outlets. So what’s the truth about conservatives’ regulatory bogeyman? Here’s your required reading list.

Here’s a quick analysis and most telling quotes from each of these reports.

Bloomberg: Fewer new regulations under Obama than under Bush

Republicans and conservative interest groups complain about a supposed uptick in the number of regulations approved in the Obama administration, but President Barack Obama has approved 5 percent fewer regulations than George W. Bush had by the same date in his presidency, according to an October analysis by Bloomberg. Moreover, the cumulative costs of regulations approved by the Obama administration are still below the fiscal year 1992 peak achieved by George H. W. Bush. Even if the highest cost estimates of Obama-era regulations are correct, the total is at most three one-hundredths of 1 percent of the economy.

Key quotes

“Obama’s White House has approved fewer regulations than his predecessor George W. Bush at this same point in their tenures, and the estimated costs of those rules haven’t reached the annual peak set in fiscal year 1992 under Bush’s father, according to government data reviewed by Bloomberg News.”

“The Department of Interior…says that new controls on deep-water oil drilling will cost the industry $180 million; one well blowout could cost $16.3 billion.”

The Washington Post: Economists say regulation doesn’t cause job losses, even at high-polluting industries

In a long article investigating the evidence that regulations cause job losses, reporter Jia Lynn Yang concludes that economists who actually study this say that regulation has no discernible net effect on big-picture employment in a given industry. The reporter cites Richard Morgenstern, for example, who worked in the Environmental Protection Agency during the Reagan administration, as one author of a major study analyzing the effect of regulations on four industries that produce high levels of pollution. Morgenstern and his co-authors found that increases in industry spending in order to comply with environmental regulatory standards did not cause “significant changes” in industry employment.

In the same Washington Post article, AEP, one of the nation’s biggest coal-fired utility companies, says it has been retrofitting some power plants, closing others, and opening new, cleaner natural-gas plants, all to comply with clean air regulations. “We have to hire plumbers, electricians, painters, folks who do that kind of work when you retrofit a plant,” says AEP CEO Mike Morris. In Conesville, Ohio, a coal-fired AEP power plant hired more than a thousand temporary workers to build a “scrubber” to meet emissions standards and then hired 40 permanent employees to monitor and maintain the new equipment.

Key quotes

“Economists who have studied the matter say that there is little evidence that regulations cause massive job loss in the economy, and that rolling them back would not lead to a boom in job creation.”

“[R]egulatory experts say that viewing a rule solely through the lens of whether it will cost jobs misses the point.”

U.S. Department of Treasury: Exposing the uncertainty canard

So maybe the number of regulations hasn’t spiked under the Obama administration, and maybe some industry leaders are adapting to stricter standards—but surely the oft-cited “cloud of uncertainty,” that ominous blot on our nation’s economic future, has swelled because of new regulations. Not so, says Dr. Jan Eberly, assistant secretary for economic policy at the Treasury Department.

Eberly points out that if regulations were really “destroying jobs” or stopping businesses from hiring, there would be evidence of negative changes in “one or more of the following: business profits; trends in the workforce, capacity utilization, and business investment; differences between industries undergoing significant regulatory changes and those that are not; differences between the United States and other countries that are not undergoing the same changes; or surveys of business owners and economists.”

That’s a lot of possible places to find indications of regulatory uncertainty. But not a single one reveals any indication that regulations are holding the country back. Corporate profits have almost reached their pre-recession share of gross domestic product, the broadest measure of total economic activity. Businesses aren’t increasing work hours for existing employees, but they are increasing investment in equipment and software, both of which are inconsistent with concerns about future regulations. And independent surveys of business owners and economists point to weak demand, not regulation, as the biggest impediment to hiring more workers.

Key quotes

“If regulation was a significant drag on business today, we would expect to see profits constrained after recent regulatory reforms were passed into law. However, corporate profits as a share of gross domestic income have about recovered their pre-recession peak, and earnings per share in industries most affected by recent regulatory changes, such as energy and health care, have among the highest earnings per share of those in the S&P 500.”

“If regulatory uncertainty were having a significant impact on business performance, we would expect this to be reflected in capital markets. However, financial indicators do not provide any evidence in favor of this hypothesis.”

Economic Policy Institute: Regulation is a red herring. The real problem is demand

The nonpartisan Economic Policy Institute released a major report and a pithy blog post on September 27 calling regulatory uncertainty a “phony explanation” for high unemployment. Like Dr. Eberly, EPI president Lawrence Mishel points to private-sector business investment and work hours, among other indicators, to show that the economy is suffering mightily from diminished demand.

Mishel further cites surveys of business owners and economists, which consistently rate lack of customers and low demand as the biggest problems facing the economy. “What the heavily politicized trade associations in Washington…are saying does not correspond to the real challenges facing both large and small businesses,” Mishel writes.

Key quotes

“Instead of uncertainty about regulations, there is strong evidence that the absence of job creation reflects the continued unwinding of the financial collapse and the corresponding lack of demand. … The optimal response to shrunken demand when interest rates are as low as they can go and households and firms are still not spending is for government to step in to augment demand.”

The New York Times Economix Blog: “Republicans have a problem”

You know your argument is on shaky ground when one of your own says so. Bruce Bartlett is an economist who held senior policy positions in the administrations of Ronald Reagan and George H.W. Bush. In an October column for The New York Times Economix blog, Bartlett writes that the conservative claim that deregulation will lead to job growth is “a simple case of political opportunism, not a serious effort to deal with high unemployment.”

Key quotes

“Republicans have a problem. People are increasingly concerned about unemployment, but Republicans have nothing to offer them. The G.O.P. opposes additional government spending for jobs programs and, in fact, favors big cuts in spending that would be likely to lead to further layoffs at all levels of government.”

“In my opinion, regulatory uncertainty is a canard invented by Republicans that allows them to use current economic problems to pursue an agenda supported by the business community year in and year out.”

Bureau of Labor Statistics: Employers say regulation does not cause job losses

Before you run around town calling something a “job-killer,” it would probably be a good idea to look at some data. Fortunately, the Bureau of Labor Statistics specifically asks companies that lay off workers in a given quarter to explain why they have done so. In all of 2010, just 0.3 percent of layoffs were the result of “government regulations/intervention.” On the flip side, a full 47 percent of workers who lost their jobs in the most recent quarter were shown the door because of diminished demand.

Key quotes

“Business demand factors accounted for 47 percent of the [mass layoff] events and related separations in the private nonfarm sector during the third quarter of 2011.”

Of course, this is what many noted economists have been saying for months.

Slate Magazine: Smart regulations matter to communities across America

According to Fox News chief Roger Ailes, there are legions of government employees who “sit in the basement and draw up regulations to try to ruin your life.” A more fair and balanced description would be that smart regulations protect the health and safety of families all across the country—and a lack of such regulation can be hazardous.

Take the Galemores of Chanute, Kansas, a family of self-described conservative Republicans. According to this powerful article in Slate, they are on a mission to find out if the nearby Ash Grove cement plant is poisoning their town of 9,000. The plant in question isn’t being scrutinized for violating the Clean Air Act because of an exemption for cement kilns that burn hazardous waste as fuel.

Key quotes

“The law allows [the cement plant] to emit greater amounts of some toxic chemicals into the air than the hazardous-waste incinerators specially designed to burn the very same chemicals—including industrial solvents, aluminum-plant waste, and other toxic leftovers from the production of chemicals, pharmaceuticals, and oil.”

The real questions to ask about regulations

The conservative case for regulations as job-killers was always weak. But now there should be no confusion. Everyone from independent experts to major media outlets, government agencies to former Reagan officials have come to the same conclusion: Regulations aren’t to blame for our economic challenges.

Conservatives are right about one thing, as illustrated by the Chanute case: Regulation is a complicated business. Some complexity, of course, is an understandable and good thing. We live in a large country with advanced technology and diverse industries. But all too often, regulatory complexity is an artificial side effect of determined campaigns by lobbyists for corporate special interests.

“There are businesses that can afford to make the regulatory system more complex to their own benefit,” The Washington Post’s Suzy Khimm points out. That’s a problem—but it’s not one that across-the-board deregulation is going to solve. Or as Roger Noll, a Stanford University economics professor, notes, “Whether a regulation is a good or bad idea is not a function of employment in the industry being regulated. The right question is: On balance, does our society benefit?”

One thing is certain: There are 13.9 million unemployed Americans who aren’t benefiting from conservatives’ rhetorical sleight-of-hand on the role of regulations in our economy.

Michael Linden is Director of Tax and Budget Policy at the Center for American Progress. Kristina Costa is a special assistant with the Doing What Works project at the Center.

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Kristina Costa

Senior Fellow

Michael Linden

Managing Director, Economic Policy