Wednesday, December 4, 2013

Debunking 'job-killing regulations'

A new study shows that, when it comes to the economy, the modern Republican party has one leg less to stand on. 

To wit, we have proof that "job-killing regulations" are just a myth propagated by companies and their lobbyists who want to pass on the real economic costs of their pollution, dangerous operations, and unfair business practices to society at large. 

Ironically, as this study debunking "job-killing regulations" is coming out, the U.S. Chamber of Commerce (a glorified wing of the Republican Party) is pledging a "war" on "the vast regulatory state" and an "unprecedented flow of regulations" because, says the Chamber's President, "We must lift the veil of uncertainty hanging over every business and investor if we want to revive our economy."

Another leg of the GOP fell off long ago: tax cuts on the rich (aka trickle-down, voodoo economics and Reaganomics) have never proven effective in growing the economy, jobs and incomes, as even Pope Francis recently noted

So now that those two legs of the GOP's three-legged economic stool are gone, what's left? Cutting entitlements. That's right: "Work or Starve." (Official 2014 GOP campaign motto). Well, Republicans have gone ahead and cut food stamps and other forms of "welfare," and we'll have plenty of time to see how badly that works out for Americans and the economy before next November.  

Methinks by then the GOP will be sitting on the floor.

(Now to get a bit wonkish. The true cost of regulations may be hard to calculate; nevertheless, we can compare the U.S. to other countries. After all, everything is relative and businesses can't re-locate to Mars. The World Bank's annual Doing Business survey compares countries on a range of indicators, like ease of starting a business and ease of paying taxes. In 2013, even in the dark depths of the Obama Regime, the U.S. ranks 4th in the world out of 189 countries. As in past years, we are topped only by tiny islands Singapore, Hong Kong and New Zealand. So the United States is still the place to do business, with the best climate for investment and the biggest consumer market in the world. Anybody who says otherwise is a crank or a charlatan.)

UPDATE (06.12.2013): Right on cue, our fair & balanced friends at FOX gave us this big headline: "Regulation Nation: Gov't regs estimated to pound private sector with $1.8 T in costs." On FOX's home page they rounded that estimate, courtesy of the right-wing Competitive Enterprise Institute, up to $2 trillion. (What's $200 billion nowadays anyway? Just rounding.)  FOX doesn't offer any dissenting opinions on that estimate, or even information how it was derived; it's just presented as fact. Nor does FOX mention that CEI is a libertarian think tank that has defended Big Tobacco, opposed fuel efficiency standards, and disputed global warming science. It's all in day's work shilling for corporate interests.

By Sean McElwee
December 2, 2013 | Salon 

It’s one of the oldest right-wing claims: “Excessive” regulation will harm job creators and kill the economy. But is it based on sound economics?

One new study, which examines this particular argument, finds it absurd on its face. Taylor Lincoln, who authored the report for Public Citizen, tells Salon the goal was to “point out hypocrisy and contradictions and the chasms between rhetoric and reality.” To that end, the report cites one Heritage Foundation study which asserted that a more efficient regulatory system could create 9.6 million jobs. The problem, as Washington Post columnist Steven Pearlstein noted: “there are only 7 million unemployed Americans.”

Heritage isn’t the only one making this argument. A Phoenix Foundation study claimed that, “a 5 percent reduction in the federal regulatory budget would yield 5.9 million new jobs over five years.” But the Public Citizen report points out that this leads to a ludicrous conclusion: “a 16 percent decrease (a figure the authors chose to parallel the amount by which they say federal spending had exceeded revenue since 2000) would result in the creation of 18.8 million new jobs over five years. In contrast, there are only about 11.3 million unemployed Americans.”

Dr. Thomas McGarity, a University of Texas professor who has studied regulation for decades, finds the right-wing argument wanting. As to whether cutting regulation could increase economic growth, he tells Salon, “it’s a silly argument. The impact of regulation, particularly in this era when it’s so darn hard to write a regulation, is nothing compared to what the Fed does each meeting.” His most recent book, Freedom to Harm, details how a decade-long assault on regulation threatens workers and the environment.

In fact, the OMB estimates that regulations provide huge economic benefits. They find that major regulations benefit the economy between $193 billion and $800 billion a year at a cost of $57 to $84 billion. McGarity confirms this, telling Salon, “The thing that is most troubling to me is, when the right-wing think-tanks or the government estimates the cost of regulation, they never go back and see how much it did cost. The few retrospective studies that have been done have shown uniformly that the cost estimates have been higher, much higher than the actual cost of the regulation. The reason is that once the regulations are in place companies are able to adapt to them very quickly.”

The irony is that Republicans always hail the ability of businesses to innovate and adapt, but their anti-regulatory stance is premised on the idea the businesses cannot adapt to new regulation.

Both McGarity and Lincoln noted that Nixon, Ford and H.W. Bush were all very pro-regulation. McGarity tells Salon that “there used to be strong environmentally conscious Republicans in the House and Senate, [but] you can’t point to one Republican now who is a strong environmental advocate.” Lincoln says the anti-regulatory impulse is tied to the economy. When the economy is strong, businesses quickly adapt to regulation, but in hard times, regulation appears as a scapegoat for the weak economy. Both feared that the Republican party is now ruled largely by business interests unconcerned with the common good.

But it’s not just right-wing think tanks and demagogues claiming that cutting regulation will somehow magically create jobs. The Economist claimed this year: “But red tape in America is no laughing matter. The problem is not the rules that are self-evidently absurd. It is the ones that sound reasonable on their own but impose a huge burden collectively.” The article concludes that regulation may “crush the life out of America’s economy.”

In the New York Times earlier this month, Tyler Cowen wrote:

We don’t really know the total regulatory burden in our economy today, in part because there are too many rules and side effects to add up all the costs. Nonetheless, we are continually increasing the obstacles to doing business. America has lost the robust productivity growth of much of the postwar era, and the share of start-ups in the economy has been falling each decade since the 1980s. Although overregulation is hardly the only culprit, it is very likely contributing to the problem.

When arguing to gut America’s regulatory regime, one doesn’t need data or statistics, just a general feeling that regulation is probably harming economic growth.

Opponents of regulation often suggest that regulations create uncertainty and therefore stymie growth, but in truth they do the opposite. To understand why, imagine a world without regulation, one in which railroad track gauges are divergent, food and drugs are released without trials and buildings are built on a whim.  Americans who visit countries with a weak governance are often surprised to find that the stairs aren’t of equal height. By establishing a minimum standard for environmental degradation, customer safety and worker treatment, regulation can change entire industries.

The auto industry is a quintessential example. Today’s advertisements focus on fuel efficiency and safety, and we take air bags and seat belts for granted, but cars were once death traps. Lincoln explains, “Their market research showed that adding seat belts didn’t help and they’re not seeing profit it it, they’re not seeing dollar signs.” All of that began to change with Ralph Nader’s famous “Unsafe at Any Speed.” Customers didn’t know that cars could be safer and more fuel-efficient until the government began enforcing the regulations. Henry Ford once said, “If I had asked people what they wanted, they would have said faster horses.”

Consumers are naturally conservative and they are heavily influenced by advertising. George McGovern, echoing the arguments of J. K. Galbraith, said that advertising can “brainwash the consumer” because “no one was ever born with the taste for huge automobiles.” Companies were stuck on producing slick fancy cars, not safe cars. Regulation upended the industry and entirely changed the way that customers and society viewed the car: not a luxury toy, but a utilitarian mode of transportation. This changed the way customers thought about safety and companies thought about advertising.

The report shows how regulations we now take for granted — catalytic converters, unleaded gasoline, fuel efficiency standards, worker safety protection, minimum wages, environmental protections — were once denounced by industry shills as “job killing” or “economy strangling.” Industry experts predicted that worker safety regulations would destroy jobs and tank industries. The day before the bills would pass they would shout Cassandra-like warnings and hold up Mayan calendars. But the next day the air was cleaner, workers were safer and the economy chugged along.

Even Tom Donohue, the President of the U.S. Chamber of Commerce, is forced to concede, “I think we need a strong public sector. We have about a $1.7 trillion a year regulatory bill. Seventy-five, 80 percent of that is very useful. You’ve got to have air traffic control. You’ve got to have food safety.”

Today, the same absurd claims once raised about now banal regulations are being tossed about again. Already industry experts have predicted 12.9 million job losses from Dodd-Frank, the Affordable Care Act and Obama’s GHG regulation proposals. Lincoln’s goal is simple: “We are trying to lay down a record of what they’re saying now, because they are going to be wrong again.”

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