Argument for what’s certain: regulations hurting economy

It’s clear the Barack Obama White House ranks as one of the most activist regulatory administrations in history. Consequently, it’s not surprising the administration argues that regulatory costs and uncertainty aren’t hurting the economy.

Jan Eberly, assistant treasury secretary on economic policy, recently tried to make the case for an-all-is-well position on regulation in a Treasury Department blog. The piece opened by quoting Treasury Secretary Tim Geithner in his recent Senate testimony: “I’m very sympathetic to the argument you want to be careful to get the rules better and smarter, but I don’t think there’s good evidence in support of the proposition that it’s regulatory burden or uncertainty that’s causing the economy to grow more slowly than any of us would like.”

Eberly goes on to make various points that supposedly undercut the argument regulation hurts business, the economy and jobs.

She cites a recovery in corporate profits. But that ignores where profits should or could be. In fact, corporate profits only climbed above their 2006 levels last year. For good measure, Eberly ignores that as of the second quarter of this year, proprietors’ income had still failed to climb back to its 2006 level.

Eberly asserts that a flat workweek for private workers and low capacity utilization point to poor demand, not fear of regulation.

Eberly also highlights a couple of surveys noting that business owners and economists point to weak demand as a big problem. But since consumers are followers — that is, they follow what’s going on in terms of business investment and hiring — the weak demand cited by Eberly obviously relates to poor investment and hiring by business.

Eberly then tries to claim that business investment has led the recent recovery. And if businesses were worried about regulation, they wouldn’t be investing. It’s almost embarrassing, but the obvious response is: What recovery? This has been one of the worst recoveries on record. Moreover, recent private investment numbers have been mixed at best. Inventories have played a big part in growth that has occurred. And while Eberly cites investment in equipment and software, that’s slowed in recent quarters.

But most damning is the reality that while real personal consumption expenditures have climbed back to 2007 levels, real private nonresidential and residential fixed investment remain well below 2007 levels. Hmmm, that would seem to indicate a major problem on the supply side of the economy.

Finally, Eberly ignores the trend in self-employed. The number of incorporated self-employed has been falling for three years now, while the number of nonincorporated self-employed has been falling for more than four years. As a measure of entrepreneurship, this is a very worrisome trend and one that is affected by the policy climate, including regulatory costs and expectations.

Then there’s the latest results of a survey of small business owners for the Wells Fargo/Gallup Small Business Index:

Optimism for the future among small business owners dropped to its lowest level in 2011. Doug Case, Wells Fargo small business segment manager, observed: “Small business owners are still navigating this challenging economy. In our latest survey, small business owners said that to thrive in today’s economy, they need increased sales and demand, job creation and fewer government regulations.”

Business owners were asked about the most important problems facing their businesses today. The top three responses were: complying with government regulations and taxes (22 percent), consumer confidence in the economy (15 percent) and depressed consumer spending and lack of customer demand (12 percent).

Another 5 percent cited the new health care policy, which aligns with the regulations and taxes category above. Again, consumer confidence, spending and demand can in no way be treated separately from issues like business investment, levels of entrepreneurship and the policy climate.

In the end, government policies weigh down the economy. Indeed, in recent years, it could be called a perfect storm of bad policy. That includes historic regulatory overreach; higher taxes; huge increases in government spending that have drained resources from the private sector; the threat of even higher taxes due to an unprecedented expansion of government spending and debt; little U.S. leadership on free trade (the recent approvals of the South Korea, Colombia and Panama trade deals were welcome, but long overdue, as they were originally made in 2006, and the Obama administration has done nothing else substantive on trade); and misguided monetary policy directed at trying to manipulate economic growth rather than maintain focus on price stability.

Yes, regulation clearly has contributed to economic uncertainty, namely, the threat of rising businesses costs. But it’s not just regulation. It’s also tax, spending, trade and monetary policies gone awry.

But I’m sure the Obama administration will come up with additional declarations that ignore economic common sense and reality to convince people that all is well in these other policy areas as well.

 

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. Reach him through the Web site at www.sbecouncil.org.
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Posted by on Oct 27 2011. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

Post Your Thoughts Below

  • firefist5678

    I”m still waiting for one of you people to actually name some regulations that are “hurting” the economy.  

    • truevoice4real

      I’ve been asking that question for the last 3 years and I have yet to get an answer…..

      • http://www.facebook.com/people/Steven-DiLeo/100000156792866 Steven DiLeo

         Most of regulations that corporations want to get rid are those that are imposed by the EPA, along with union labor laws and tax code.

         

      • http://www.facebook.com/people/Steven-DiLeo/100000156792866 Steven DiLeo

         Most of regulations that corporations want to get rid are those that are imposed by the EPA, along with union labor laws and tax code.

         

        • Tjtsocool

          Safety regulations and workplace safety does not cause someone to not open a business….And I still have not heard what regulations are hurting the economy….

          • http://www.facebook.com/people/Steven-DiLeo/100000156792866 Steven DiLeo

             That’s what I’ve heard, but I don’t agree with those points.

             From my experience building codes and regulations hurt small businesses. I understand the need for them, but their restrictions get a little ridiculous. I went with my uncle  to apply for building and zoning permits in order to build a small convenience store, but the building permit was turned down.  The reason they turned it down was because we told them that we would serve hot coffee and for some reason that ordinance didn’t allow the sale of hot foods.  We had to appeal the decision before the zoning board, and had to go through a process of hiring a lawyer and posting up signs for a month before approaching the board. We were approved for the permit, but we had to spend $300 for the permits, along with $800 for the lawyer to come down and speak for us.

            This isn’t an example of federal regulation, but it is an example of regulations that delayed the start of our business and it cost us a lot of money.

            I like the idea of regulation since it protects citizens from being taken advantage of by larger and wealthier companies, but some laws go too far.

          • Andersontj1973

            energy Candice Miller 
            For the past 20 months, President Obama’s Environmental Protection Agency (EPA) has waged a non-stop assault on U.S. jobs and competitiveness.  Led by Administrator Lisa Jackson, the EPA has sought to regulate everything from the air to dust to milk, all while failing to respond competently to a legitimate environmental disaster in the Gulf of Mexico.  These misguided EPA policies come at a cost of thousands, if not millions, of U.S. jobs—far too high a price to pay for political favors as the economy attempts to recover in spite of Democrats’ failed economic agenda.  Listed below are just some of the actions the EPA has taken recently which will negatively impact the U.S. economy.BACKGROUND:In 2009, the EPA issued an endangerment finding stating that six greenhouse gases, including carbon dioxide, when released in the atmosphere threaten public health and welfare under the Clean Air Act.  This finding was intended to pave the way for EPA regulations on greenhouse gas emissions—a backdoor national energy tax.  Due to political pressure, the EPA has attempted to minimize the economic impact of the endangerment finding for small business entities by issuing a “tailoring rule.”  The tailoring rule temporarily raises the pollution thresholds in the Clean Air Act.  However, the tailoring rule stands on uncertain legal ground, and it expires in 2016.  Afterward, an unaccountable EPA could inflict a massive amount of economic pain by increasing the costs of energy for all consumers, including businesses and farms. While a national energy tax may not clear the 111th Congress, the radical environmental lobby is mobilizing to protect the EPA’s ability to unilaterally and arbitrarily write job-killing regulations.  The EPA, with its broad regulatory authority, seems intent on fulfilling a radical environmental agenda, while destroying jobs and undermining the authority of the American people to work their will through their elected representatives in Congress.  Below are several examples of an out of control EPA flexing its regulatory muscle at the expense of U.S. jobs. ISSUES OF CONCERN:Farm Dust:  In yet another unprecedented regulatory move, EPA issued a draft policy almost doubling the stringency of the standard by which farm dust is regulated.  Many typical farming activities kick up dust—tilling a field, operating a feedlot, even driving farm vehicles on dirt roads.  The economic impact this regulation would have on farmers, especially those in arid climates, would hinder farmers’ ability to maintain production and could bring economic growth to a standstill in the agricultural sector.  Ozone Standards:  The EPA is currently reconsidering national air standards for ground-level ozone, the primary constituent of smog.  The agency has proposed to significantly tighten the standards that were adopted less than two years ago, with no new data prompting this reconsideration.  Standards at the lower end of the range now under consideration would nearly triple the number of non-attainment counties across the U.S.  The EPA’s own figures show that 650 of the 675 currently monitored counties would violate the proposed 0.060 ppm standard.  The EPA estimates that its ozone proposal could add as much as $90 billion per year to the high costs of operating a business.  Those costs would be passed on to consumers.Spray Drift:  The EPA’s new spray drift policy is a major shift from the decades-old acknowledgement that small levels of pesticide spray drift is unavoidable.  The application of pesticides is currently permitted when used in accordance with the label and does not pose an “unreasonable adverse effect.”  Recently, the EPA proposed a new zero-risk standard and would ban application of pesticides in a manner that results in spray drift “that could cause an adverse effect.”  In doing so, EPA adds speculative vagueness to the label language requirements and sets an unachievable standard—leaving agricultural producers open to frivolous lawsuits which kill jobs.   

            Atrazine:  In 2009, the EPA began an unscheduled review of the pesticide Atrazine even though the agency re-registered the pesticide in 2006.  This review is unprecedented because it is outside of normal regulatory guidelines for a registered product.  Atrazine is essential to U.S. agriculture industry.  It is the second-most used pesticide and recent studies show that a ban on Atrazine could cost 21,000 to 48,000 agriculture-related jobs based on corn production alone.  Milk Equals Oil:  Due to the animal fat in milk, the EPA has indicated that milk storage could be regulated under the Clean Water Act like large oil tanks.  It is estimated that this action would cost U.S. dairy farmers thousands of dollars in compliance costs.  The EPA, due to Congressional pressure including legislation sponsored by Rep. Candice Miller (R-MI), has signaled that it would finalize an exemption for milk.  However, it has yet to do so and continues to drag its feet when it comes to finalizing the proposed exemption.

          • http://www.facebook.com/people/Steven-DiLeo/100000156792866 Steven DiLeo

            I guess this argument stems down to whether or not you believe in global warming or whether or not you believe that these restricted practices are harming the health and safety of the consumers.

            Look into why the EPA regulates dust, farming practices, and cap emissions before writing them off as “job killers”.

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