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.