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Mar
27

A Discussion of Whether Regulation Actually Creates Jobs

From: Bomble Magazine

Regulation Creates Jobs?

by Jim Swift

Dubious claims about regulation-created prosperity from OIRA Administrator Cass Sunstein aside, the focus on regulation and its impact on the economy is often either misunderstood or rarely given an in depth look.

However, there is no doubt that regulation creates jobs. Sorry fellow conservatives, we have to be honest and admit that regulation does creates jobs. It creates them in Congress, it creates them in the Office of Information and Regulatory Affairs, it creates them in lobbying firms, at the Government Printing Office, and among truckers, and paper makers.

It also destroys them. Are those new jobs worth the costs?

It is true that regulation creates jobs just as public works projects create jobs. But, does more regulation always equal more jobs? If it did, why wouldn’t we just keeping regulating until we get to full employment? Or why not outlaw Caterpillar and others from making time and labor saving devices, give labor unions preferential treatment (wait, we already do that) and force people to dig with spoons instead of shovels or with machines? What’s the point of jobs if they are meaningless or not necessary?

The answer, of course, is obvious: it would be silly to do either of those things. However, regulations often do do very silly things not terribly different, and yet, oddly, they are sometimes celebrated.

The questions we should be asking are:

  • Do jobs created by regulation supplant jobs destroyed? Do they create more jobs on net, or reduce employment?
  • Are the benefits of regulation worth the costs?
  • Should government be the agent of “creative destruction” or should the market?
The Code of Federal Regulations (CFR) is body of law rarely brought upThe Code of Federal Regulations (CFR) is body of law rarely brought up.

These days, virtually everybody knows about some federal regulation or another. Sandra Fluke and Rush Limbaugh certainly did their part on the contraceptive debate to that end.

How much do Americans know about regulatory policy?

In my experience, not very much at all. Can you briefly explain (pick one) the Congressional Review Act, the Data Quality Act, or the Administrative Procedures Act? Probably not. I don’t have much faith, though, that people know how Constitutional Amendments are passed or Veto overrides occur either. But that’s not the point. The point is that most people know very little about how federal regulation occurs. I know more than most average folks about it, but I am a certainly not a scholarly expert.

My friend Wayne Crews of the Competitive Enterprise Institute is a frequent critic of regulatory malfeasance over at Forbes. He also publishes a yearly work (that I consider a must read) called 10,000 Commandments. His goal is regulatory accountability and transparency. Although voters aren’t very good at firing their elected officials, voters cannot fire regulators. Until they can, it’s best that voters know what they’re up to.

Most people know costs businesses are required to bear are passed on to consumers in some way. Taxes, minimum wage, labor laws — all impose costs that ultimately are reflected in the price of the good or service offered. That’s Econ 101. Regulations are no different. A study that the Small Business Administration commissioned (Crain, 2010) found that annual regulatory compliance costs in the United States surpassed $1.75 trillion in 2008.

Republicans need to come to terms with the fact that, until Obama, President George W. Bush has been the biggest regulator in modern history. President Obama will certainly eclipse him, maybe even in just one term.

Regulation is not a one-party issue. However, more often than Democrats, Republicans have recently been on the right side of sensible regulatory reforms. This is not to say all Republicans are saints and all Democrats are sinners. The REINS Act, for example, is one bill that can make a big difference in regulatory accountability. Another is the Federal Consent Decree Fairness Act, authored by Representative Jim Cooper (D-TN). [Full Disclosure, I worked on both bills during my time in Congress as a staff member.]

Very few people, except some libertarians, push for no regulations at all. I’m not in that camp, but I am somewhat close. No regulations at all will never ever happen, so it’s not even worth examining that as a possibility, even if it is a frequent attack by critics of those pushing for sensible deregulation, regulatory accountability, or questioning the need for certain regulations.

Unless somebody is actually pushing for no regulations at all, odds are the accuser is dumb and needs to resort to such tactics due to a lack of knowledge.

Another author and friend I recommend reading is Professor David Schoenbrod.

His books: Breaking the Logjam: Environmental Protection That Will Work, Democracy by Decree: What Happens When Courts Run Government,and Saving Our Environment from Washington: How Congress Grabs Power, Shirks Responsibility, and Shortchanges the People are all worth reading.

Schoenbrod is a lawyer and a law professor. He served as a legal counsel to the National Resources Defense Council, and spearheaded their effort to remove lead from gasoline. Most of us young people always wondered why they still call it “unleaded” since gas hasn’t had lead since the mid-1980′s.

Congress headed the public’s call and told the EPA to get the lead out of gasoline. Except that they dragged their feet. It’s easy for elected officials to promise such things, but it’s inherently harder to actually make such changes if they are painful to consumers. Removing lead from gas would mean higher prices, and what Congress or administration would pursue such a policy if they wanted to keep their jobs? Schoenbrod puts it this way:

“When legislators themselves enact the laws, they must take responsibility for the rights granted and the duties imposed.” When they delegate this responsibility to another entity, they can take credit for any successes achieved, “while shifting to the agency, or the states, the blame for disappointments and costs.”

Ironically, Schoenbrod points out, that leaded gasoline was actually finally killed by corporations, not politicians:

“Fortunately, lead in gasoline began to decline in the late 1970s, mostly because the pre-1975 cars were being replaced by new cars that could use only unleaded gasoline rather than anything the EPA was doing to protect health. By 1985, so many of the old cars had gone to the junkyard that the large oil companies found it unprofitable to continue distributing leaded gasoline in addition to the unleaded variety. But they did not want to drop leaded gas on their own, for fear of losing market share to small refiners who would still sell it. So Big Oil asked Ronald Reagan’s EPA to ban lead additives to gasoline on the grounds that it is dangerous to health, and the agency complied. The EPA finally got tough on lead, but only after powerhouse corporations, protecting their bottom lines, got involved.”

Here’s a short synopsis of Breaking the Logjam and the proposals he has to make environmental regulations more practical:

The book is based on a project the authors led that incorporated the work of more than fifty leading environmental experts. The project developed concrete proposals for statutory reform in light of four principles. The first is to adopt better tools whenever they can reliably achieve environmental goals. This principle is the most fundamental because it helps achieve the other three. The second is to realign the responsibilities of the federal government and the states so that each level has more effective power over the environmental problems it is best placed to address. The third is to face trade-offs openly and based on reliable information. The fourth is to use cross-cutting regulatory approaches that address underlying causes. These principles have won acceptance from many experts of the left and right, though there are points of disagreement.

There is pretty good consensus among those advocating for regulatory reform that we can adopt methods like the ones Schoenbrod proposes. Of course, as he noted, not everyone is in total agreement — reasonable people will often have disagreements.

If I were Mitt Romney’s administration transition chief, I would suggest making Professor Schoenbrod head of the EPA.

My choice for running OIRA would be Dr. Richard Belzer, a former OIRA economist and regulatory mastermind himself. I had the pleasure of meeting him last year during some of my work on regulatory reform as a staffer.Dr. Belzer authors the site Neutral Source.

In a post about the Obama Administration’s efforts to eradicate “food deserts,” Dr. Belzer notes that the U.S. Department of Agriculture thinks that U.S. Army base near where he and I both live is a “food desert.”

Jokes aside, food deserts are serious — but is it the role of the federal government to eliminate them? How would they? Force Wal-Mart to open a store there? Require Target, 7-11, or mom and pop stores to carry fresh produce? Give money to them to do that?

While regulations can have benefits, like consumer protection and job creation, they also have costs. As I’ve previously mentioned, total regulatory costs can be greater in monetary cost than all federal income taxes. In the words of Marty McFly: “That’s heavy, Doc.”

Regulations also cost jobs in a direct sense, and they also can inhibit economic recovery. Sadly, the debate has devolved into hysterics with right wingers carping about regulations killing jobs, and left wingers claiming that regulations are an engine of job growth. Framing the debate exclusively on these terms is not likely to yield effective reform.

No reasonable person will admit that regulations don’t kill jobs. That’s just a fact. Same with regulatory burdens being passed on to consumers.

Crews puts this hypothetical in this year’s version of 10,000 Commandments:

“For example, suppose Congress wanted to create a job-training program or otherwise to fulfill some
promise to voters. Funding a job-training program would require approval of a new appropriation for the Department of Labor, which would appear in the federal budget— and increase the deficit. Instead, Congress could simply pass a law requiring Fortune 500 companies to fund job training, to be carried out through new regulations issued by the Labor Department. The latter option would add little to federal spending but would still let Congress take credit for the program. By regulating instead of spending, government can expand almost indefinitely without explicitly taxing anybody one extra penny.”

Regulators and elected officials often make mandates via regulation rather than have the government do it. While it makes it appear government isn’t growing — it is growing, like an alien predator inside of otherwise profitable businesses.

A website I often visit that you should book mark is CommonGood.org. They describe themselves as follows:

Common Good is a nonpartisan, nonprofit organization founded in 2002 with the mission of rebuilding reliable legal structures that will permit Americans to use their common sense.

Making choices for the common good is impossible if everyone is tied up in red tape. Reclaiming responsibility requires a basic shift—where law sets boundaries for free choice instead of dictating choices for the lowest common denominator.

I think this is an honorable mission. Very few people would advocate getting an interest-only mortgage, or going to a car title lender, but sadly, a good deal of people think that these practices should be banned. Common Good has it 100% right — dictating choices is not a legitimate role of the federal government. While states have the right to limit choices — or as Ann Coulter put it: “States could outlaw purple hats or Gummi bears under our Constitution!” — they shouldn’t.

To be clear, I’m not for eliminating the rights of states to make bad decisions, that would be a tad hypocritical.

These are the kind of people who fight regulatory reform. They think that they know better than other individuals. In the case of a car-title lender, these people would rather see the last line of credit eliminated for some, and have them suffer, than have other people make poor decisions that could seriously hurt their credit rating.

In short, they are people who do not think that people should have the right to do something wrong. They are the very definition of “Nanny Staters.” They’re the kind of people that mandate billions in economic costs to save an average of 1.2 related deaths and 9 injuries per year in swimming pools. They are nuts.

I’ll tell you that there are some jobs I’d like to see destroyed, and those are some jobs of regulators. Regulatory jobs have been growing at a pace far above normal government employment and in the private sector.

If we ever get to a point where we are serious about regulatory reform, I’d think the same questions should be asked when reforming and (hopefully) de-regulating, namely:

  • Do jobs created by deregulation supplant the amount regulatory jobs destroyed? Do they create more jobs on net, or does it reduce employment?
  • Are the benefits of deregulation worth the costs?
  • Should government be the agent of “creative destruction” or should the market?

Fair is fair, and I think the facts and data will largely support my side: regulatory reform and some good old deregulation, where applicable. Though, it’s always possible there could be more regulators than there would be jobs created by repeal of a certain regulatory practice, and in that case, jobs of regulators should not be our concern if the regulation isn’t truly needed.

If I can leave you with one thought, when an elected official proposes a new law or a regulation, ask yourself this: why?

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