In his December 6^th article “The Wonky Liberal”, David Brooks pushes the Obama administration’s mantra that regulations “are not tanking the economy.”  I simply cannot understand how anyone can continue to issue such blanket denials when so much of the evidence points to the contrary.

Winston Churchill once said:  “If you have ten thousand regulations you destroy all respect for the law.”  Between 1976 and 2010 the federal government published approximately 175,000 regulations.  This is a staggering weight that must be carried around by anyone being regulated.  And yes, they were put in by many administrations, but the regulations being finalized by the Obama administration are much more expensive, vastly more complicated and regulate many sectors of the economy.  Mr. Brooks’ points out that the administration of George W. Bush issued about $60 billion in new regulations during his eight years in office, while the current administration has thus far issued “only” about $20 billion in new regulations.  What is not said, however, is that most of the current administration’s signature regulatory programs (e.g., healthcare, Dodd-Frank, EPA greenhouse gas regulations) have compliance costs that are heavily back-loaded.  The real costs of rules issued under these programs won’t hit until after next year’s election or later.  And the breadth and cost of these programs is creating uncertainty for businesses in all sectors of the economy.

Because I am responsible for the Chamber’s advocacy on environmental issues, I will confine my response to regulations issued by the Environmental Protection Agency (EPA).

A decade ago a regulation with a one hundred million dollar cost to industry was a major regulation.  Today, EPA commonly issues regulations with price tags in the billions of dollars.  Few industries are spared: regulatory burden cripples furniture makers; paper mills; cement factories; farmers; iron and steel manufacturers; the construction industry; and (surprise!) virtually all energy sectors.

These regulations not only impact the regulated businesses, they also impact communities that are in non-attainment with a regulation and cannot expand existing businesses or bring in new businesses into the community. 

An anatomy of the regulatory process will demonstrate its insidious impacts on the economic well being of the nation.

Excessive regulations have three very destructive impacts:

1.  They prevent jobs from being created;
2. They cause the loss of jobs; and
3. They systematically destroy human capital.

How the regulatory process prevents jobs from being created

To build almost anything in this country a business needs a permit.  Obtaining the permit for a new power plant, even a wind turbine, factory, a big box store or even a cell tower, takes years to obtain, requiring patience and huge sums of money on the part of the developer.  The Chamber did a study titled Project-No-Project which identified all of the energy projects struggling to obtain permits to build in March of 2010 due to local, state or federal regulatory challenges.  The study found that 351 energy projects were stopped because they could not obtain permits.  And they were not all coal fired power plants.  In fact 140 were renewable energy projects, compared to 111 coal fired power plants.  These projects represent $577 billion of lost investment that would have produced approximately 1.9 million jobs annually for the seven years of construction and 790,000 permanent jobs when the facilities were operating.  But the study could have been on the inability to secure permits for oil exploration, factories, cell towers, big box stores, highway construction or any other activity that requires a permit

It is far too easy for anyone opposed to the construction of any project to stop the project from being built; thereby killing jobs in the community.  Any citizen, no matter where they are located, can sue under EPA’s regulations to stop a project merely by alleging it is in violation of a law or regulation.  Knowing this, it is no wonder why facilities are being built in Asia.

How the regulatory process causes the loss of jobs

This issue is best explained by Arnold Baker, CEO of Baker Ready Mix in New Orleans, in testimony before the House Judiciary Committee on October 25, 2011.  He discusses in specific detail how EPA new regulations on cement will impact his business and the reconstruction of New Orleans.  Mr. Baker states:

EPA Rules Affecting Cement Plants.  One of the most critical ingredients in concrete is cement, which is the “glue” that holds together the other ingredients of concrete:  gravel, sand, crushed rock, fly ash, etc.  Without cement, we could not make and sell concrete.  Just within the last few years, however, the U.S. Environmental Protection Agency has issued or proposed several rules that will adversely impact cement production at U.S. plants.

• “Cement Maximum Achievable Control Technology (MACT)” Rule - This rule imposes extremely stringent new standards for fine particles and other emissions from cement plants.  This rule will require cement companies to install very costly new control equipment.  By itself, this rule is expected to cost $3.4 billion to implement and result in the closure of at least 18 of 100 cement plants across the U.S., over and above the plants that have already closed. As a result, domestic cement production is expected to fall below 50% of the cement consumed in the U.S.; within a few years, more than half of the concrete used on American projects will be made with foreign cement. 
• Fly Ash Rule - Fly ash is added to cement to make it stronger and more durable.  My company now adds fly ash to about 90% of our concrete products to improve their performance and lifespan.   EPA has proposed classifying fly ash as a hazardous material, or, alternatively, as a nonhazardous solid waste with special disposal restrictions.  Either action by the agency is likely to result in customers rejecting fly ash in our products, forcing us to use more costly and less suitable materials. This rule, by itself, could add 10% or more to the cost of concrete. 
• Greenhouse Gas Rule - EPA’s regulatory program to limit CO₂ and other greenhouse gases hits cement plants very hard.  Already, CO₂ emission limits have been proposed for several construction and modernization projects at cement plants.  These limits will result in higher production costs for cement, which in turn will make concrete more expensive. 
• Nonhazardous Solid Waste Definition Rule - EPA recently revised the definition of materials that can be burned for energy recovery in combustion units like boilers and cement kilns.  Many nonhazardous materials that have traditionally been burned for energy recovery in cement kilns – such as tires, used oil, plastic, carpet, and wood waste – now have to be sent to a commercial/industrial incinerator unit.  This means that cement plants will either have to replace these readily available materials with far more costly fuels or install new control equipment in order to qualify as an incinerator.  Either way, their increased costs will be passed along to their customers, including Baker Ready-Mix.  As a result, concrete costs will rise.     

The combination of the four EPA rules described above is anticipated to add as much as $20 to $36 to the cost of every ton of cement that Baker Ready-Mix purchases.  This represents a 33% price increase for one of my company’s most critical manufacturing components.  Because we are a small business, we can’t spread our increased costs over a large number of projects the way larger companies can.  When you consider that a difference of as little as $1 per ton of concrete can determine whether my company wins or loses its bid for a particular project, a cost increase of this magnitude would be disastrous. 

Excessive EPA regulations do have real, adverse impact on his business, they do cause a loss of jobs and the regulations do adversely impact his employees and his community.  But the point is that the cumulative impact of new regulations on cement, paper, wood, furniture, energy, farming, factories, iron and steel, chemicals ripple across the economy causing the loss of factories, construction and jobs.  And this leads me to my final point.

Excessive regulations systematically destroy human capital

When 18% of the cement plants close in the United States due to an excessively stringent EPA regulation, real people—not computer-modeled people—lose their jobs.  These are real jobs, with a real living wage, that support a real family in a real community, with real neighbors. 

Once these people lose their jobs, they effectively become invisible to EPA—so invisible, in fact, that EPA for decades has refused to undertake a mandatory responsibility imposed upon it by Congress to conduct a continuing evaluation of potential loss or shifts or employment which results from the administration or enforcement of environmental laws.  EPA will not even dignify these invisible people with a study, yet EPA and its supporters will casually assert that regulations are not hurting the economy.  If EPA truly believes its jobs rhetoric, then it should do the analysis of the potential loss or shifts in employment due to its regulations.  But it refuses.

EPA needs to be concerned about job losses from its regulations because, the unemployed lose their ability to support their family, have access to health insurance, and pay taxes.  It could create stress and even lead to social problems like increased alcohol use.[1] Life undoubtedly becomes worse for the person who lost his or her job.  And often when that person finds a new job, the pay is generally much less than in the factory.[2]

In the end overly burdensome regulations not only harm the economy.  They destroy real human capital, in real communities.  EPA needs to face reality and turn its attention away from computer-modeled people.  Instead, EPA must turn its attention to real people and the impacts of real job loss caused by overregulation. This nation can no longer afford excessive regulations that destroy jobs and human capital.

[1]  See. E.g., “The Impact of Involutary Job Loss on Subsequent Alcohol Consumption by Older Workers,”  Oxford Journal of Gerontology, Vol. 56, Issue I (Jan. 2001).

[2]  http://www.blsgov/news.release/pdf/disp.pdf