Administration Keeps Its Head in the Sand About Harm of Regulations

Feb 23, 2012

The Economist’sOver-Regulated America” series of articles has given the administration a little indigestion. I don’t blame them. It’s a hard-hitting look at the growing number of regulations weighing down the American economy. In response to the stories, the Treasury Department’s Dr. Jan Eberly fired off a letter to the editor. This is the same administration official who argued last year that businesses aren’t suffering from regulatory uncertainty, calling it “commonly repeated misconceptions.”

Eberly discounts a study from the Small Business Administration (SBA) that found that the “total cost of federal regulations has increased to $1.75 trillion.” Instead, she uses World Bank data showing that the United States’ regulatory environment hasn’t gotten worse.

A preponderance of evidence suggests that regulations in part have increased business uncertainty which has slowed economic growth. Economists Mark Schweitzer and Scott Shane found "statistically significant negative effects of policy uncertainty on small business owners’ plans to hire and make capital expenditures” and "the net percentage of small business owners planning to hire would be 6 percentage points higher if it were not for policy uncertainty."

Along with this analytical work, we have businesspeople telling pollsters that the mounting pile of regulations are negatively affecting them.

For instance, Gallup released a small business poll asking about their hiring plans. Forty-six percent said they weren’t hiring because of new government regulations.

On the findings, Gallup’s chief economist Dennis Jacobe commented,

“While small businesses are always finding ways to deal with their changing operating environment, including government regulations and healthcare, these added challenges can be seen as exacerbating an already uncertain and difficult situation. In turn, they become additional reasons to hold back on hiring.”

The U.S. Chamber’s most-recent Small Business Outlook Survey has similar findings:

Seventy-eight percent of respondents reported that taxation, regulation, and legislation from Washington make it harder for their businesses to hire more employees, while 74% said that the 2010 health care law specifically makes it harder to hire.

To Dr. Eberly, this is considered merely anecdotal evidence, but she and other defenders of the regulatory status quo can’t ignore persistently high unemployment.

Unemployment has risen from 5% at the start of the recession in 2008 to 8.3% currently. The Congressional Budget Office concluded the United States is “experiencing the longest stretch of high unemployment since the Great Depression.” We simply aren’t growing fast enough to get more Americans back to work, and like it or not, the regulatory environment is playing a role in that.

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