Bloomberg News

Reducing Red Tape Is Great but It Won’t Solve Jobs Problem: View

October 26, 2011

Oct. 27 (Bloomberg) -- To hear some Republicans tell it, the U.S. is stuck in a morass of stubbornly high unemployment for one reason: an unprecedented and vastly burdensome increase in government regulation under President Barack Obama.

This sounds plausible -- what business owner hasn’t felt that government rules impose undue costs? But as a Bloomberg Government analysis showed on Oct. 25, it’s exaggerated. Obama’s White House has approved 4.7 percent fewer regulations than his predecessor at the same point in their administrations. Although the average annual costs of regulation for businesses have risen somewhat under Obama, they aren’t unusually high by historical standards.

But the more important point is this: Although some federal regulations should be scaled back, doing so won’t resolve our unemployment crisis. Pretending otherwise is counterproductive.

Excess regulation is clearly a problem. According to a Gallup poll released Oct. 24, small-business owners say it’s the most important one they face. Tom Donohue, the head of the U.S. Chamber of Commerce, says it costs the economy $1.7 trillion per year. Many Republicans take this as justification for a moratorium on regulation of all kinds.

Targeted Cuts

Although we applaud eliminating red tape -- and there is plenty to eliminate -- it must be done in a targeted and rigorous way. Obama has lately accomplished more in this regard than he’s given credit for. In January he called for streamlining regulations at more than two dozen federal agencies and departments, an effort he says will save about $10 billion over five years, and he later urged independent agencies to do the same. He has risked angering supporters by opposing or reducing regulations on everything from ozone to industrial boilers to startup companies trying to raise capital. He has discovered that popular support for regulation tends to erode in grim economic times.

More could still be done. The Regulatory Accountability Act, a bill that commands a rare measure of bipartisan support, offers a partial starting point. It has many flaws, but it offers ideas for how to subject new regulation to greater transparency and require better cost-benefit analysis. Likewise, there has been too little systematic study of regulations already on the books -- how useful they’ve been, at what cost to businesses and the economy -- and much more should be encouraged. Available evidence about the overall impact of regulation on jobs is too often fragmentary and contradictory.

A Demand Problem

Still, these measures are only likely to help in the long- term. The fact is that we’re recovering from a financial crisis and ensuing recession of unusual magnitude. The resulting lack of demand has made economic recovery, and hence job creation, exceptionally hard.

Look closer at that Gallup poll of small-business owners. Although 22 percent said regulation was their top problem, 27 percent said either consumer confidence or consumer demand. A further 10 percent faulted lack of credit. As U.S. Labor Department statistics show, companies have blamed regulation for dismissing workers in only 79 of 35,807 mass firings tracked since 2007 -- or 0.2 percent of the time. They are much more likely to blame demand or financial issues.

It’s important to bear this in mind as the two big regulatory initiatives of the Obama administration, the health- care plan and the Dodd-Frank financial-reform law, come down the pike. Both impose costs and produce benefits that should be debated. But evaluating them as “regulation” in the abstract is pointless. Some rules are wasteful and anachronistic. Others are essential to protect our competitiveness, safety and environment. They should be assessed transparently and on their own terms.

Simply cutting red tape, as great as that sounds, won’t cure all that ails our economy.

--Editors: Timothy Lavin, Francis Wilkinson

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To contact the Bloomberg View editorial board: view@bloomberg.net.


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