The EPA wrote in February that “in periods of high unemployment, an increase in labor demand due to regulation may have a stimulative effect that results in a net increase in overall employment.”  (http://www.investors.com/NewsAndAnalysis/Article/581555/201108151901/Regulatory-Agencies-Staffing-Up.htm)    If that doesn’t scare you, you must not scare easily.  Our government thinks that by increasing regulation  it can stimulate the economy.  That is both amazing and sad.

Mr. Obama claims to understand the plight of the business community.  Mr. Reid says his key goal is to create jobs.  When she was speaker of the House, Mrs. Pelosi said she would do whatever it takes to create good jobs for Americans.  Together, they passed the American Recovery and Reinvestment Act of 2009.  If you go to the ARRA website, you will find the first words on the page are these:

On Feb. 17, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 at the urging of President Obama, who signed it into law four days later. A direct response to the economic crisis, the Recovery Act has three immediate goals:

  • Create new jobs and save existing ones
  • Spur economic activity and invest in long-term growth
  • Foster unprecedented levels of accountability and transparency in government spending
Among the interesting features of the ARRA or Recovery Act was the huge emphasis placed on monitoring the money and regulating its use.  The plan includes $5.0 Billion for administration of the ARRA programs (the new government programs put into place by this bill) and for the Inspector General’s Office to ensure that funds are used according to the regulations enacted for these programs.  But that is not even the tip of the iceberg.  The authors of the ARRA paid no attention to the added costs to business from the additional rules and regulations created within this Act and its new programs.  It appears the authors of the ARRA, like the EPA think that more regulations will stimulate the economy and create jobs.
Want proof?  Go to the ARRA website and do a search for “regulatory costs.”  The result is 5 (five) hits and all are the same program.  Now search for “new regulations”  You will get 27 hits.  Next search for “rules.”  You get about 1,500 results.  Last, search for “enforcement.”  You will have over 18,000 places to look.  Not counting the raw cost of all that enforcement, the enforcement bureaucracies and the people who work at them, imagine the cost to the companies to comply with the ever increasing and complex regulations.
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So, just for fun, let’s take the spotlight off of Washington, D.C. and the Federal Regulations and their dampening effect on our economy.  Let’s look at state governments, for example, California.  Here is a state, which, like the United States, has a huge economy that has been hamstrung by overregulation.  A study done in 2009 tells all you need to know about how regulation impacts the economy.  Below is a reprint of the Executive Summary.  If you read nothing more than the Executive Summary, I think you will still be struck by the size of the anchor State Regulatory actions have put on the small businesses.  Federal Regulation is as bad or worse in most cases.

This study measures and reports the cost of regulation to small business in the State of California. It uses original analyses and a general equilibrium framework to identify and measure the cost of regulation as measured by the loss of economic output to the State’s gross product, after controlling for variables known to influence output. It also measures second order costs resulting from regulatory activity by studying the total impact – direct, indirect, and induced. The study finds that the total cost of regulation to the State of California is $492.994 billion which is almost five times the State’s general fund budget, and almost a third of the State’s gross product. The cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State’s population. Since small business constitute 99.2% of all employer businesses in California, and all of non-employer business, the regulatory cost is borne almost completely by small business. The total cost of regulation was $134,122.48 per small business in California in 2007, labor income not created or lost was $4,359.55 per small business, indirect business taxes not generated or lost were $57,260.15 per small business, and finally roughly one job lost per small business. This study provides the most comprehensive and complete analysis of the total regulatory burden in California.  (underlining is mine)

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I think that if we want to ‘create’ jobs and improve the economy, more than anything else, we need to reduce the regulatory burden on business.  If we could cut back on over regulation and its cost by just 10% a year it would lower our budget deficit and increase the gross domestic product.
Want some strong evidence that this is an important step we need to take?  In an annual study of global competitiveness by the World Economic Forum, the US dropped from 4th to 5th (behind Switzerland, Singapore, Sweden and Finland).  Most of the factors that kept the US competitive were related to what I call ‘momentum’ – the size of the US economy being the single biggest factor.  However, the negatives which brought the US down a notch for the third consecutive year importantly are in the realm of ‘government activity’.  Quoting from the report:

“On the other hand, there are some weaknesses in particular areas that have deepened since past assessments. The business community continues to be critical toward public and private institutions (39th). In particular, its trust in politicians is not strong (50th), it remains concerned about the government’s ability to maintain arms-length relationships with the private sector (50th), and it considers that the government spends its resources relatively wastefully (66th). In comparison with last year, policymaking is assessed as less transparent (50th) and regulation as more burdensome (58th).”  (again, my underline).

Do you think ‘government activity’ has hurt or helped our economy in recent years?  I think the growth in government and government activity has been mirrored by a drop in productive economic activity.  Within a given budget, a business that must spend a few percent more each year on regulatory and bureaucratic mandates will have that much less for investment in future business opportunities.