A recent article from the Washington Post challenged the standard conservative complaint that business regulations from DC are crippling job creation. According to the headline, “Economists say overall effect minimal.” Since we believe reducing regulatory hurdles to domestic energy production would create jobs, it’s worth exploring WaPo’s arguments.
First, the article contrasts a coal-fired power plant being forced to shut down because it can’t comply with EPA regulations, versus a natural gas plant that is opening. The moral is that regulations hurt some sectors and help others, so it’s basically a wash.
Even though this analysis omits some important details, it represents a lot of progress. Recently former EPA chief Carol Browner was on the Colbert Report, arguing that the EPA created jobs on net with its regulations. (Rep. Keith Ellison made a similar argument last month as well.) So at least now we’re dealing with a weaker claim, that federal regulations have no impact either way.
How does the WaPo reach this conclusion? It cites data from the BLS:
Whenever a firm lays off workers, the bureau asks executives the biggest reason for the job cuts.
In 2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of “government regulations/intervention.” By comparison, 25 percent were laid off because of a drop in business demand.
This type of argument is hardly conclusive, however. Regulations on business might cripple some firms, which in turn leads to “a drop in business demand” for others. For example, if an asteroid destroyed most of the continental United States, the entire globe would be plunged into an economic depression, even though Europe might not be physically impacted. Indeed, surveys of the businesses that had to shut down in France, Germany, Italy, etc. might learn that the two major reasons were, “Rising costs” and “Falling demand.” It’s possible no CEO would list “asteroid strike” as the primary cause of the problem, even though it clearly would be.
By the same token, increased regulations on conventional energy sources will make electricity and gasoline prices higher for American businesses and consumers. Certain investments and expansions might be postponed, while households might cut their discretionary spending in light of larger utility bills. Many of the affected businesses and workers would have no idea that energy-sector regulations were the primary culprit.
Ironically, the WaPo article concludes by quoting a Stanford professor who actually makes the case against new regulations without realizing it:
Regardless, regulatory experts say that viewing a rule solely through the lens of whether it will cost jobs misses the point.
Noll, [a] Stanford professor, said the government could outlaw tractors to create $5-a-day jobs for people working in the fields, but “that would not be a legitimate social goal.”
“The notion that we should deregulate everything because we have a recession is completely wrongheaded,” he said. “Whether a regulation is a good or bad idea is not a function of employment in the industry being regulated.
“The right question is: On balance, does our society benefit?”
Noll raises some excellent points, but they actually cut against the spirit of the article. He’s certainly correct to say the job creation per se shouldn’t be the goal—after all, the government could order people to dig holes and then fill them back up. In the long run, the labor market adjusts so that everybody who wants to work can eventually find a job. The problem with inefficient regulations isn’t permanently higher unemployment, but rather the problem is that they lead to lower wages, making (employed) workers poorer than they otherwise would be.
Yet that’s not what the current debate over regulations is about. The WaPo piece is explicitly criticizing Republican candidates or officials who blame “job-killing regulations” for the economy’s weak recovery. In this context, Noll’s observations don’t really do the job that the WaPo thinks.
The reason we have high unemployment is that businesses can’t find jobs for workers to do, that will be productive enough to justify wages that the unemployed want to accept. It takes time for this search process to unfold.
One way to speed it up would be to remove federal shackles on energy development. Not only would this immediately make jobs in the energy sector more productive—and thus justify hiring more workers—but the lower energy prices would lead to more opportunities elsewhere in the economy.
Whatever the alleged benefit of the regulations (reduced carbon emissions, workplace safety, etc.) it must be balanced against the costs of reduced output in other respects. After all, if you have workers and other resources installing smokestack scrubbers rather than making TVs, then Americans have fewer TVs to enjoy.
However a person comes down on that tradeoff—weighing the benefits and costs of government regulations—surely the pendulum swings away from more regulations in the midst of a terrible recession. Simply put, Americans are less able to afford regulations that slow job creation at the moment.
Despite the claims of the WaPo article, economic theory and common sense support the idea that reducing federal regulatory burdens on domestic energy production would help stimulate economic recovery.