So’s your mother. And Reagan. And you’ve never run a business!

A few days ago, Paul Krugman noted the evidence-free “rebuttal” offered up by the American Enterprise Institute to Larry Mishel’s takedown of the “regulation is what’s holding back recovery” argument. The title of Krugman’s post -“So’s your mother. And Reagan” – captured the useful content of what I generally hear from those engaged in hand-waving about “job-killing regulations.”

On Tuesday, though, I got to hear another argument from Peter Schiff on John Stossel’s show. I was making the case that it’s hard to see how regulation is driving up costs and robbing firms of profitability given that profit margins (unit profits as a share of total costs) were at their highest  levels in either 42 or 45 years (depending on whether you looked at pre- or post-tax rates*). And, as Brookings’ Gary Burtless has pointed out, if you’re profitable now and fearful of future regulations, then you’d be doing everything you can to produce goods and services for sale now rather than later; we should see strong employment growth in the short-term.

Now, what would keep firms that were making record profits on each unit shipped from deciding to ship even more units and hire more workers to do so? A shortfall of demand (i.e., not enough customers) maybe?

Hearing this argument, Schiff made a careful, empirically-based case for why I was wrong started sneering that I had never run a business. It’s true, I haven’t. But I can look at data.

*The data came from Table 1.1.15 of the National Income and Product Accounts (NIPA) from the Bureau of Economic Analysis – Price, Costs, and Profit Per Unit of Real Gross Value Added of Nonfinancial Domestic Corporate Business.

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  • Ann_Banisher

    No offense, but if I were  say that there was a problem with car transmissions today, would you want to talk to a mechanic…someone who actually works on cars? Or would you want talk to a statistician who can tell you what the numbers say are the overall transmission problem based on aggregate survey numbers?
    I could tell you of a hundred personal specific instances where excessive regulations have not only killed projects, but where they proceed, have driven the costs up enormously. It also led me to quitting my job as an employer to become an employee. The ultimate result, as Mr. Schiff said is that it drives the small business out and consolidates the market to just the few larger employers. Saying excessive regulations don’t cost jobs is the same as saying that excessive energy cost don’t cost jobs either.
    So yes, it does make a difference if you have never dealt with the issue. Get a building permit for a house in Southern California and let me know that the regulations made no difference.