Treasury analysis confirms hollowness of regulatory uncertainty claims
EPI has strung together a series of posts and papers on why regulatory changes enacted and proposed in the past couple of years are clearly not a contributor to the economy’s sluggish recovery from the Great Recession. We’ve been especially critical of the vague claims that “uncertainty” over regulatory change has dampened job-growth. Basically, we’ve done the analysis that anti-regulatory forces have not done – specified just what the evidence would look like if regulatory change or uncertainty was dampening growth and then examining the actual facts-on-the-ground to see if it was consistent with the story. Punchline: it wasn’t.
But we’re just EPI and the debate has seemed a bit lonely; until now.
The Treasury Department, in an important blog post, has reviewed the evidence that we cited and more to assess the case for regulatory changes or uncertainty stifling growth – and they find it as content-free as we did.
Treasury cites low hours per employee (yet to regain their pre-recession peak), low rates of capacity utilization, low bond-rates (even for industries facing regulatory changes), and low rates of financial volatility – along with high profit margins and high rates of investment in equipment and software – as all bolstering the case against regulatory uncertainty as a prime suspect for dampening economic recovery.
As we explained previously, low rates of capacity utilization and average hours per employee argue against regulatory uncertainty as a driver of sluggish growth because even if firms were reluctant, because of uncertainty, to make new permanent commitments to staff or investments, there’s no reason why future uncertainty would cause them to under-utilize their incumbent labor force and capacity. Slack demand, of course, would cause them to under-utilize these. Low bond rates and financial volatility argues that financial markets sure don’t see future uncertainty that needs to be priced into interest rates charged to American business. High rates of profit argue that nothing – not regulatory burden or anything else – has hampered business profitability – and high rates of investment in computers and software argues that businesses lack of spending is not the prime cause for sluggish growth in general. It’s amazing that just three years removed from the absolute meltdown of the most conspicuous experiment in market self-regulation over the past decades, the GOP Congress wants to argue that it’s excessive regulation that is stifling the economy, without providing an iota of evidence.
The Treasury’s post is very encouraging in that it signals an administration that has decisively rejected this view and seems determined to follow the evidence in continuing to push for smart, well-studied regulatory changes without worrying that they’re somehow strangling the recovery. In recent weeks, President Obama himself has undertaken some increasingly powerful pushback on that portion of the GOP jobs-agenda that consists simply of “deregulate.” These developments, along with the administration’s proposal and advocacy for the American Jobs Act show a genuinely fact-based commitment to doing what would really work (and ignoring what wouldn’t) to reduce unemployment.