Deregulation As A Jobs Program…Really?

September 3rd, 2011 at 4:42 pm

Though it tops recent lists of Republicans’ jobs proposals, I find it very hard to take seriously the idea that deregulation would move the jobs needle at all.  Here’s why.

To put it economic terms, the dereg crowd vastly overestimates both the magnitude of regulations and the elasticity to which that magnitude is applied.

To estimate a jobs impact of a policy change, you need to know the magnitude of the change (X) and an “elasticity” (e) to map that change onto job gains or losses.  If research shows that a 1% tax on soda (that’s X) will reduce soda consumption by 0.5% (that’s e) then it’s fair to guess that a 10% tax will reduce soda sales by 5%.

The R’s making this argument in the regulatory context exaggerate both X and e.

Re X, the first problem, as meticulously described in this analysis of EPA anti-pollution regs by the nonpartisan Congressional Research Service, is that the costs typically assumed by industry lobbyists are a lot higher than what actually comes out of the policy process.

The WaPo, in an excellent editorial today on these points, summarizes the CRS findings:

“Fears of disruption to the power sector are overblown, the CRS said: Newer coal power plants already have pollution controls, and many older ones are set to shut down anyway, in part because burning cleaner natural gas is now so cheap. Meanwhile, studies that many critics continue to rely on in their forecasts of expensive regulatory disaster assume stringent provisions that the Obama administration never proposed.”

Second, and this creates an upward bias to both X and e, you can’t only count the costs of regulations, you have to consider the benefits as well.  Again, from the WaPo editorial:

“Reasonable people can disagree on how much economic cost is worth bearing for how much environmental benefit. But the Republican critique seems to deny that such a trade-off even exists.”

Suppose an allegedly “job-killing” regulation led to the improvement in public health, thus decreasing health costs or lost work days.  To ignore these factors is to inflate both X and e.

Third, I know of no good, clean estimates of e.  Perhaps this has to do with the difficulty measuring X, the true cost of such regs, as the CRS document elaborates.  The phase in and implementation of these regs is much harder to measure than a tax change or minimum wage increase, where you have a better chance of cleaner analysis.  But whatever the reason, the job-killing claims are largely, if not wholly, speculation.

This also squares with recent history and what employers themselves tell us (re that link, these McClatchy folks consistently do great work getting at the facts behind misleading political arguments).  The regulatory regime simply hasn’t changed much over the years, and much of what they do complain about has been around forever.  I’ve heard lots of complaints over the years about safety regs, worker comp claims, anti-discrimination cases, and I know for a fact, putting aside any value judgments about their importance, that these regs absorb employers’ time and money.

But there’s nothing new here.  In fact, these R’s clamor for deregulation (and tax cuts) in good times and bad, which should also make you suspicious–they’re just appending the word “jobs” to their permanent agenda.*  What’s new–although it’s gettin’ pretty old–is that demand crashed in the Great Recession and without customers, there’s no incentive to hire.

If anything, the regulatory regime was more business friendly in the Bush versus the Clinton years, but employment grew about four times as fast in the Clinton years on an annualized basis.

And what’s most incredible about this Republican talking point is that it’s precisely lax regulation, specifically in mortgage underwriting and financial markets, that got us into this jobless mess in the first place.

At the end of the day, this is really just a case of the folks who drove us into the ditch clamoring to get the keys back.

*Another WaPo article today points out the following (my bold):

“Rep. Cynthia Lummis (R-Wyo.) had previously failed to win passage of a bill to help the soda-ash mining industry in her state. This year, she introduced the same idea with a new name: “Soda Ash Royalty Extension, Job Creation, and Export Enhancement Act of 2011.”

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12 comments in reply to "Deregulation As A Jobs Program…Really?"

  1. Russ Abbott says:

    Besides everything you said, here’s one more point. Companies are sitting on a pile of money. We want them to spend it. A good way to get them to spend it is to insist that they upgrade their environmental protection processes. Requiring that money be spent on environmental protection is a jobs creator not a jobs killer. Why doesn’t anyone understand that?


  2. Russ Abbott says:

    I see that Paul Krugman says the same thing:


  3. bloodnok says:

    >At the end of the day, this is really just a case of the folks who
    >drove us into the ditch clamoring to get the keys back.

    rilly?

    sure seems the idiots who drove us into the ditch have remained in the driver’s seat.

    we still have two “declared” wars and a bunch of undeclared wars going on in the muslim lands. we haven’t done squat about the greedy bankers that defrauded and robbed us. we done nothing about the huge numbers of jobless.

    how is any of this different from the actions of the cheney administration?


  4. David Welker says:

    Great post.

    But, my concern is this. Ideology trumps facts.

    Many people WANT to believe that the reason the economy is not recovering is uncertainty caused by so-called “job-killing regulation.” That is what they prefer to be true.

    I mean, given the differences in economic regulation, tax rates, and economic growth in the Clinton years versus the Bush years, it should be quite clear that the negative effects of both marginal tax rates and regulation itself on economic growth are greatly exaggerated.

    But when mere facts compete with what people WANT to believe, usually mere facts don’t stand a chance. That may sound cynical, but I think it is mostly true. At least in the realm of politics.

    Confirmation bias and other cognitive biases seem to be very powerful when combined with ideology. For both conservatives and liberals and probably all human beings who have strong political convictions. At least this is what I think I have observed to be true.


  5. Dan Furlano says:

    Just like the republican “health care reform” was nothing more than shifting costs from the public to the private sector deregulation is exactly the same.

    The republican proposal is not about job creation as much as it is wealth redistribution. In this case the desire is to push costs to individuals and the benefits to the top 1%.

    This type of burden shifting deregulation increases health related diseases, occupational hazards, or financial inequality.

    It has nothing to do with job creation.

    The grand manipulation continues.


  6. general c. san desist says:

    …seems we are about to make the same mistake Morgenthau championed, to strip of the bandages, throw away the crutches and let the economy see if it could stand on its own feet. So they balanced the budget in ’37 & slipped further into Depression.

    The Government, declared Eccles, must be the compensatory agent in this economy; it must unbalance its budget during deflation and create surpluses in periods of great business activity.

    As to the Conservative Brotherhood yammering about the rise in unemployment when Barry’s team said it would return to 8%…well, let’s not forget WS Gifford’s famous mea culpa in 1931. He stated in the winter of 1930 that this Depression will pass. Chastened, shortly after his appointment by Hoover, he added…I am through predicting business conditions.


  7. urban legend says:

    The “jobless mess” pre-dated collapse of the housing bubble. The bubble masked the mess already in place, and it did not even succeed in getting us back to the employment-to-population and consumer confidence levels we saw in 2000. It goes a lot deeper than the real estate and financial collapse.


  8. John B. Chilton says:

    Russ is being coy. Jared’s post drips with unintended irony given Obama’s very very recent decision to break its promise to revisit Bush’s decision on ozone. Obama’s administration had said the Bush regulations were slack and not science based.

    http://www.npr.org/2011/09/02/140151963/obama-withdraws-suggested-epa-changes


  9. Jeff H says:

    As Russ said above, and you left out of your post, regulations force spending. Spending creates jobs, after all, some one has to do the work to get that plant in regulation.

    I just don’t get why everyone isn’t swinging from the ceiling screaming this stuff. Is it better for energy company X to pay out more to their board in dividends, or is it better for them to pay someone to rehab their plant?

    Nothing I have seen says job killing except for a bunch of looney Republicans.

    And we aren’t believing their nonsense now, are we?


    • Jared Bernstein says:

      Clearly, plants would argue that forced spending in one area–to meet new regs–would force them to do layoffs elsewhere, and depending on their internal economics, that could be right. So not necessarily net new jobs.


  10. Ken M says:

    Clearly this is at least an indirect comment on the Obama ozone decision, but why not make a direct one? You have been on the inside and know the players. It would really be helpful if you could use that knowledge to help explain what in the heck is going wrong in the inside-the-white-house thinking! I gather you feel some political constraints that keep you from directly criticizing the Obama administration, but I believe the more frankly you can talk about what is going wrong, the better it will be for all of us.

    Thanks.


  11. rhonda houston says:

    Upon receiving information that President Obama asked EPA Administrator Lisa Jackson to withdraw the proposed new national ozone standards, delaying until at least 2013 a safeguard that would protect our families from dangerous smog pollution, lead me to do some further research that was available.

    After reading this posted for all to see/read and to my sicking feelings in regardsto my country & general health conditions that will be left behind, this notice from President Obama has to be the opening and allowing the environmental protection field to be downgraded for the signing of the Keystone XL pipeline’s permit signing. (http://en.wikipedia.org/wiki/Keystone_Pipeline)

    Again, this is where money/greed, corporations, and politicians rarely come back around to ‘see what they have left behind’, as what took place with NAFTA, will take place with this moneying making super corporation event. All of which, if this goes through, Obama can count on me NEVER VOTE FOR HIM IN 2012 BECAUSE HE HAS SOLD US AS A COUNTRY DOWN THE TUBES. THIS IS JUST LIKE NAFTA, WHICH LEAVES THE PEOPLE LIVING IN THIS COUNTRY AT THE MERCY OF THE CORPORATION WHO WANTS TO MAKE MONEY. If the permit is given, our country is on its way to more human damage, but the corporation still makes more. (see below)

    Keystone XL
    The Keystone XL extension was proposed in 2008.[8] The application was filed in the beginning of 2009 and the National Energy Board of Canada started hearings in September 2009.[9] It was approved by the National Energy Board on March 11, 2010.[10] The South Dakota Public Utilities Commission granted a permit on February 19, 2010.[11] However, in its March 2010 report, the Natural Resources Defense Council stated that “the Keystone XL Pipeline undermines the U.S. commitment to a clean energy economy”, instead delivering dirty fuel from oil sands and high costs.[12]
    On June 23, 2010, 50 Members of Congress spoke out against the Keystone XL pipeline. In their letter to Secretary of State Hillary Clinton, they warned that “building this pipeline has the potential to undermine America’s clean energy future and international leadership on climate change.”[13][14] On July 6, 2010, House Energy and Commerce Committee chairman Henry Waxman urged the State Department to block Keystone XL, saying in a letter to the department that “this pipeline is a multi-billion dollar investment to expand our reliance on the dirtiest source of transportation fuel currently available”.[15][16] On July 21, 2010, the Environmental Protection Agency said the draft environmental impact study for Keystone XL was inadequate and should be revised,[17][18] indicating that the State Department’s original report was “unduly narrow” because it didn’t fully look at oil spill response plans, safety issues and greenhouse gas concerns.[19] The final environmental impact report was released on August 26, 2011. It stated that the pipeline would pose “no significant impacts” to most resources if environmental protection measures are followed, but it would present “significant adverse effects to certain cultural resources”. The final decision is expected by the end 2011.


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