Even More Evidence Disputes Claims that Regulation Is Stalling Economic Recovery, But Regulatory Opponents Continue to Press Their (False) Claims

by Sidney Shapiro

Republicans in the House have spent much of the fall trying to blame regulation for the nation’s slow economic recovery.  The fact that there is no reasonable evidence to back up this claim is apparently not a concern for the regulatory opponents.  Moreover, regulatory opponents skip entirely over the impacts of the failure to regulate, pretending that while regulation imposes costs on the economy, the failure to regulate does not. 

Now, there is even more evidence of that regulation cannot be blamed for our current economic woes. The head of the Congressional Budget Office has testified that regulation is not a drag on the economy.   And we have learned from a terrific AP report that the same business firms that have told Congress that proposed environmental regulations are a serious problem have told the Securities and Exchange Commission (SEC)—the federal regulatory body that regulates the stock market and protects investors from corporate abuses—that the impact is unknown or will not be significant. 

The campaign against regulation is built on pillars of sand.  Regulatory critics claim that regulation has a price tag of more than a trillion dollars, but the study used to back up this claim has been thoroughly discredited by the Congressional Research Service, among others. They also call regulation a job-killer, but existing studies (see pp. 15-17) find regulation has either no overall impact on jobs, or, in some cases, it actually increases employment.   Regulatory opponents also claim regulatory uncertainty is holding back the economy, preventing the United States from emerging from the current recession, but the Treasury Department, among others, has rebutted this claim.

The jobs claim was dealt yet another blow in testimony by CBO Director Douglas Elmendorf, who appeared before the Senate Budget Committee on October 15.  Elmendorf said, “[I]n CBO’s judgment, the economic effects of the specific changes in regulatory policies or other policies apart from fiscal policies that are discussed in this testimony probably would be too small or would occur too slowly to significantly alter overall output or employment in the next two years” (p. 4). He went on to say that stopping proposed environmental regulations in particular might lower output and employment in the next two years (p. 51).   In other words, the CBO Director is saying that the Republicans’ plan to increase employment – by halting environmental regulations among others – is not only unlikely to work, but may even backfire, sinking the economy more and worsening unemployment. 

Congressional hearings and regulatory dockets are littered with claims that a proposed regulation by EPA, OSHA, or some other agency will do serious damage to an industry, including putting it out of business.  Plenty of such claims can be found in the current Congress as well.  But the same firms that claim proposed regulations are calamitous tell the SEC a different story—that regulations are having little or significant impact on their bottom line.  And what these businesses tell the SEC is far more credible, since they have strong incentives to tell the truth.  Under federal law, investors can sue these firms for filing false claims with the SEC, and therefore they will not peddle the same horror stories there unless they have strong evidence to actually back it up.

Real life experience with regulations also matches what these firms are telling their investors.  When EPA and OSHA have completed retrospective reviews of the impact of regulations, as they are required to do by the Regulatory Flexibility Act, they have invariably found that there were no serious economic dislocations (p. 10).  Business firms are offered a chance to dispute these findings, buy they have filed almost no claims that the agency evidence was incorrect.

Worst of all, the anti-regulation campaign deliberately ignores what is at stake in the debate over regulatory safeguards.   Opponents claim that regulation creates costs for the economy and that the failure to regulate does not.  But regulations do not impose new costs on society.  Rather, they simply re-allocate who pays the costs.  In other words, when a regulation is blocked, the costs to industry of that regulation do not vanish into thin air.   Instead, those costs continue to be imposed on the general public, in terms of lives lost, preventable cancers, and serious injuries. Think of the BP Oil Spill, the Upper Big Branch Mine Disaster, and the almost yearly outbreaks of serious food poisoning that have killed many and injured hundreds more.   And, of course, the current recession is attributable to the failure to regulate Wall Street effectively.

Regulatory opponents are counting on their rhetoric and access to millions of dollars in advertising money to overcome the policy evidence, which contradicts their claims.   Unfortunately, it is the public who will pay the price if this tactic succeeds.



© 2009 The Center for Progressive Reform