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“More Silliness And Hysteria”: Gripes About Excessive Regulations And Taxes Often Are Baseless

In the last couple of months we have seen the country whipped up into near hysteria over the virtually nonexistent threat of Ebola.

While the only people who contracted the disease in this country were those who treated a man who died of the disease, tens of millions of people became convinced they were in danger on airplanes and public buses and even routine visits to the supermarket.

Politicians have sought to exploit the same sort of fears with their rants about regulations and high taxes sinking the economy. These complaints have as much foundation in reality as the Ebola threat.

The regulation screed usually focuses on the number of pages in bills like the Affordable Care Act and the Dodd-Frank financial reform bill. While lengthy bills are unfortunate from the standpoint of the trees cut down for the paper, the length bears no relationship to the amount of regulation.

To take one example, the Volcker Rule, which prohibits banks with government insured deposits from engaging in risky speculation, ended up more than three times its original length as the industry carved out an array of exceptions. The greater length was associated with less regulation, not more.

Dodd-Frank was about curbing the sorts of abuses that gave us the financial crisis. Is the argument that we need corrupt banks to foster growth?

The screams over the ACA are equally misguided. The rules have little impact on large firms, the vast majority of whom already offered insurance that met ACA requirements. It might have been expected to affect mid-sized firms that did not previously offer insurance, but none of the complainers has yet presented any evidence that these mid-sized firms have been especially hard hit in the last few years.

The tax complaints require some serious amnesia. Tax rates were higher for most people in the 1990s when we saw the strongest growth in almost three decades. We then lowered taxes in 2001 and saw a weak recovery followed by the collapse in 2008.

The explanation for the continuing weakness is not a surprise to those of us who warned of the housing bubble before the crisis. The bubble had been driving the economy both directly through its impact on construction and indirectly through the impact that $8 trillion of housing bubble wealth had on consumption. When the bubble burst, the economy lost its driving force.

The building boom of the bubble years lead to enormous overbuilding of housing. When the bubble burst, construction didn’t just fall back to normal. It fell to the lowest levels in 50 years, costing the economy more than four percentage points of GDP, amounting to $700 billion annually in lost demand. The loss of housing wealth meant that consumption fell back to more normal levels.

While both housing and construction are up from their low-points in the recession, they are not going to return to bubble peaks, at least not without another bubble. This means that the economy continues to have a huge shortfall in demand. Cutting taxes and reducing regulation will not magically fill this gap in demand.

There are essentially two ways to increase demand. One is directly through more government spending. This is currently taboo in Washington since we are all supposed to hate budget deficits.

The other is by reducing the trade deficit. The way to reduce the trade deficit is to make U.S. goods more competitive with a lower-valued dollar. Talk of a lower dollar is also taboo in political circles.

In short, it is not difficult to find ways to boost the economy; the problem is that politics prevents them from being discussed. Instead we get silliness about taxes and regulation.


By: Dean Baker, Co-Founder of the Center for Economic Policy and Research; The National Memo, November 20, 2014

November 23, 2014 Posted by | Economy, Federal Regulations, Tax Cuts | , , , , , , , | Leave a comment

“Dangerous ‘Intended’ Consequences”: The Laughable Logic Behind Marco Rubio’s Plan To Limit Government Regulation

Republicans like to talk about government in the broadest, most abstract terms—arguing that it’s too big, too intrusive, and too expensive. The argument plays well politically, since the public tends to agree. But it also allows Republicans to avoid talking about real trade-offs—like the fact that government unemployment checks help people pay their bills while they are out of work, or that government guidelines for product safety keep kids safe when they play with toys. So perhaps it’s no surprise that the latest big idea from Republicans is a “national regulatory budget”—a proposal by Senator Marco Rubio that, however sensible sounding, could force government to scale back protections that people very much need.

Under Rubio’s plan, an independent agency would calculate the economic costs of all existing regulations. Congress would then set an upper limit on how much regulations can cost the economy—and use that figure to establish caps for each individual federal agency. What would that mean in practice? Imagine that the Environmental Protection Agency wanted to impose a new regulation on pollution. If the EPA was already at its limit, it would have to rescind an old regulation (or regulations) in order to make room.

“The essence of this proposal is a budget accounting mechanism—a one in requires one out. So one regulation in requires a similar regulation to be repealed,” said Amit Narang, a policy advocate at Public Citizen and an expert on the federal regulatory process. “The premise of the legislation is that we are currently at the perfect level of regulation. We don’t need anymore.”

One of Rubio’s goals is to force regulatory agencies to go back through old regulations and eliminate outdated and costly ones. There’s a strong case for that: Government agencies don’t do this very often and plenty of duplicative, cumbersome regulations exist. But Rubio’s method for forcing agencies to review past regulations is clumsy—and, according to many experts, dangerous. Among other things, the plan requires agencies to eliminate a regulation (or regulations) with the same economic cost as the new one. If the EPA wants to impose a major regulation (such as one on coal-fired power plants), it would have to rollback a significant one in return. “It’s not out of the realm of possibility to imagine this kind of budgetary system resulting in, say, the EPA, in order to put forward new chemical regulations—maybe they would have to repeal old lead regulations,” Narang said.

Rubio seems to think that Congress can set an arbitrary cap on the burden of regulations, at the precise level where agencies can ensure public safety without unduly hurting the economy. “This would force federal agencies to enact only those regulations that truly serve an essential role,” Rubio said in a speech at Google’s Washington D.C. headquarters on Monday. “It would put in place and enshrine the cost-benefit analysis and the regulatory framework that we are lacking right now.” Rubio is right that under his plan, federal agencies would have to evaluate their regulations and repeal the ones that had the worst cost-benefit ratio. But Congress could easily set the cap at a level which would force agencies to eliminate regulations whose benefits exceed their costs. That’s a dangerous unintended (or maybe intended) consequence of his proposal.

The ultimate problem with Rubio’s plan is that it actually has nothing to do with cost-benefit analysis. On the contrary, it sets a cap based solely on the economic costs of regulations, regardless of their benefits. Rubio wants agencies to evaluate the current costs and benefits of old regulations (they already do so with new ones), but he wants to ensure that even if the benefits exceed the costs, federal agencies will be forced to do away with many regulations anyway. Rubio says he wants to ensure a rigorous analysis of our regulatory system. What he really wants to do is rig the game.


By: Danny Vinik, The New Republic, March 11, 2014

March 12, 2014 Posted by | Federal Regulations, Marco Rubio | , , , , , | Leave a comment


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