Free Markets, Free People
Remember the hot air Obama has given regulatory reform?
In January 2010, he announced a government-wide review of federal regulations to restore "balance" by eliminating those "that stifle job creation and make our economy less competitive." He emphasized that concept again in his 2011 State of the Union speech, referring to "rules that put an unnecessary burden on businesses."
Of course that was all said to deflect a growing belief that his administration was anti-business. Politically, that was unacceptable. So, as usual, he said the appropriate things, things that would help sooth the business community and others who believed that about his administration.
Meanwhile, other than a few fairly insignificant regulations that may have been removed, his administration was piling on new regulations at an unprecedented rate. The Heritage Foundation has put it in a chart for simplicity’s sake:
Heritage issues this disclaimer:
Excessive regulation, of course, cannot be blamed on the White House alone. A great many of the rules and regulations imposed each year are mandated by Congress, and many others are made possible by intentionally ambiguous statutory language. Others are promulgated by so-called independent agencies not subject to White House control (although they are run by presidential appointees). Regardless of responsibility, the result is the same: more burdens for Americans and the U.S. economy.
A reminder for all that for the first two years when most of these regulations were passed into law, Obama enjoyed a Democratic majority in both houses of Congress.
And, huge surprise here, even more regulation is in the pipeline:
The most recent Unified Agenda (also known as the Semiannual Regulatory Agenda)—a bi-annual compendium of planned regulatory actions as reported by agencies lists 2,576 rules (proposed and final) in the pipeline. The largest proportion—505 rulemakings—is from the Treasury Department, the SEC, and the Commodity Futures Trading Commission—all tasked with issuing hundreds of rules under the massive Dodd–Frank statute. The Environmental Protection Agency is responsible for 174 others, while 133 are from the Department of Health and Human Services, reflecting, in part, the regulatory requirements of Obamacare.
Of the 2,576 pending rulemakings in the fall 2011 agenda, 133 are classified as “economically significant.” With each of these expected to cost at least $100 million annually, they represent a total additional burden of at least $13.3 billion every year.
So pardon me for giving whatever this President says a health eye roll of skepticism. He’s not serious about what he says when it comes to regulation and the actions that have taken place under this administration, strictly on the executive side of things, says he’s actually quite fine with increased regulation, regardless of the impact on business.
Bottom line: he remains as most have perceived him to be – anti-business. He continues to be at the head of an administration that does indeed “stifle job creation and make our economy less competitive” through over-regulation.
His deeds belie his words.
One of the claims President Obama made in his State of the Union address was that his administration was engaged in cutting the red tape and doing away with regulations that stood in the way of prosperity.
There is no question that some regulations are outdated, unnecessary, or too costly. In fact, I’ve approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his. I’ve ordered every federal agency to eliminate rules that don’t make sense. We’ve already announced over 500 reforms, and just a fraction of them will save business and citizens more than $10 billion over the next five years.
Of course, like many of his claims, the devil is in the details and upon closer scrutiny, the claim has no real foundation in fact.
His first claim is a carefully constructed lie as Free Enterprise points out:
The White House admits that its rules have so far cost $25 billion, which is much more than at the same point during the Clinton and George W. Bush administrations.
The claim is also couched in non-specifics for a reason. The “500 reforms” are mostly regulations with little or no monetary impact on those who have to satisfy them. However, the administration has added more rules that cross the magic 100 million dollar impact line than any other administration. And, of course, those require, by law, that the monetary impact be assessed. Here’s an example of one (PDF, pg 69):
Enforcement Fairness Act (5 U.S.C. 801 et seq.). This interim final rule:
a. Will have an annual effect on the economy of $100 million or more. This rule will affect every new well on the OCS, and every operator, both large and small must meet the same criteria for well construction regardless of company size. This rulemaking may have a significant economic effect on a substantial number of small entities and the impact on small businesses will be analyzed more thoroughly in an Initial Regulatory Flexibility Analysis. While large companies will bear the majority of these costs, small companies as both leaseholders and contractors supporting OCS drilling operations will be affected.
Considering the new requirements for redundant barriers and new tests, we estimate that this rulemaking will add an average of about $1.42 million to each new deepwater well drilled and completed with a MODU, $170 thousand for each new deepwater well drilled with a platform rig, and $90 thousand for each new shallow water well. While not an insignificant amount, we note this extra recurring cost is less than 2 percent of the cost of drilling a well in deepwater and around 1 percent for most shallow water wells.
b. Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. The impact on domestic deepwater hydrocarbon production as a result of these regulations is expected to be negative, but the size of the impact is not expected to materially impact the world oil markets. The deepwater GOM is an oil province and the domestic crude oil prices are set by the world oil markets. Currently there is sufficient spare capacity in OPEC to offset a decrease in GOM deepwater production that could occur as a result of this rule.
Therefore, the increase in the price of hydrocarbon products to consumers from the increased cost to drill and operate on the OCS is expected to be minimal. However, more of the oil for domestic consumption may be purchased from overseas markets because the cost of OCS oil and gas production will rise relative to other sources of supply. This shift would contribute negatively to our balance of trade.
These rules were proposed in the wake of the BP oil spill in the Gulf of Mexico (GOM). They clearly identify the effect of the rules. Ironically they include increased cost to consumers, more dependence on foreign oil, and a negative increase in the balance of trade – all problems the administration and most economists identify is problems to be solved if the economy is to move forward.
Now, some may argue that these rules were necessary. I’d argue that perhaps some new regulation was necessary, but it should have been a regulation which, to the best of its ability, mitigated the effects listed to the minimum, or eliminated them altogether. Instead, the regulators airily note the effects and then blow them off. In reality, regulators really don’t care if it costs consumers more, deepens our dependence on foreign oil or ups the balance of trade.
In the State of the Union address, Obama tried to grab the middle and pretend he is a friend to small business:
You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country. That means women should earn equal pay for equal work. (Applause.) It means we should support everyone who’s willing to work, and every risk-taker and entrepreneur who aspires to become the next Steve Jobs.
After all, innovation is what America has always been about. Most new jobs are created in start-ups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. (Applause.) Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year. (Applause.)
But again facts undermine the claim. As the Small Business Association reports, regulations disproportionately effect small businesses:
In the face of yet higher costs of federal regulations, the research shows that small businesses continue to bear a disproportionate share of the federal regulatory burden. The findings are consistent with those in Hopkins (1995), Crain and Hopkins (2001), and Crain (2005).
The research finds that the total costs of federal regulations have further increased from the level established in the 2005 study, as have the costs per employee. More specifically, the total cost of federal regulations has increased to $1.75 trillion, while the updated cost per employee for firms with fewer than 20 employees is now $10,585 (a 36 percent difference between the costs incurred by small firms when compared with their larger counterparts).
Say one thing while doing the opposite. Vintage Obama. Tomorrow’s Steve Jobs would have a very expensive uphill climb in today’s regulatory climate. The net effect? $1.75 trillion dollars of cost to small businesses, the place where “most jobs are created” per Obama.
The SBA also reports:
Environmental regulations appear to be the main cost drivers in determining the severity of the disproportionate impact on small firms. Compliance with environmental regulations costs 364 percent more in small firms than in large firms. The cost of tax compliance is 206 percent higher in small firms than the cost in large firms.
Those regulations are primarily driven by OSHA and EPA. And there’s no secret about the expansion of both regulators and regulation being pushed by Obama’s EPA focused on the environment.
The “good” news, however, this is one “shovel ready” project that seems to be creating jobs:
Large, small, global and regional — law firms are opening Washington offices at a rate not seen since before the recession, as they position themselves for work centered around the capital’s regulatory machinery.
Yes, I was being very facetious, however, when sharks smell blood in the water, they tend to gather in large numbers in anticipation of a feeding frenzy. Despite Obama’s claims to the contrary, there’s a reason this is happening, and it isn’t because the administration is lessening or cutting regulations, it is because it is imposing more and needs additional legal enforcement help (there’s also the side that will concentrate on defense).
Don’t forget, the $1.75 trillion dollar cost above applies to only small business. That means that the total cost of regulation is much higher than that. Also don’t forget, when Obama makes his claim about not passing as many regulations as previous administrations, that’s meaningless without an dollar effect numbers. As noted, in regulatory cost to the economy, he’s passed many more costly regulations at this point in his presidency than did the previous administration.
The bottom line, of course, is that A) you can’t believe a thing the man says and B) contrary to his claims, he’s imposed more cost on the economy via regulation, not less.
Finally, if you think it is bad now, wait until ObamaCare kicks in. One of the reasons law firms are beefing up their Washington DC presence is in anticipation of that law going into effect. If you think it’s a regulatory nightmare now, just wait. It’s going to get worse.
Sean Hackbarth, commenting on the increase in lawyers:
Resources spent on paperwork and re-jiggering business plans is less money going to business investment and job creation, but at least we know someone is benefiting from the regulatory pile-on.
Shovel-ready – and not in the good sense.
While President Obama vacations on Martha’s Vineyard, he is supposedly committing to paper a plan to boost employment. During the recession unemployment has remained high, near 10%, and with the economy slowing again, that number is likely to go higher.
One area that hasn’t suffered jobs losses during Obama’s time in office is the government regulatory regime. In fact, it has managed to add a significant number of jobs, all, unfortunately, at the expense of business. While most Americans feel some level of regulation is necessary by the Federal government, over-regulation is always a danger. When that danger is realized, it is businesses who bear the brunt of the cost of compliance. And, of course, businesses pass their costs on to consumers in the price of their goods. So regulation compliance costs drive the price of goods up.
In the past three years of the Obama administration we’ve seen an explosion of regulations. Investors Business Daily brings you the gory details:
Regulatory agencies have seen their combined budgets grow a healthy 16% since 2008, topping $54 billion, according to the annual "Regulator’s Budget," compiled by George Washington University and Washington University in St. Louis.
That’s at a time when the overall economy grew a paltry 5%.
Meanwhile, employment at these agencies has climbed 13% since Obama took office to more than 281,000, while private-sector jobs shrank by 5.6%.
Michael Mandel, chief economic strategist at the Progressive Policy Institute, found that between March 2010 and March 2011 federal regulatory jobs climbed faster than either private jobs or overall government jobs.
Those agencies have churned out new regulations and rules at an amazing rate:
The Obama administration imposed 75 new major rules in its first 26 months, costing the private sector more than $40 billion, according to a Heritage Foundation study. "No other president has imposed as high a number or cost in a comparable time period," noted the study’s author, James Gattuso.
The number of pages in the Federal Register — where all new rules must be published and which serves as proxy of regulatory activity — jumped 18% in 2010.
This July, regulators imposed a total of 379 new rules that will cost more than $9.5 billion, according to an analysis by Sen. John Barrasso, R-Wyo.
And much more is on the way. The Federal Register notes that more than 4,200 regulations are in the pipeline. That doesn’t count impending clean air rules from the EPA, new derivative rules, or the FCC’s net neutrality rule. Nor does that include recently announced fuel economy mandates or eventual ObamaCare and Dodd-Frank regulations.
As mentioned above, regulations and rules impose a significant cost on businesses which must comply with them. In a time when the economy is staggering, these increases in costs delivers another body blow to any recovery. And most of them have been imposed via the Executive Branch through its various Departments and not Congress. The agenda brought to the White House by Barack Obama is being serviced by regulators and the legislators are being left out
"Our economy is continuing to sink," Sen. Barrasso said, "and it’s being weighed down by regulations coming out of this administration."
By 2008, the cost of complying with federal rules and regulations already exceeded $1.75 trillion a year, according to a 2010 study issued by the Small Business Administration.
Worse, the SBA found that small companies — which account for most of America’s new jobs — spend 36% more per employee to comply with these rules than larger firms.
Of course the administration flatly denies what the reports above tell us is happening:
Cass Sunstein, who runs the White House Office of Information and Regulatory Affairs, denies the regulatory upsurge, writing recently that "there has been no increase in rule making in this administration." He also notes Obama ordered a comprehensive regulatory review in January that uncovered $1 billion worth of needless red tape.
As is always the case, never believe what the administration tells you, always look behind the curtain at the facts. And the facts are that 379 new rules have been imposed under this administration and it has 4,200 new regulations “in the pipeline” not counting the exceptions to that count noted in the IBD article. So, as usual, the numbers tell a different story.
If President Obama is serious about creating job opportunities, this is an area in which he obviously exercises direct control via the federal government and the executive branch. Rolling back the regulator regime, suspending all new rules until a comprehensive study can be made of their economic impact and generally getting regulators out of the way of businesses would be a very good start.
Somehow I doubt any of that will find its way into the jobs plan Mr. Obama presents after his vacation.