Why Deregulation Won't Create Jobs
As early as today, the Republican leadership in the U.S. House of Representatives will be bringing H.R. 4078, the so-called “Red Tape Reduction and Small Business Job Creation Act” up for a vote. Like so much of what passes for legislation in Congress these days, this legislation is more a statement of philosophy than a thought out piece of policy.
The title of the legislation says it all: According to Republican orthodoxy, big government regulation is keeping America’s entrepreneurs, the “job-creators,” from doing what they do, create jobs. What America needs is for Congress to ride to the rescue of our beleaguered entrepreneurs and put things aright.
The proposed law is actually comprised of seven different bills, most of which have little to do with creating jobs any time soon and a lot to do with hobbling government over the long run. In particular, the law takes aim at regulation of Wall Street and the fingerprints of the financial lobby are all over this legislation.
The most notable of the bills, the Regulatory Freeze for Jobs Act,would prevent virtually all government agencies from enacting any significant rules for two years or until the unemployment rate comes down to 6 percent, whichever happens first.
But two other bills in the legislation directly aim to sabotage the work of the SEC and CFTC, the main watchdogs over our financial system.
The SEC Accountability Act would beef up rules that require that agency to conduct cost-benefit analyses of new rules. Over the past year, Wall Street lobbyists have exploited the existing requirements to slow down and derail rule making required by Dodd-Frank. Now House Republicans are hoping to throw even more sand in the gears.
The law would also impose a stronger cost-benefit analysis requirement on the CFTC, which oversees the vast derivatives market. This would weaken the CFTC, a clear goal of House Republicans who recently proposed cutting the CFTC budget's request by 41 percent. Never mind that recent scandals, including at MF Global, have underscored the importance of strengthening the CFTC.
Facts have very little to do with the House Republicans’ narrative about jobs and regulation.
- Research has failed to establish a link between regulation and increased unemployment.
- Surveys consistently show that small business owners do not see regulation as a major impediment to growing their companies.
- The cause of the current recession, which has cost millions of Americans their jobs, was inadequate regulation of Wall Street banks, not too much regulation.
- Unemployment was under 5 percent in 2007, even though nearly all of today's regulations on business were in place.
The one thing this legislation gets right is the problem—America’s high rate of unemployment. Unemployment, particularly long-term unemployment of which there is more now than at any time since at least 1948, when government began keeping track, is causing immense suffering for millions of unemployed individuals and their families. Beyond the obvious financial hardships, we know that unemployment leads to increased rates of suicide, particularly among those of working age.
The unemployed deserve a thought-out solution to the challenges they are facing, rather than posturing by their political leaders. In his book,>End this Depression Now, Nobel prize-winning economist Paul Krugman shows that what is needed to put Americans back to work is more, not less, government involvement in our economy.
Currently, entrepreneurs, the aforementioned heroes of the Republicans’ narrative, are unwilling to invest and hire workers, because they believe that there is inadequate consumer demand for their products. Cutting regulation is not going to alter this basic problem.
As Krugman explains, the way out of our current troubles is for government to step in as the consumer-of-last-resort. For example, by paying for teachers and other state and local government workers to be rehired, the federal government could put money into consumers’ pockets, which they would spend at local businesses. That increase in spending would give businesses the confidence they need to expand and thereby help get our economy back on track.