Sometimes the Left Hand Doesn't...
Sometimes the left hand doesn’t seem to know what the far-left hand is doing. Or at least that seems to be the case with the current administration and its capacity for mixed messages. Today’s blog post by Assistant Secretary of the Treasury Jan Eberly is a good case in point. Eberly makes the case that despite what businesses owners and economists are saying, regulatory uncertainty isn’t harming the economy. Timing hasn’t helped either. The same day that Dr. Eberly penned her blog post, Gallup released a poll which noted that regulatory compliance topped the list for concerns of small-business owners with over one fifth of respondents claiming it was their biggest headache.
A few things get lost in the shuffle in Dr. Eberly’s argument. In dismissing the notion that regulatory uncertainty is harming the economy, Eberly cites data that suggest it is not the main cause of economic distress. That is not the same thing as being a cause, or even a significant cause. Eberly argues that since 65 percent of surveyed economists believe that lack of demand, not government policy was the biggest drag on hiring. But what about the 27 percent that cited uncertainty about government policy? If lack of demand is the biggest problem because 65 percent of economists think so, then it follows that policy uncertainty is still a major problem because more than a quarter of the pool of economists Eberly argues are worth listening to think it is. That’s hardly a dismissal of the premise that policy uncertainty is harming job creation.
And let’s take a quick look at some of the indicators used to eschew policy uncertainty as a sea-anchor on the economy. First, invoking strong corporate profits today says nothing about future uncertainty. Moreover, without a counterfactual, arguing that strong corporate profits are good, therefore we can continue to grow the federal register is meaningless. All it says is that from Treasury perspective, businesses evidently can “take it.” Furthermore, comparing spreads across sectors also doesn’t tell much of a story. New costs imposed on whole industries like the financial sector and the health care industry are diffused throughout the broader economy, and will be reflected broadly. Case in point. When Congress decided to price-fix debit card fees, it should have come as no surprise that banks were probably going to stop offering certain services. That’s how markets work. Raise taxes on the medical device industry? Guess what, you’re probably going to have to start paying more for wheelchairs.
It’s also worth noting that Dr. Eberly invokes data that take a more expansive view of uncertainty to include broader policy issues, which necessarily includes taxes and the prospect of significant future tax hikes baked into current law. In this instance, Dr. Eberly’s boss seems to agree. Indeed, in the same hearing from which Dr. Eberly quotes Secretary Geithner, he bemoans the “The tax system we have for businesses, where you have tremendous uncertainty year by year about what the basic tax rates you’re going to pay.” So, who should we believe – Eberly or her boss?
Even if the analysis is confined to the economic incidence of regulations, there’s ample evidence that it’s not insignificant. One widely cited figure is that it costs over $1.7 trillion to comply with regulations. Even if that figure overstates the case, as some have argued, can we all agree that it’s still going to be a pretty big number? That’s what President Obama seemed to think when he announced a new executive order to review regulations. According to the president, “sometimes, those rules have gotten out of balance, placing unreasonable burdens on business – burdens that have stifled innovation and have had a chilling effect on growth and jobs.”
So which one is it? Either regulation and policy uncertainty is a drag on the economy or it’s not. The issue shouldn’t be whether it’s the biggest cause or not. It’s whether it’s a cause at all. If it is, why not fix it. In the context of stubborn unemployment and anemic growth, if public policy is a drag on hiring, maybe it’s worth having policy-makers address it. It seems this dawns on the administration from time to time, and we get the occasional op-ed or candid statement from an official. But then the realization appears to set-in that if policy uncertainty is part of the problem, then policy-makers be part of the problem too.
