rep. cantor has it backwards: common-sense regulation saves money and protects jobs

8/8/2019 Rep. Cantor Has It Backwards: Common-Sense Regulation Saves Money and Protects Jobs

1/4

Job creation will be his partys job number one, House Majority Leader-to-be Eric Cantor (R-VA)promises. In a post-election policy statement, Cantor takes aim at rules, regulations and statutesthat impose additional, unnecessary costs on employers and job creators. Te annual cost of federalregulations in the United States, he warns, increased to more than $1.75 trillion in 2008. 1 Tat gure 30 times greater than a recent assessment by the federal Oce of Management and Budget - isdebatable to say the least. But while the math is suspect (more about why below), the thinking is also

strangely disconnected from Americas recent experience with regulation and economic well-being.

Nowhere in this 16-page document is there anymention, for example, of the badly under-regulatednancial sector whose excesses triggered thecurrent economic tragedy. Also conspicuouslyomitted are the biggest mining disaster in fourdecades and the worst undersea oil leak (and one ofthe worst environmental tragedies) ever.

When business managers analyze expenses, they

generally also seek to measure what they aregetting in return. But when it comes to the subjectof regulation, Cantor and some of his colleagueshave shown little interest in that side of the question in why rules exist, and what they can and haveaccomplished. We hear a great deal about the costs of having rules, and almost nothing about thecosts of not having them.

Some of those costs, such as the suering of the families and communities of the 29 men killed in theUpper Branch mine explosion of April 2010, cannot be expressed in dollars. But the purely economicimpact has been huge in its own right.

COSTS OF THE FINANCIAL MELTDOWN

Cantor equates more rules with fewer jobs, echoing the drumbeat of other Republican leaders and ofa Tis Way to Jobs ad campaign funded by the United States Chamber of Commerce. And yet, sincethe nancial crisis of late 2008, the U.S. has lost an estimated 7.8 million jobs along with some $10trillion in household wealth.2

Cantor expresses particular concern for the small-business community. But small businesses havesuered disproportionately from inadequate nancial regulation, losing 6.4 million jobs betweenDecember 2007 and June 2010.3 Many small businesses have simply ceased to be; they can be foundamong the record-breaking 132,000 bankruptcy lings between 2007 and 2009.4

R E P. C A N T O R A N D T H E C H A M B E R O FC O M M E R C E H AV E I T B AC K WA R D S :

C O M M O N - S E N S E R E G U L A T I O N S AV E SM O N E Y A N D P R O T E C T S J O B S

BY JAMES LARDNER

A DEMOS BRIEF

F F:Te annual cost of federalregulations in the United States increasedto more than $1.75 trillion in 2008.Tese regulations cost small businesseswith fewer than 20 employees as muchas $10,585 per employee Rep. EricCantor (R-VA)

From Delivering on Our Commitment: A Majorityto Limit Government and Create Jobs.


2/4

Many surviving enterprises remain wary, with reported and planned capital spending at a 35 yearrecord low according to a recent survey by the National Federation of Independent Businesses.5 Andeven the most condent small business managers often complain about their inability to get creditfrom a banking sector that, without eective regulation, tends to oscillate between extremes ofrecklessness and stringency - its current mindset. Te number of small businesses reporting dicultygetting loans doubled from 7 percent in December 2007 to 14 percent in September 2010, accordingto the NFIB report.

COSTS OF THE GULF OIL SPILL

Small businesses have also been prime victims of the Deepwater Horizon drilling disaster, and,therefore, of the robo-signing of permits and other regulatory lapses that made it possible. Lossesto the Louisiana shing industry alone have been put at between $468 million and $700 million an estimate that does not include anticipated, but often slow-in-coming, payments from BritishPetroleum. Several thousand Louisiana shing jobs have disappeared, according to one recent study.6Troughout the Gulf coast, restaurants, hotels, and other tourism-related businesses have beendevastated - both by the reality and by the perception of damage. Tose impacts will likely be felt foryears to come.

While the overall toll is hard to measure, there is no reason to think that it will be less than the $40billion that BP has allocated; the company says it has already spent more than $11 billion on cleanupcosts.7

FUZZY MATH

Although Cantors document lacks citations, his cost-of-regulation data appears to have been drawnfrom a paper by Nicole and Mark Crain, two economists working under contract to the U.S. SmallBusiness Administration. Te Crains did not actually set out to assess the overall cost of federalregulation; the focus of their research, rather, is on the ways in which rules sometimes impose extraburdens on small businesses. Unlike Rep. Cantor, they forthrightly acknowledge their failure to takeaccount of the important and substantial benets of regulation.8

In arriving at their total, the Crains looked at a wide variety of measures that businesses must takein order to comply with federal regulations and statutes. But many such requirements involve healthand safety precautions that responsible businesses would take in any case for example, trainingemployees in the safe storage and disposal of toxic chemicals, so that no one decides to simply dumpthem down the drain in the name of saving time.

Such factors may help explain why the Crains total is not just higher, but orders of magnitude higher,than other such assessments. Te White House Oce of Management and Budget, after examiningthe costs of federal regulation for the year 2008, came up with a gure of between $43 and $55 billion.9Te OMB put the benets of regulation that year at between $128 and $616 billion, which would be agood rate of return on any investment.10

JOB-CREATING REGULATION

Regulations are often enacted in the wake of calamities, and in the spirit of ensuring that Tis shallnever happen again. Common-sense rules can, in fact, help avert disasters by guarding businessesagainst the temptation to take dangerous long-term risks in pursuit of short-term gain. But, in thesame way, rules help create stable markets in which the energy and imagination of the business worldare directed toward products and services of lasting value.

Te past century oers many examples of industries that ourished, generating many new jobs,under regulations that lifted standards, protected companies from insider fraud and recklessness, and


3/4

established bonds of trust between sellers and buyers.

Te pharmaceutical world is a notable example. In the largely unregulated environment of the 1920sand 30s, anyone with a bathtub and a chemistry set could set up shop as a pharmaceutical company,and the honest rms found it hard to compete with the hucksters. It was only after safety regulationtook hold that the U.S. began to have an industry of drug makers with labs, scientists, and a realinterest in understanding and documenting the eects of their products.

Te banking world followed a similar path after the reforms of the 1930s and before the aggressivenancial deregulation of the 80s and 90s. Te regulations of the New Deal era (deposit insurance,leverage limits, and transparency requirements, among others) did not just end the avalanche of bankfailures that had greeted President Franklin Roosevelt on his arrival in oce. Tey helped bring anend to the era when many Americans thought it was safer to keep their money under the mattress.Te banking industry grew and prospered, unspectacularly but sustainably. Strong regulation helpedgive America a half-century respite from the panics and depressions that had been regular anddevastating occurrences since before the Civil War.

A LONG TRADITION OF HYPERBOLIC FORECASTS

Apocalyptic predictions have been a mainstay of the attack on health, safety, and worker protection

rules for decades. Again and again, experience has failed to fall into line with the claims of trade-association lobbyists and free-market ideologues.

In 1974, the newly established Occupational Safety and Health Administration announced a set ofrules to reduce worker and public exposure to vinyl and polyvinyl chloride two resins identied asmajor contributing factors to liver cancer. Te aected manufacturers claimed at the time that theywould have to spend a combined $90 billion, and terminate thousands of workers, in order to comply.oting up the results a decade later, the Reagan administration found a signicant decline in deathsfrom liver cancer, achieved at a cost of $300 million (1/3 of 1 percent of the forecast) and zero jobs.11

In the run-up to passage of the landmark Americans with Disabilities Act, then-congressman omDeLay (R-ex.) warned that the costs to the nation and the economy would go way beyond thebounds of reason.

Yet retrospective studies of that law have found the price tag for the typical workplace adaptation to beunder $100. Te ability to employ someone with a disability often turns out to depend on somethingas simple as raising or lowering a desk, or modifying a dress code or work schedule. Tere have beensurprises on the benet side of the ledger, too. Ramps, curb cuts, and wheelchair lifts have made lifeeasier for people with baby carriages and delivery carts. Color-coded stocking systems, designed forworkers with reading or vision problems, have raised the eciency of warehouse workers generally.Tanks to a ramp or a wheelchair-accessible bathroom, many companies have discovered that theycan hold onto an older worker (and her experience and knowledge) despite an illness or injury thatwould have spelled retirement in the past. We hear a lot about the unintended consequences ofregulation. Te story of the Americans with Disabilities Act reminds us that many of those unintendedconsequences are good ones. 13

Tere are real questions to be raised and debated about the eects of regulation on employment andeconomic prosperity. In order to have such a discussion, though, elected ocials and others will haveto be willing to look at the whole story, and not just at pieces of data that conform to their ideologicalpreconceptions. Sadly, we are not there yet.

Te Author would like to thank John Winkel for research and assistance.


4/4

MEDIA INQUIRIES

Tim Rusch, Communications Director

[email protected]

212-389-1407

ENDNOTES1 Eric Cantor, Delivering on Our Commitment: A Majority to Limit Government and Create Jobs. House

Republican whips office, November 2010. http://republicanwhip.house.gov/Majority/Cantor.pdf

2 Daniel Carroll, Recent Changes in Household Net Worth, Cleveland Federal Reserve Bank, Oct, 7, 2010.http://www.clevelandfed.org/research/trends/2010/1010/01houcon.cfm. Chad Stone, Statement on theSeptember Employment Report. Center on Budget and Policy Priorities, Oct., 8, 2010. http://www.cbpp.org/cms/index.cfm?fa=view&id=3303. 2007-09 foreclosure data from Debbie Gruenstein Bocian, Wei Li, and Keith S. Ernst, Foreclosures byRace and Ethnicity: The Demographics of a Crisis. Center for Responsible Lending, June 2010. h ttp://www.responsiblelending.org/mortgage-lending/research-analysis/foreclosures-by-race-and-ethnicity.pdf. 2010 data from Realtytrac, National Real Estate Trends. http://www.realtytrac.com/trendcenter/

3 Automatic Data Processing, Small Business Report. http://www.adpemploymentreport.com/indexsbr.aspx

4 American Bankruptcy Institute, Annual Bankruptcy Filings, 1980-2009. http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=60229

5 National Federation of Independent Businesses, Small Business Economic Trends, October 2010. http://www.nfib.com/Portals/0/PDF/sbet/sbet201010.pdf

6 Greater New Orleans Regional Economic Alliance, Oil Spill Economic Impact Study, Oct. 15, 2010.http://gnoinc.org/news-events/gno-inc-unveils-oil-spill-economic-impact-study

7 Graeme Wearden, BP oil spill costs to hit $40 billion, the Guardian, Nov. 2, 2010.http://www.guardian.co.uk/business/2010/nov/02/bp-oil-spill-costs-40-billion-dollars. Brian Skoloff andJane Wardell, BPs oil spill costs grow, Gulf residents react, Associated Press, Nov. 2, 2010.http://www.newsobserver.com/2010/11/02/776552/bps-oil-spill-costs-grow-gulf.html

8 Nicole V. Crain and W. Mark Crain, The Impact of Regulatory Costs on Small Firms, Small BusinessAdministration Office of Advocacy, September 2010. http://www.sba.gov/advo/research/rs371tot.pdf

9 Office of Management and Budget, Office of Information and Regulatory Affairs, 2010 Report toCongress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, andTribal Entities. http://www.whitehouse.gov/sites/default/files/omb/legislative/reports/2010_Benefit_Cost_Report.pdf

10 http://www.sba.gov/advo/laws/regflex.html

11 Bollier & Claybrook, Freedom from Harm: The Civilizing Influence of Health, Safety, and EnvironmentalRegulation (Public Citizen, 1986), 147

13 William G. Stothers, After 10 Years, the ADA is Changing the Landscape of America. Center for anAccessible Society, July 2000. http://www.accessiblesociety.org/topics/ada/ada10thannivoped.htm. BenMattlin, Looking Back On 20 Years Of Disability Rights. NPR, July 26, 2010.

.org
http://republicanwhip.house.gov/Majority/Cantor.pdfhttp://www.clevelandfed.org/research/trends/2010/1010/01houcon.cfmhttp://www.cbpp.org/cms/index.cfm?fa=view&id=3303http://www.cbpp.org/cms/index.cfm?fa=view&id=3303http://www.responsiblelending.org/mortgage-lending/research-analysis/foreclosures-by-race-and-ethnicity.pdfhttp://www.responsiblelending.org/mortgage-lending/research-analysis/foreclosures-by-race-and-ethnicity.pdfhttp://www.realtytrac.com/trendcenter/http://www.adpemploymentreport.com/indexsbr.aspxhttp://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=60229http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=60229http://www.nfib.com/Portals/0/PDF/sbet/sbet201010.pdfhttp://www.nfib.com/Portals/0/PDF/sbet/sbet201010.pdfhttp://gnoinc.org/news-events/gno-inc-unveils-oil-spill-economic-impact-studyhttp://www.guardian.co.uk/profile/graemeweardenhttp://www.guardian.co.uk/business/2010/nov/02/bp-oil-spill-costs-40-billion-dollarshttp://www.newsobserver.com/2010/11/02/776552/bps-oil-spill-costs-grow-gulf.htmlhttp://www.sba.gov/advo/research/rs371tot.pdfhttp://www.whitehouse.gov/sites/default/files/omb/legislative/reports/2010_Benefit_Cost_Report.pdfhttp://www.whitehouse.gov/sites/default/files/omb/legislative/reports/2010_Benefit_Cost_Report.pdfhttp://www.sba.gov/advo/laws/regflex.htmlhttp://www.accessiblesociety.org/topics/ada/ada10thannivoped.htmhttp://www.accessiblesociety.org/topics/ada/ada10thannivoped.htmhttp://www.sba.gov/advo/laws/regflex.htmlhttp://www.whitehouse.gov/sites/default/files/omb/legislative/reports/2010_Benefit_Cost_Report.pdfhttp://www.whitehouse.gov/sites/default/files/omb/legislative/reports/2010_Benefit_Cost_Report.pdfhttp://www.sba.gov/advo/research/rs371tot.pdfhttp://www.newsobserver.com/2010/11/02/776552/bps-oil-spill-costs-grow-gulf.htmlhttp://www.guardian.co.uk/business/2010/nov/02/bp-oil-spill-costs-40-billion-dollarshttp://www.guardian.co.uk/profile/graemeweardenhttp://gnoinc.org/news-events/gno-inc-unveils-oil-spill-economic-impact-studyhttp://www.nfib.com/Portals/0/PDF/sbet/sbet201010.pdfhttp://www.nfib.com/Portals/0/PDF/sbet/sbet201010.pdfhttp://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=60229http://www.abiworld.org/AM/AMTemplate.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=60229http://www.adpemploymentreport.com/indexsbr.aspxhttp://www.realtytrac.com/trendcenter/http://www.responsiblelending.org/mortgage-lending/research-analysis/foreclosures-by-race-and-ethnicity.pdfhttp://www.responsiblelending.org/mortgage-lending/research-analysis/foreclosures-by-race-and-ethnicity.pdfhttp://www.cbpp.org/cms/index.cfm?fa=view&id=3303http://www.cbpp.org/cms/index.cfm?fa=view&id=3303http://www.clevelandfed.org/research/trends/2010/1010/01houcon.cfmhttp://republicanwhip.house.gov/Majority/Cantor.pdf

rep. cantor has it backwards: common-sense regulation saves money and protects jobs

Documents