Regulatory Uncertainty And The Economy

by Stuart Shapiro

One of the favorite talking points on the right is the claim that the economy is being slowed down because businesses don’t know what to expect from the government.  In the whodunnit of slow growth, it is regulatory uncertainty that is the criminal according to this argument.  Dan Farber points out ten problems with this argument.

In any event, there’s so much wrong with the “uncertainty” argument that it’s hard to know where to begin.  Here are ten fatal flaws:

1. Wrong pattern of unemployment. As Think Progress points out, unemployment is currently lowest in health care, extractive industries, and the financial sector — exactly the areas where there has been the most regulatory effort.
2. Reverse effect of uncertainty. If businesses were worried that future regulatory burdens were coming down the pike, they’d want to increase investments today in order to benefit from the current more lenient regulations — a point ably made by Greg Burliss.

Go ahead and read all ten.  If it is uncertainty that is bothering businesses it is not uncertainty about some regulations but rather economy-wide uncertainty, things like “Will we default?” and “When is demand going to pick back up?”  But its easier to blame government regulations than grapple with these problems.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.