Obama’s Council of Economic Advisers don’t understand markets

Romney hammers Obama’s ‘assault on freedom’ in Chicago speech

Princeton economics professor Cecilia Rouse, a former member of the president’s Council of Economic Advisers, said there is “not actually any evidence that regulatory burden actually has a meaningful impact on employment or the economy now.”

You can keep your post as an professor of economics at Princeton and claim that regulation has no meaningful impact on employment or the economy? Is Rouse willing to lie, or so inept that she actually thinks that’s possible?

Not only is the idea that regulation doesn’t impact an economy ludicrous, but the Heritage Foundation actually just put a number on the cost of Obama’s regulations specifically. It’s $46 billion, in case you were wondering. In addition, the Murray Weidenbaum Center on the Economy, Government, and Public Policy at Washington University in St. Louis and the George Washington University Regulatory Studies Center in Washington, D.C. calculated the cost to taxpayers alone, leaving aside the impact of the regulations on the economy, to be nearly $60 billion. That’s $60 billion that won’t go into innovations or private sector hiring. And, as the report states,

These data… [do not] reflect full costs, as regulations impose social costs beyond the direct tax dollars expended to write and enforce them. Not only do businesses and individuals bear costs associated with compliance, but regulations can restrict opportunities and choices available to individuals and organizations.

Governor Elizabeth A. Duke speaking at the 2012 Bank Presidents Seminar, California Bankers Association, Santa Barbara, California.

One of the most daunting aspects of any comprehensive financial regulatory reform legislation such as the Dodd-Frank Act is the sheer volume of new regulatory proposals and final regulations. I still remember the experience as a banker of reading through hundreds of pages of dense language, paying close attention to the footnotes, trying to determine whether a regulation even applied to my bank and, if it did, what was expected of us. That was before we even got around to figuring out how we were going to meet the requirements, let alone what compliance was going to cost. And now, as a regulator, I still read every rule, guidance, and proposal with the knowledge that the effort expended to understand new regulatory requirements is itself an additional burden.

It’s easy to calculate what regulation costs to implement. You can calculate the salaries of the people whose whole job is to make sure a company complies with regulation. You can calculate the salaries of the bureaucrats who come behind them and make sure they’re complying. You can calculate the costs of the fines resulting from non-compliance.

What you absolutely cannot calculate with any precision is the opportunity cost of regulation. Every second an employee spends complying, every second a bureaucrat spends checking, every dollar spent on a fine, there is no way to calculate the good they would have done in the economy had they been free to actually contribute.

Government generally forces companies at gunpoint only to do things they otherwise wouldn’t do. If an activity is profitable, if it will lead to growth, there’s no need to legislate it. The Swedish Agency for Growth Policy Analysis found that “The indirect economic costs that ensue from a heavy regulatory burden on a country’s enterprises are considerable and probably more important than the direct costs related to complying with the rules. Altogether, these negative, indirect effects result in lower economic growth.” (Found the report via a University of Pennsylvania RegBlog post.)

In most, if not all, instances, regulation takes money that a company would spend profitably and diverts it toward some other government-approved purpose. The only way regulation could lead to profit is if it undoes some damage created by other regulation.

Notice that Rouse served as one of Obama’s economic advisers. With advice of this quality, no wonder the economy hasn’t recovered.

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