The Labor Department reported earlier this month that the American economy added more than 330,000 jobs in September, well above expectations, the latest in a series of positive employment reports. Although inflation has now fallen from its peak, it remains worrying.
Experts have cited various factors for the unemployment and inflation numbers, many of which will be familiar to a traditional student of macroeconomics. The Federal Reserve has been steadily raising interest rates over the past year, undoubtedly slowing inflation. Meanwhile, an easing of supply chain issues and the decline in the Covid pandemic have fueled positive employment numbers. Government fiscal policy in the form of increased spending has likely impacted both employment and inflation by putting more money into the hands of individuals and businesses.
One factor was strangely missing from these discussions: government regulation. For more than a decade, the phrase “job-killing regulations” was an important part of every discussion of the American economy. One analysis found that media mentions of the term increased by more than 17,000 percent from 2007 to 2011. Conservatives routinely argued that Obama-era regulations led to significant numbers of layoffs.
The absence of regulation in current debates about the economy is all the more curious given President Biden’s regulatory policies. The Biden administration has issued regulations at a pace comparable to the Obama and Bush administrations, and faster than the first two years of the Trump administration. As the Biden administration’s proposals, particularly those aimed at curbing emissions of global warming pollutants, are finalized, that pace will increase, as will the economic impact.
With the continued enactment of a large amount of regulation, why haven’t we had much discussion about the impact of regulation on the macroeconomy? Let’s quickly dismiss one argument. The Trump White House regularly touted its deregulation initiatives as one of its greatest achievements. Could this be the reason for the good employment numbers we are seeing now? No. In fact, the Trump administration has eliminated very few regulations and has actually issued a large number of regulations in the last year.
A far more plausible explanation is that the impact of regulations on the macroeconomy is either small or ambiguous. Some regulations promote job creation, and even those with negative direct impacts on jobs are likely to improve human health and thus increase economic productivity. A number of studies examining the issue of regulatory impacts on the economy found that the impacts were mixed – small in magnitude and of varying directions.
If this is indeed the case, the current emphasis on “job-destroying regulation” must be viewed as nothing more than opportunistic rhetoric. It is no coincidence that this argument has typically been made by those who bear much of the direct costs of regulations. However, it is contradictory to focus on the impact of regulations on employment during difficult economic times and then remain silent when the same (or more!) regulations are in place, the economy is thriving and job growth is booming.
That doesn’t mean that every regulation is a good idea. Considering important regulations through the lens of analyzing their costs and benefits and (as the Biden administration has proposed) their distributional consequences will, if implemented responsibly, lead to better regulatory decisions. And better understanding the cumulative impact of regulations (including state and local regulations) should be a priority.
But whether the economy creates or destroys jobs and whether prices rise quickly or slowly depends on a variety of factors. Federal regulatory initiatives rank far behind monetary and fiscal policy on this list.
Stuart Shapiro is dean of the Bloustein School of Planning and Public Policy at Rutgers University and a member of the Scholars Strategy Network. Follow him @shapiro_stuart.
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