Center for Progressive Reform

The Regulatory Freeze Bill: Cynical Political Posturing That Would Harm the Economy

by Sidney Shapiro

On Tuesday, the House Judiciary committee is marking up the Regulatory Freeze for Jobs Act (H.R. 4078), which would block virtually any “significant regulatory action”—basically, any step toward promulgating any regulation that has a large economic impact or is otherwise controversial— as long as unemployment is over 6 percent. Rather than support initiatives that actually help the unemployed, a band of House Republicans prefer another cheap political trick here. The reality is that a moratorium would leave millions of Americans more vulnerable to health, safety, environmental, and economic risks, without improving the economy at all. In fact, the bill has the potential to shrink economic activity, not grow it.

To begin with, all of the economic studies agree: regulation does not cause a net loss in jobs. As other CPR Member Scholars and I have discussed (see here, here, here, here and here, for example), the reason is simple. Firms subject to regulation spend money on compliance, which creates additional jobs. The number of those jobs offsets any employment lost in the industry being regulated. There is even evidence that regulation can lead to a net increase in jobs. To the extent this is true, the Republicans’ effort to bolster employment with a regulatory moratorium will actually decrease it – it might be an actual “job killer.” Congressional Budget Office (CBO) Director Douglas Elmendorf raised the concern of reduced private sector investment caused by delaying or weakening environmental rules when he testified (p.49) before the Senate Budget Committee last November.

But there is an even more fundamental flaw in stopping regulation as a method to grow the economy. When you don’t regulate, the harms that regulation would have addressed continue. Consider that the BP Oil Spill and the Wall Street collapse alone have imposed billions—perhaps even trillions—of dollars in damages. Moreover, the cost of regulating to reduce injuries, illnesses, fatalities, and other damages are normally less than the cost of these consequences if they are not addressed. The evidence (discussed in a CPR White Paper at p. 11) indicates that regulatory benefits (in the form of reduced injuries, illnesses, etc.) exceed compliance costs, often by a considerable amount. This is particularly impressive when you consider that agencies can’t fully measure regulatory benefits because of a lack of data, or benefits that simply defy monetization. So, once again, the anti-regulatory critics have it exactly backwards. A regulatory moratorium will cost more money than it saves, hardly a recipe for increasing economic wealth.

The House Republicans were more than willing to hold an extension of unemployment benefits hostage to their list of legislative demands, hardly the act of people actually concerned about the plight of the unemployed. This bill, however, does fit with the session-long effort by House Republicans to blame regulation for our current economic situation. The cynical calculation is that the public will reward the Republicans for acting boldly to reduce unemployment. It apparently does not matter that the legislation would actually harm the public and the economy.