OPINION:
In the 14th century, Franciscan friar William of Ockham posited a revolutionary axiom that should be a guiding principle of public policy. That principle, known as “Occam’s Razor,” proffers that when faced with a series of options or explanations, the simplest one is usually the correct one — and that only when the simpler theories have proved unworkable or incorrect should one proceed to ones that are more complex.
As President Obama gathered his lemmings in Illinois last week to give them their marching orders for the coming months, he would have done well to consider Occam’s Razor as he laid out his policy plans.
Instead, the president proposed yet another series of initiatives for “fixing” America’s economic woes. While the media, and the president’s other defenders, hailed his proposals as innovative and certain to succeed — provided Republicans don’t obstruct them — there is no question that these plans (like the president’s Keynesian initiatives before them) will not only not fix the economy, but make matters worse, and this is predicated on the very convoluted nature of them.
Were we to apply Occam’s Razor to the economy, it would force us to look for the simplest reasons it is hobbling along. There are two: the cost of regulation and the uncertainty of future expense.
The president talks about helping the middle class, but nobody gets hit harder when regulatory costs skyrocket, as they have in the past seven years (first under the Reid-Pelosi regime in Congress, driving new mandates, then accelerating with the election of Mr. Obama in 2008). According to the Small Business Administration’s studies, the cost of federal regulations to the American economy grew from $1.2 trillion in 2005 to $1.75 trillion in 2010. Because we know that regulatory costs haven’t ameliorated but have continued to rise at a steady rate or faster, we know that those costs are now above $2 trillion per year.
We cannot ignore a $2 trillion hole in our economy — and no amount of federal-driven Keynesian economic engineering could drive us out of it. This is why paltry tax cuts, the kind the president uses to make himself appear more centrist than his other policies dictate, do not work. It’s why comprehensive tax reform, so desperately needed, can’t pull us out of the doldrums.
In fact, the problem is much worse than initially thought, since most federal regulatory analyses examine direct regulatory costs, not things like lost opportunity costs. It has long been suspected that these analyses understate the true economic impact of the modern regulatory state. Now we have the evidence to back that up. An economic study published in January by professors John Dawson of Appalachian State University and John Seater of North Carolina State University concluded that were we to have a regulatory state roughly the size that it was in the 1950s, our economy would be more than three times its current size ($53.9 trillion, instead of just over $14 trillion).
The reason the Dawson and Seater study is so innovative is that it finally addresses the issue of lost productivity. Other studies might look at an average business and say that if an employee’s time is directed toward satisfying regulatory requirements, then they measure the impact in the wages that employee would be paid for his time. For example, if an employee spends an hour dealing with regulatory mandates, and the employee is paid $20 per hour, then the cost is $20.
However, anyone familiar with business economics knows that what is lost isn’t simply the employee’s wages — it’s the employee’s lost productive time, what the business earns from the employee’s contributions to the enterprise. The business may pay the employee $20 per hour, but it may bill the employee out at $50 or $100 per hour. So the loss of the employee’s time is really lost net profit — profit that the business needs to expand, hire employees and engage in capital improvements. In other words, the very things that make an economy grow.
In the Institute for Liberty’s analysis of federal regulatory impacts, we concluded that for every 10 percent of the regulatory state that we cut, our economy could create 6 million jobs. Those conclusions were echoed by the research of the Phoenix Center for Law and Economics. The center’s seminal “Cost Per Regulator” study of 2011 estimated that each federal civil servant who works within the regulatory environment costs the economy 98 jobs. It estimates that a cut of 5 percent from the regulatory budget would create 1.2 million jobs per year over five years for a total of 6 million new jobs.
We could cut the regulatory state by a modest 5, 10, 15 or even 20 percent, not sacrifice public health or safety in the slightest, and have huge economic gains. Employment would rise by between 3 million and 24 million jobs, and gross domestic product gains would range between $2 trillion and $8 trillion.
Regulations are only part of the story — especially when combined with what Mr. Obama is trying to do with social and environmental policy. The president’s mouthpieces lie when they say that Obamacare won’t cost jobs. Businesses across the country are shuttering daily as a result. The president adds insult to injury when he needlessly drives up energy prices as a paean to his crony capitalist friends with his green energy boondoggles and so-called war against greenhouse gases (which is really a war on inexpensive energy).
We need to take our cue from William of Ockham. If we want to find solutions, we need to look for the simplest ones. Making modest and reasonable cuts to our federal regulatory state could create massive gains for the United States — effectively eliminating unemployment while taking our GDP to unprecedented levels. Not only will the president’s tired and threadbare platitudes do nothing to substantively improve the economy, they only mask what he continues to do behind the back of the American people: actively work to wreck whatever economic vitality we currently have by driving up the hard costs for business.
Andrew Langer is president of the Institute for Liberty.
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