Do regulations kill jobs? On its face, it seems like a simple question that should lead to a simple answer. This is certainly how many opponents of government regulation see it…very simple, in black and white terms, often with anecdotal evidence to support folksy claims (take a look at this piece, for instance, published last week in the Wall Street Journal…see if you can find the “overwhelming evidence” that regulations kill jobs). I want to take some time here to complicate the matter for those that see it as straightforward.
When I was in graduate school, my Political Economy professor spent some time on the concept of creative destruction. My previous exposure to the term was in a Political Theory class earlier that year, defined as the sort of insidious effect capitalism has on existing social and political orders. In Political Econ, however, our professor developed a different theme: In capitalism, free markets are constantly being exposed to potentials for innovation. Sometimes, these innovations ‘threaten’ to overwhelm the existing order completely (where one sees threat, another sees opportunity), to the point where the original product is forever relegated to the museum or the vintage store. Where is my VCR anyway? In short, innovation happens, the demand for the product of innovation sometimes creates new markets, while sometimes destroying old ones in the process.
How does this relate to regulations? Let me complicate the anti-regulation argument with this scenario: For much of our modern history, coal-fired plants have produced a significant share of our electricity. Coal is a carbon-based product – when it burns, it emits gases and particulates that you wouldn’t want to spend too much time breathing directly. Older power plants, in particular, are responsible for much of the share of emissions that negatively impact air quality. For decades now, the ‘rascals’ at the EPA have issued rules meant to regulate the amount of poison these factories can emit, though some of these factories were exempted from the rules of the 1970’s for fear of adversely effecting existing jobs.
Since then, much has happened. Plants that were forced to comply with clean air rules invested in technology to keep them compliant and efficient, without the nation being thrown into a jobless depression. Why? Partly because engineers were hired to design the smokestack scrubbers which were made necessary by the regulations, craftsmen were hired to manufacture those scrubbers, new companies sprang up to service these and other needs which had surfaced…to the point, more jobs were created than were lost in the long run. An additional point not to be overlooked: coal-fired plants (cleaner coal-fired plants) remained competitive despite the ‘burden’ of regulation. Still, markets for alternative sources of energy have expanded, offering additional means of delivering power to the consumer, power that will one day be even cheaper and cleaner. In this way, regulations often reflect creative destruction tendencies similar to those celebrated by proponents of free markets…tendencies that, on balance, promote the general welfare, fulfilling one of the central tasks assigned to government by our constitution.
The current anti-regulation pitch you’ll hear in reference to the coal plants goes something like this: The Obama administration has planned or implemented an egregious number of new regulations, a hard-to-imagine (even for a Democratic administration) job-killing blitzkrieg set up to wreak havoc with private markets and industry. With these regulations, a number of plants are projected to close, costing a number of jobs, in a time when we need to worry about every job lost. Digging just slightly deeper, though, we find that most of these plants slated to shut down have been around for over 50 years, most were grandfathered out of the 1970’s regulations (therefore are the dirtiest), many were scheduled for closing in the coming years anyway, and, perhaps most telling, no plant operator surveyed say regulations are primarily to blame for the closing of these plants. Rather, the regulations seem to serve as the final bell.
In the end, the question of regulation isn’t as simple as it seems. I’ve spun it here in a particular way to illustrate that the world is indeed more complex than it is black and white. To be sure, there are plenty of regulations that show a negative cost-benefit analysis. I’ll make the case in a future post that many regulations are actually written by lobbyists to offer their industry protection against the threat of free market competition.
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