Do Government Regulations Create Jobs?

The obvious answer is, of course, yes.  If bureaucrats are put in charge of enforcing the latest and greatest scheme dreamt up by politicians deluded enough to believe themselves capable of utopian engineering, than employment rolls invariably increase.  And when mandates are placed on businesses to acquire certain inputs in order to meet criteria of over ambitious regulators, those devices of compliance have to be produced by someone.  So in a sense increased, regulation into the private sector does create jobs.  In a new Bloomberg Businessweek column, Elizabeth Dwoskin and Mark Drajem not only recognize what should be common sense, but actually question why President Obama doesn’t run on his record of employing all sorts of paper pushers in Washington D.C.:

Government regulations do kill jobs, often by the thousands. Although it’s too early to tell how many layoffs may result from health-care and Wall Street reforms, there is a body of research going back decades detailing what has happened time and time again when Washington handed down sweeping environmental regulations: Costs increased, prices went up, and workers were fired. Supporters and opponents of the EPA’s new power plant rules agree that they will almost certainly result in dozens of coal plants shutting down and hundreds of workers being laid off.

But that’s not the whole picture. Government employment figures also show that those same regulations usually wind up creating about as many jobs as they kill. “We find there is no net impact,” says Richard Morgenstern, the EPA’s director of policy analysis in the Reagan and Clinton Administrations and now a researcher with Resources for the Future, a nonpartisan energy think tank in Washington. “The job creation and the job destruction roughly cancel each other out.”

In 2002, Morgenstern and his colleagues published a landmark study detailing the effects of regulations on jobs in four polluting industries: paper, plastics, petroleum, and iron and steel. Drawing on more than 10 years’ worth of U.S. Census data, the study found new regulations led to higher production costs that pushed up prices, resulting in lost sales and layoffs. Yet those job losses were offset by new jobs in pollution abatement. “There’s always someone who is helped and someone who is hurt,” says Roger Noll, director of the Program on Regulatory Policy at Stanford University. “Which is why you have to look at the net effect on the economy.”

Even if you buy into the shady assertion that job destruction on the net is roughly a zero, this doesn’t take into account for what any amateur economic analyst should already suspect; that is the unseen.  Human bodies need to fill the seats of regulators and hence create jobs.  But the damage done by regulation is not something to be determined conclusively by tenured academics and mathematical formulas.  It requires a bit more imagination.  Productivity increases can be estimated numerically for specific firms but there is no way to accurately predict how they will ripple through the rest of the economy.  Certainly a breakthrough in natural gas drilling technology has the potential to increase the supply of energy and thus lower prices for grateful consumers.  But since every consumer is necessarily a producer in a specialized field, lower energy costs translate into greater income left over to invested or spent elsewhere.  The next Steve Jobs could certainly use a cut in the heating bill for his garage acting as a work station.

There is also the more relevant truth of job creation itself which assumes that jobs in themselves are a good thing.  As Mises pronounced in Human Action:

What produces the product are not toil and trouble in themselves, but the fact that the toiling is guided by reason. The human mind alone has the power to remove uneasiness.

Man produces in order to obtain sustenance to both live and improve his existing conditions.  Unlike the Garden of Eden, scarcity dominates this world and requires survival through working on part of anyone who wishes to eat, clothe themselves, put a roof over their head, or even own a  television.  Jobs are a necessary evil and only a means in themselves; not an end.  Simply praising the creation of jobs misunderstands their true function.

The real fatal flaw in Dwoskin and Drajem’s analysis is the fact that not all jobs are created equal.   When evaluating the productivity of any given occupation, the first place to look is the income it derives from consenting purchasers.  The coal plant which produces electricity earns a profit by utilizing its acquired resources effectively.  Government regulators don’t receive their salary based off serving any consumers willing to spend their own limited funds.  It is therefore impossible to determine the given value of a government regulator who must be paid via taxation.  If taxes were voluntary, they would no longer be taxes but merely service charges.  Putting the cashier at McDonald’s in the same category as the director of the Environmental Protection Agency commits a fatal error in understanding how wealth is really created.

The same concept can also be applied to those businesses which feed at the trough of increasing amounts of economic management coming from Washington.  If a manufacturing plant must conform to new workplace regulations, materials must be purchased from a supplier.  This means greater amounts of investment and resources are subsequently devoted to these industries as less capital is left over for those enterprises which don’t benefit by government decree.  Again, it is futile to determine the value of those companies which piggyback off Leviathan’s grip.

If jobs in themselves were reflective of increasing societal wealth, the ditch digger paid with tax money would be on par with the inventor the incredibly popular smart phone game Angry Birds.  But production can only be measured in terms of consentual transactions.  Attempting to do otherwise is no better than to determining the value created from a thief by accounting for all his stolen loot.  If Bob the bank robber stole and hoarded 1 million dollars over the course of a year long crime spree, it would sound downright absurd to say Bob has creat a million dollars worth of value in society.  Intervening force in the market economy distorts the process of evaluation ultimately in favor of those who make a living off the state.

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