Tepid Economic Performance Argues for Cutting Government Red Tape

How is the economy doing? It’s a mixed picture. The economy grew 1.2 percent last quarter, rather less than the normal pace for the last half century or so. The newest jobs numbers look good, with economy adding 255,000 jobs during July, and unemployment around 4.8 percent. But are there deeper, systemic problems limiting what people can accomplish? CEI analysts Trey Kovacs, John Berlau, and Ryan Young see some potential trouble spots.

One is restrictive labor regulation that limits worker choice and shuts willing workers out of jobs. Another is the growing morass of financial regulations that make it harder for people with a new idea to start a business and create jobs. Third is a growing and unpredictable regulatory state that makes long-term investment nearly impossible.

CEI fellow Trey Kovacs on how to improve labor policy:

It is far from shocking that the economy is not moving in the right direction. During the Obama administration, regulators at federal labor agencies have placed many burdens on job creators and created immense uncertainty in employment law. 

Most recently, the Department of Labor finalized a new overtime rule, which purports to give workers a raise. However, it is unlikely that workers will see a pay boost. A far more probable result is a loss of opportunity and flexible work arrangements. 

Over at the National Labor Relations Board, an attack on common business-to-business relationships is underway. In a recent decision, the Board made it far more likely that an employer is found responsible for labor violations of another employer. In doing so, the NLRB’s policy change will discourage a path toward entrepreneurship, reduce job creation, and increase employer liability. 

Overall, current labor regulations make it harder for employees to get and keep a job as well as deter employers from creating additional positions.

Senior Fellow John Berlau on making it easier for entrepreneurs to access the capital they need to put their ideas in consumers’ hands:

This means the Senate has no more excuses – if it ever had one – not to pass the bills modestly expanding the Jumpstart Our Business Startups Act that overwhelmingly passed the House. These bills increase the pool of investors for startups, which is important not just for innovation, but for job growth. According to the Kauffman Foundation, businesses less than five year old create virtually all net new jobs

The Fix Crowdfunding Act – H.R. 4855 – would further lift barriers for startups to utilize equity crowdfunding to raise funds from average Americans without having to face the same red tape as a large public company with far more resources. It passed the House 394-4 in early July. Also sailing through the House at the same time was the Supporting America’s Innovators Act (H.R. 4854), which brings parity for LLCs – the preferred business structure for many entrepreneurs – to raise funds from angel investors in the same way other types of corporations do. And in February, the House passed by 347-8 Fair Investment Opportunities for Professional Experts Actwhich expands the pool of angels by letting investment professionals – as well as wealthy Americans – to qualify as “accredited investors” for a private stock offering.

It’s time for the Senate to do its job and pass these bills that already enjoy overwhelming bipartisan support. Ultimately, Americans need wholesale deregulation to tear up the red tape that is keeping the economy down. But even a modest reform could spur job creators to get the economy moving again.

Fellow Ryan Young on improving the overall regulatory climate:

It’s important to remove bad regulations from the books. It is even more important to structure the rulemaking process itself to prevent harmful rules from passing in the first place. Several valuable reforms have already passed the House. The Senate should give them the courtesy of a vote when it reconvenes in September.

One of these is the REINS Act, which would require Congress to hold votes on all new regulations costing more than $100 million per year. In recent years agencies have gone rogue and issued new regulations ranging from carbon emissions to net neutrality—even when Congress explicitly voted against such regulations. REINS would add accountability where it is currently missing.

Another is the SCRUB Act, which would create a bipartisan commission to comb through the 175,000-page Code of Federal Regulations and give Congress a package of old, obsolete, redundant, or harmful rules to repeal. Despite veto threats to both of these bills, the Senate should pass them and make the administration publicly explain why it opposes reform.

The economy is in better shape than it was a few years ago. But there is still much work to be done. Kovacs, Berlau, and Young argue that liberalizing labor regulations, financial regulations, and the rulemaking process itself would go a long way towards making a fairer, more stable, and more dynamic economy for years to come.