Countdown to Sequester

The hysteria of President Obama, liberals in Congress, and the media over very small cuts in federal spending from the sequester — in contrast to their indifference over regulations imposing massive new costs on job-creating private firms — illustrates a central contradiction of progressive economic thought.

On the one hand, progressives believe the U.S. economy is so fragile that even the mere threat of cuts in government spending would be disastrous. On the other hand, they believe this same economy is so resilient that billions upon billions of dollars in regulatory costs have no effect on growth at all.

In late January, the Conference Board — a private group — announced that consumer confidence had plummeted over the preceding month. One day later, the Department of Commerce reported that the U.S. economy had actually contracted by 0.1 percent in the fourth quarter of 2012. Then, on Friday of that week, the Labor Department announced that the unemployment rate had ticked back up to 7.9 percent.

The establishment media and liberal politicians, including President Barack Obama, downplayed the news or blamed phantom “spending cuts.” Hardly anyone brought up the dramatic increase in regulation over the last few years and the fear that President Obama’s reelection opens the door to a massive onslaught of red tape.

The Washington Post published a news bulletin blaming the weak economy on “cuts in government spending, fewer exports and sluggish growth in company stockpiles.” The “cuts in government spending” part is wrong on its face. According to the U.S. Treasury Department, as John Nolte pointed out on, government expenditures in the fourth quarter were actually up by more than 10 percent from the previous quarter.

In the first weekly address he delivered after these disappointing reports, President Obama stuck to the spending-cuts narrative, blaming “bad decisions” by Congress and warning ominously that “we can’t just cut our way to prosperity.”

This is the meme that Obama has repeated in the weeks leading up to the sequester.

But we certainly can’t regulate our way to prosperity either, and at the rate the Obama administration is going, we could be regulating our way to recession. Instead of blaming Congress for the economy’s struggles, the president should be blaming his own administration for piling on regulation after regulation — what has been called the “regulatory cliff.”

President Obama’s reelection made it highly unlikely that job creators will get any substantial relief from the costly new provisions of the Affordable Care Act, or from Dodd-Frank, the banking overhaul that hits many community banks and non-financial businesses hard.

As Adam J. White noted recently in The Weekly Standard, “The Obama administration’s first three years of major rules, costing up to $26.7 billion, were five times more burdensome than the Bush administration’s first three years ($5.3 billion) and three and a half times more burdensome than the Clinton administration’s ($7.6 billion).” White adds that these “major rules” were only a fraction of the 3,500 total regulations Obama has issued so far, and that the cost figures did not include the opportunity costs of blocking the Keystone XL pipeline.

The president’s reelection means that executive agencies that had been facing bipartisan criticism for being out of control before the election, such as the Environmental Protection Agency and the Department of Labor, now have free rein. Indeed, after the election, a torrent of new regulations that had been on hold for more than a year were suddenly released — in President Obama’s December Unified Regulatory Agenda and elsewhere.

National Journal reported just after the election that “federal agencies are sitting on a pile of major health, environmental and financial regulations that lobbyists, congressional staffers and former administration officials say are being held back to avoid providing ammunition to Mitt Romney and other Republican critics.”

As my Competitive Enterprise Institute colleague Ryan Young has put it: “Now that this ammunition will no longer have electoral consequences, the EPA can move ahead on delayed rules on everything from greenhouse gas emissions to ozone standards. Rules from the health care bill and the Dodd-Frank financial regulation bill also likely will make themselves known in the weeks to come.”

If there’s one thing worse for the economy than uncertainty, it’s the certainty that thousands of pages of new regulations will go into effect. The fourth-quarter economic contraction was likely caused by entrepreneurs’ and investors’ seeing this future of shackling regulations and pulling back their investments in response.

The good news is that these economic problems can be fixed if the regulatory onslaught is reversed or at least significantly reduced. To get the economy growing again, President Obama and Congress should focus on “sequestering” the most costly and least beneficial rules and making the “regulatory cliff” smaller.