It didn’t take long for Republicans to pounce. The unemployment rate ticked up a bit on Friday and Republicans knew the cause—mean old government regulations. That’s right. Government regulations are the reason businesses are not hiring more workers. Get rid of the regulations and…well…the unemployment rate would start dropping so fast the government wouldn’t be able to keep track. See: http://www.washingtonpost.com/politics/house-republicans-want-tax-reform-eased-regulation-and-energy-production-to-boost-jobs/2011/05/26/AGDbgICH_story.html
Here is the Republican illogic. According to them, hundreds of thousands of companies out there are desperate to hire workers. They can’t meet the demand for their products and services. They are having to turn away customers because they don’t have enough workers to make the products or provide the services. They would love to hire. They are desperate to hire. But, there are all of those regulations about product safety and environmental pollution and worker safety and on and on. What is a businessman to do? Government regulations are keeping these businesses from hiring workers.
Of course there is an alternative and more logical way of explaining unemployment. It goes like this. Businesses are flush with cash and could start hiring again. However, so far they have been able to meet demand for their products and services by getting more productivity out of their existing workers—requiring them to work harder and work longer hours. Technology has helped a little also. Recently, there has been a slight uptick in business, a few more orders. And yet, the economy is still sluggish. There is all this talk about the possibility that the recovery will stall or has stalled or that the country will slip back into another recession. If Republicans and Democrats don’t reach a deal soon on the debt ceiling, the country might even default on its obligations and/or not pay its bills on time. Republicans are demanding huge budget cuts. The government could drastically cut back on its spending thus reducing demand. There could be huge additional rounds of government employee layoffs at the federal, state and local levels resulting in an even further reduction in demand. The future of the economy is very uncertain. Logic dictates that uncertainty about the economy, not regulations, is the most logical reason businesses are not hiring at a rate sufficient to significantly reduce unemployment.
Now, which explanation makes the most sense? Is it more logical to assume that regulations are responsible for sluggish job growth or that businesses aren’t hiring because current demand hasn’t yet reached a level forcing them to hire and they are uncertain about future demand?
Blaming unemployment on government regulations is simply illogical.
[For an excellent analysis of the facts proving that federal regulations are not a threat to job creation see this results of this study by the Economic Policy Institute. Go here: http://www.epi.org/publications/entry/regulation_employment_and_the_economy_fears_of_job_loss_are_overblown ]
Here is the truth--the perfectly logical truth.
We will only get back to full employment when demand gets back to pre-recession levels. We could balance the budget and cut the debt to zero and it would not matter. As long as demand is low or not rising, unemployment will remain high. Spending cuts only make matters worse because they reduce demand. The government purchases fewer products and services. Laid off government workers at the federal, state and local level reduce consumption. Demand suffers.
If we really want the private sector to start creating jobs, the only logical thing to do is to do anything and everything to stimulate demand and avoid doing anything that might decrease demand. Government can stimulate demand directly by increasing its purchase of goods and services (funding for schools, infrastructure improvements, military equipment, etc.), providing grants to state and local governments to encourage them to purchase more goods and services, and creating temporary work programs that hire the unemployed (WPA-type government programs.) Government can stimulate demand indirectly by target tax cuts aimed at leaving more money in the hands of middle and low income Americans who are most likely to spend the extra dollars immediately.
It DOES work like this. Government stimulus = Higher demand = lncreased Hiring = Lower unemployment = Increased revenues from individual and corporate taxes = Decreased budget deficit = Eventual balanced budget = Eventual budget surplus = Debt reduction That's logical.
It DOESN’T work like this: Lower regulations = Increased hiring. That’s illogical.