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The Myth That Regulations Kill Jobs

Steven Cohen, August 11, 2015 Photo by Bruce Gilbert
Read more from Executive Director Steven Cohen on the Huffington Post.

In his Saturday weekly address, President Trump took credit for a good job report and once again repeated the myth that relieving businesses of job killing regulation was freeing them to invest in America and that deregulation would let the good times roll. There is little question that the business community believes Trump is their friend, but the president’s simplistic view of economics, ignorance of foreign policy, and the importance of the rule of law makes him an unreliable ally. With friends like him, you don’t need…reality.

I am not arguing that all regulations are good, but most studies indicate that regulation tends to provide far more benefit than cost to our society and economy. Individual businesses may suffer, and that leads to graphic stories about the evils of regulation. But in a real world of complex and possibly dangerous new technologies, crowded cities, multiple interests and exponential information growth, we need rules of the road to keep the machine functioning. One problem is that anti-regulatory ideology has made it difficult to update rules to take advantage of technological change to modernize regulation. Drones, GPS, sensors, cell phones and the internet have not been used effectively to relieve reporting requirements and enhance regulatory compliance. Algorithms used to predict consumer behavior have not been adapted to the behaviors that regulations seek to influence. Data science has invaded the financial world, but lawyers still dominate the regulatory process.

Regulations vary from very effective to very ineffective. It would be better to end discussion of the myth of regulation and its assumed evils and focus our efforts on making rules more efficient and effective. Regulations will continue to grow along with the complexity and scope of our economic and social interactions. But the current regulatory process seeks to influence 21st century technologies and behaviors with 18th and 19th century legal formulations. We need to think more creatively about how to influence the behaviors of those being regulated. Our goal is to maximize benefits while minimizing costs.

People rarely like to be told what to do. When a police officer stops us for speeding, our first instinct is to blame their ticket quota, or question the accuracy of their radar. Eventually we remember it was our foot on the gas pedal and that maybe going twice the speed limit was dangerous. Perhaps the cop had a good point. Maybe rules are not a bad idea. Regulations are rules that help us coexist with the other 7.5 billion people on the planet. Listening to the right wing whine about regulation reminds me of the teenager that can’t wait for his parents to go out Saturday night so he can invite all of his friends over for a little party featuring his parents’ whiskey collection or something even more exotic. The absence of rules seems great to the teenager and his friends and everyone is having a great time until the kitchen catches fire and mom and dad arrive home to find the police and fire departments dealing with the impact of a night without effective rules.

The rule of law does not inhibit commerce; it makes it possible. Without security and safety, people don’t invest their money, they convert it to gold and hide it under the floor boards. Until the Security and Exchange Commission (SEC) regulated corporate financial reporting in the 1930s, investing in the stock market was like gambling in a casino. By mandating that all companies seeking access to public capital markets follow the same reporting requirements and compelling audits by approved accounting firms, the SEC built confidence in the stock market and encouraged people to invest their capital in a marketplace that was governed by fair and transparent rules. Without rules, the market follows the laws of the jungle.

Environmental rules have enabled Americans to enjoy a growing economy and less toxic air, land and water. China and India now wish they had such rules. Occupational health and safety rules have made our workplaces safer and increased productivity by reducing absenteeism. Auto safety rules have dramatically reduced the rate of fatalities on the American roads. The list goes on. Most regulations add to economic life and to our overall quality of life.

Regulations inhibit corporate freedom. Laws inhibit individual freedom.  But the rule of law provides us with a way of living together and enjoying the benefits of a complex, interconnected, diverse world. It provides us with a peaceful method for resolving disputes and creates the expectation of peace and security as a social norm. We walk down the street with our children and expect that we won’t be attacked. We assume our drinking water, air and food is safe and free from poison. We do not need to live behind walls and carry guns to feel secure. Government’s irreducible function is to keep the public safe and secure, and to do that our values must be translated into laws and regulations that reflect those beliefs.

One element of the rule of law in America is a political system of checks and balances and of federalism both designed to ensure that political power is not concentrated exclusively in the President of the United States. In many other nations, the central government is all-powerful. In the United States, states are considered sovereign, can generate their own revenues, and have the ability to respond to their own unique conditions. A federal law or regulation is often adjusted during implementation to conform to the unique needs of the states. In recent years, states have also worked together to resist national policy. We saw an example of that last week when EPA backed off its effort to delay implementation of an Obama-era smog regulation. As the New York Times Lisa Friedman reported on August 3:

“The Trump administration said late Wednesday that it would not delay an Obama-era regulation on smog-forming pollutants from smokestacks and tailpipes, a move that environmental groups hailed as a victory. The Environmental Protection Agency decision came a day after 16 state attorneys general, all Democrats, filed a lawsuit challenging the delay with the United States Court of Appeals for the District of Columbia. It reversed a decision that Scott Pruitt, the E.P.A. administrator, made in June to put off an Oct. 1 deadline for designating which areas of the country met new ozone standards.”

Even the anti-regulatory zealot running the U.S. EPA had to carefully assess the power represented by this coordinated effort of state attorneys. As Oklahoma’s former state attorney general, he has a clear idea of the power of the states in taking on the federal government. This is not an interest group with a few young lawyers, but a large group of well-funded state prosecutors. EPA Administrator Scott Pruitt also knows he needs to proceed carefully on issues like air pollution. While the causes of smog and climate change overlap a great deal, Pruitt understands that people can see and smell smog. Even though support for air clean air regulations is relatively weak among conservative Republicans, a majority of them still favor air pollution rules.

The issue of regulation is mired in ideology and it is time to move it out of ideology and into management and effectiveness and efficiency. Our process for establishing rules, monitoring compliance and enforcing noncompliance is decades out of date. Our regulations are steeped in important and time-tested legal precedents but take insufficient advantage of advances in data sciences, technology and behavioral sciences. This new knowledge could make our rules, rule making and rule enforcement more efficient and effective. Our ideological biases are making it difficult for us to discuss common goals and develop creative methods for achieving those goals. It’s time to get past myths and start focusing on reality.

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6 years ago

The problem is most regulation should be no higher than the state level or ideally local. The regulations needed in Edwards Co TX or De Baca Co Nm are drastically different than those needed in Manhattan or San Francisco. (the two counties have about 1-2 persons per square mile). Federal regulations attempt to be one size fits all, which does not really work.
In the case of water pollution for example the county where I live first regulated the river thru it in 1939 long before the federal government even dreamt of regulating water pollution. Or do as a couple of states have done in having different minimum wages for different parts of the state such as upstate NY being lower than the NYC area or eastern and western OR having different levels.

Frank H.
6 years ago

I would say it depends on what’s being regulated. Sure, I want the EPA to regulate my water and air, I want DERM to regulate a construction site, or for an engineering board to make sure I’m building something structurally sound – but I don’t want a city regulating my house color, how many feet apart my fence posts have to be, and other arbitrary rules that fall within “scale and character” that are just to add costs to individuals. At the Macro level we need the most regulations, and at the micro level it becomes a matter of taste.