Deregulation Spurs GDP Growth, White House Economists Say

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By Cheryl Bolen

Deregulation will stimulate the growth of gross domestic product in the U.S., the White House Council of Economic Advisers concluded in a report released Oct. 2, though several public-interest groups are dubious.

Excessive regulation is a tax on the economy, costing the U.S. an average of 0.8 percent of GDP growth per year since 1980, the CEA report said, citing previously published academic research.

The report was released the same day President Donald Trump had been scheduled to deliver an address on the benefits of deregulation, which was canceled in the wake of the mass shooting in Las Vegas.

“Deregulation can unleash the greater potential of the U.S. economy, spurring the innovation and economic growth necessary to keep the U.S. prosperous, and to empower its citizens with greater opportunities,” the report said.

Trump’s CEA

The CEA, an agency within the Executive Office of the President, is charged with offering the president objective economic advice on the formulation of both domestic and international economic policy.

Current CEA members are Tomas Philipson, Richard Burkhauser and Kevin Hassett, who was sworn in as CEA’s 29th chairman on Sept. 13, according to the White House. Hassett previously worked as an economist at the American Enterprise Institute since 1997.

AEI describes itself as a public policy think tank committed to making the intellectual, moral, and practical case for expanding freedom, increasing individual opportunity, and strengthening the free enterprise system in America and around the world.

Controversial Research

The CEA report’s chief finding, that excessive regulation depresses GDP growth, is based on a 2016 Mercatus Center study that was criticized at the time by the public-interest community, which said it misunderstood the relationship between regulations and the economy.

James Goodwin, senior policy analyst at the Center for Progressive Reform, critiqued the Mercatus study in a May 2016 blog post, finding fault with the study’s assumption that the benefits generated by regulations have no salutary effect on economic growth.

Goodwin argued that workers will be more productive when they and their families are adequately protected by strong health and safety regulations, which in turn leads to increased profits and economic growth.

And, in some cases, money spent on regulatory compliance has spurred industries to make investments that they would not otherwise have made, resulting in increased productivity and profitability for the sector as a whole, Goodwin said.

Corporate Influence

“It’s deeply troubling to see CEA produce such a shoddy report filled with easily disprovable, and in some cases, downright false assertions,” said Amit Narang, regulatory policy advocate at Public Citizen.

Many of the citations in the report have not been peer-reviewed and come from sources that receive funding from corporate interests that stand to directly benefit from deregulation, Narang said.

Not only does CEA ignore independent, peer-reviewed sources that show no trade-off between regulations and economic growth, it ignores almost two decades of Office of Management and Budget figures showing the benefits of regulation to the public always outweigh the costs to corporations, Narang said.

The CEA report also makes no mention of the “biggest job killer in recent memory,” which is the lack of Wall Street regulation that led to the 2008 financial collapse, Narang said.

$2 Trillion Costs Challenged

The CEA report cites a study conducted in 2014 for the National Association of Manufacturers by W. Mark Crain and Nicole Crain estimating that in 2012, the total cost of federal regulations to the U.S. economy was $2.03 trillion.

The Small Business Administration’s Office of Advocacy sponsored a similar study by the Crains in 2010, which found that the total cost of federal regulations in 2008 was $1.75 trillion. Three years later, after substantial criticism of its assumptions and methodology, the SBA withdrew its support of the study.

“No regulation supported by an analysis as flimsy as this CEA report would ever see the light of day,” said Sam Berger, senior policy adviser at the Center for American Progress. “The Trump administration only cares about industry’s costs, not about regulatory benefits for everyone else.”

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bna.com

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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