Regulation, trade and job creation: Defining the state

The role of government intervention in the economy is perhaps the starkest difference between the candidates

Oct 6th 2012 | from the print edition

[Greg Ip] THIS year’s election carries big implications for economic policy well beyond the budget and taxes. Barack Obama and Mitt Romney have very different ideas about regulation, monetary policy, international trade and labour markets, although their rhetoric sometimes exaggerates the distance between their positions.

In his first term Mr Obama presided over a big increase in the number of major newregulations (as measured by their economic impact), from air-cargo screening to fuel efficiency in trucks. On top of those come thousands of pages of new rules implementing his financial-regulation and health-care reforms (see article). The White House claims that the benefits of the new regulations easily exceed the costs, although some economists contest the way the benefits are measured.

The size of the state: A big beast to tackle

Cutting spending down to size will be hard for a President Romney; boosting it any further will be hard for a re-elected President Obama

Jul 28th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip]  TO SAY that public schools, roads and bridges helped make America rich would ordinarily arouse no more controversy than to say that a dog is a man’s best friend. The exception is when Barack Obama clumsily tries to make the point during a presidential race, in an instant distilling the campaign down to a single question: what is the role of government?

On a campaign stop at a fire station in Virginia on July 13th, Mr Obama said: “If you were successful, somebody along the line gave you some help…Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen.”

In the days since then, Republicans have taken that last sentence and turned it into an attack ad to bolster their message that Mr Obama likes government more than business. It reveals “an ideology that somehow says it’s the collective and government that we need to celebrate,” declared Mitt Romney, the challenger. And the row goes on. New T-shirts are being printed, fresh denunciations penned.

At first glance, Mr Obama’s critics have ample ammunition. Federal spending during his term was the highest relative to GDP since the end of the second world war. A record number of the population now gets federal entitlements such as Medicaid and food stamps. The federal government backs 90% of new mortgages, up from half before the financial crisis, as well as a growing share of student loans. Staffing levels at regulatory agencies have ballooned, and they churn out more and costlier rules than their predecessors.

Measuring the impact of regulation: The rule of more

Rule-making is being made to look more beneficial under Barack Obama

Feb 18th 2012 | WASHINGTON, DC | from the print edition

 [Greg Ip]IN DECEMBER Barack Obama trumpeted a new standard for mercury emissions from power plants. The rule, he boasted, would prevent thousands of premature deaths, heart attacks and asthma cases. The Environmental Protection Agency (EPA) reckoned these benefits were worth up to $90 billion a year, far above their $10 billion-a-year cost. Mr Obama took a swipe at past administrations for not implementing this “common-sense, cost-effective standard”.

A casual listener would have assumed that all these benefits came from reduced mercury. In fact, reduced mercury explained none of the purported future reduction in deaths, heart attacks and asthma, and less than 0.01% of the monetary benefits. Instead, almost all the benefits came from concomitant reductions in a pollutant that was not the principal target of the rule: namely, fine particles.

The minutiae of how regulators calculate benefits may seem arcane, but matters a lot. When businesses complain that Mr Obama has burdened them with costly new rules, his advisers respond that those costs are more than justified by even higher benefits. His Office of Information and Regulatory Affairs (OIRA), which vets the red tape spewing out of the federal apparatus, reckons the “net benefit” of the rules passed in 2009-10 is greater than in the first two years of the administrations of either George Bush junior or Bill Clinton.

But those calculations have been criticised for resting on assumptions that yield higher benefits and lower costs. One of these assumptions is the generous use of ancillary benefits, or “co-benefits”, such as reductions in fine particles as a result of a rule targeting mercury.

Mr Obama’s advisers note that co-benefits have long been included in regulatory cost-benefit analysis. The logic is sound. For instance, someone may cycle to work principally to save money on fuel, parking or bus fares, but also to get more exercise. Both sorts of benefit should be counted.