Regulatory Expenditures, Economic Growth and Jobs: A Reply to Comments

6 Pages Posted: 21 Aug 2012

See all articles by George S. Ford

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: April 24, 2012

Abstract

In our paper, Regulatory Expenditures, Economic Growth and Jobs: An Empirical Study, (http://ssrn.com/abstract=1831654) we applied econometric methods to fifty years of data in an effort to quantify the relationship between the size of the federal regulatory bureaucracy and important macroeconomic outcomes such as economic growth and private sector employment. We found that reducing the amount spent on federal regulatory agencies by even modest amounts could have significant positive effects on both private sector output and employment. In conducting our analysis, we measured the extent of regulation in the economy using a dataset on regulatory agency budgets dating back to 1960, collected by the Regulatory Studies Center (“RSC”) at The George Washington University in Washington, D.C. — led by former OIRA Director Susan Dudley — and the Weidenbaum Center on the Economy, Government, and Public Policy at the Washington University in St. Louis, Missouri. In two recent releases by the RSC, including a Commentary (December 2011) and Working Paper (March 2012), Center researchers evaluated our work and provided a much-appreciated independent replication of our econometric results. RSC researchers also conducted some analysis of their own, specifying models that differed substantially from our own and, as a consequence, reached different conclusions. Indeed, in their own words, the Center’s researchers observe that “…there is no evidence of a causal relationship between changes in regulatory budget and macroeconomic performance. In fact most of our point estimates suggest, if anything, a positive relationship between changes in the on-budget costs of federal regulation and macroeconomic outcomes.” In light of its source, we found this conclusion is interesting. If the amount spent on regulation has no macroeconomic effect, then why does the RSC bother to compile the data? Or, if regulation has a “positive” effect on the economy, as the Center’s researchers suggest, then why do small businesses list regulation as the most important hurdle to growing their business (a statistic listed in the Center’s Commentary and Working Paper)? Unlike the Regulatory Studies Center’s own researchers, however, we are not yet prepared to limit their annual report on the Regulators’ Budget to a largely fruitless counting exercise, or, in light of our own research, argue that regulation, if anything, has a positive effect on the economy. In this Response to Comments, we demonstrate, once more, that the data on federal regulatory expenditures is a useful tool for measuring regulation in econometric analysis of the macroeconomy. We also show that the RSC’s “preferred” statistical model is defective, and does not produce robust estimates. Moreover, a minor adjustment to the Center’s “preferred” model renders results very similar to ours — regulation reduces economic activity. We also demonstrate that our estimates are robust across estimation techniques and modeling choices. Thus, we again conclude that if policymakers wish to stimulate jobs and reduce federal spending, then responsibly trimming the regulatory budget remains a viable option.

Keywords: Regulation, Cost of Regulation, Jobs, Employment, Government, Budget, Deficit, OIRA, Regulator's Budget

JEL Classification: C32, E2, E62, H5, H6, L51

Suggested Citation

Ford, George S., Regulatory Expenditures, Economic Growth and Jobs: A Reply to Comments (April 24, 2012). Phoenix Center Policy Perspective No. 12-01, Available at SSRN: https://ssrn.com/abstract=2132925

George S. Ford (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

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