Jobs, Regulations and Broken Windows


Jobs, Regulations and Broken Windows

Mar 2nd, 2011 3 min read
James L. Gattuso

Senior Research Fellow in Regulatory Policy

James Gattuso handles regulatory and telecommunications issues for The Heritage Foundation.

Can federal regulation create jobs?  Yes, many federal regulators are saying, responding to increasing complaints that the rules they write destroy jobs. For instance, David Michaels, head of the Occupational Health and Safety Administration, last month asserted that “the failure to issue sensible regulations endangers not only workers’ health and safety but also hurts American competitiveness.”

Specifically, he cited OSHA’s recently withdrawn proposal to limit workplace noise. The standard was criticized for imposing excessive costs. But Michaels argued the requirements would be a boon to private enterprise. “[B]ecause OSHA has a weak noise standard…,” he explained, “U.S. employers have no incentive to buy modern, quieter machines, which means that U.S. manufacturers don’t build them, and there are few jobs in the United States for engineers who could design them.” Imposing mandates would presumably create those jobs, boosting the economy.

That would be a good thing if true. Think of how easy it would be for regulators to rev up the economy. Just place more burdens on businesses, and see the economy grow as they spend money to comply with them. That, however, is simply not the way the world works. Michaels’ argument is nonsense on stilts.

It’s a classic economic fallacy, identified as early as 1850 by French economist Frederic Bastiat. Is it a good or a bad thing, Bastiat asked, if someone breaks a shopkeeper’s window? Superficially, it’s a good thing: more work to keep the glaziers busy and paid. But that work comes at the expense of other goods and services the shopkeeper would have bought if he didn’t have to pay for the window. And, while those other goods and services actually would have improved the lot of the shopkeeper and his customers, breaking and replacing the window enhances nothing.

It’s an obvious point, but one that is constantly overlooked. President Obama has consistently fallen into the broken windows trap, arguing that climate change rules would create millions of “green jobs” by increasing demand for new technologies. But this new demand comes at the expense of other expenditures that would have been made, and the jobs that would have been created elsewhere. Rather than a boon, the new green jobs are just so much broken glass.

The fallacy also traps some critics of regulation, who should know better. A few years ago, opponents of the proposed “do not call list” for telemarketers argued that if sales calls were restricted, jobs would be lost in the telemarketing industry. But so what? To the extent these jobs were based on the ability to call people at their homes against their expressed preferences, their loss is hardly something to be mourned.

Similarly, some have argued that pending FCC “net neutrality” rules would destroy jobs because the marketplace “losers” would be telephone and cable firms who employ large numbers of people, while the “winners” would be lean Internet content firms such as Google and, who have relatively small workforces. But such arguments completely miss the point. The problem with net neutrality rules has nothing to do with protecting fat telephone and cable payrolls. The problem is that, by interfering with innovation and investment, the recently-adopted rules will stymie growth of the Internet. That will probably mean fewer jobs for the economy as a whole – but certainly it would mean fewer benefits for society.

In fact, many regulations are harmful precisely because they protect jobs. Case in point: in New Jersey, it is illegal to pump your own gas at a service station. That law no doubt “saves” many jobs for gas-pumpers across the Garden State. But does anyone actually believe it leaves consumers or the economy better off?

Counting jobs is a misleading measure of the costs and benefits of regulation. As economist Richard Williams of George Mason University’s Mercatus Center put it, “Bad policies can increase total jobs, and good policies can decrease total jobs.” And, Williams points out, the number of jobs in the economy will remain about the same in the long-run. It’s the quality and composition of those jobs that will vary.

That doesn’t mean there aren’t plenty of regulations that harmfully destroy jobs. Nevertheless, regulatory policymaking shouldn’t be reduced to a simple exercise in job counts. The real goal, as Mr. Bastiat and his vandalized shopkeeper would agree, is wealth creation. And that is a far more difficult thing for government regulators to mandate, no matter how many windows they break.

James Gattuso is a senior fellow at The Heritage Foundation.

First appeared in Bloomberg

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