Scaring Ourselves Out of Growth?

| Fri Jun. 3, 2011 10:23 AM EDT

Stephen Carter has a column up at Bloomberg about the guy sitting next to him on an airplane flight the other day. He's a small business owner and he refuses to hire more workers even though demand for his products is up. Why is that? asks Carter:

“Because I don’t know how much it will cost,” he explains. “How can I hire new workers today, when I don’t know how much they will cost me tomorrow?”

He’s referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can’t afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he’s hiring nobody until he has some certainty about cost.

....My seat-mate seems to think that I’m missing the point. He’s not anti-government. He’s not anti-regulation. He just needs to know as he makes his plans that the rules aren’t going to change radically. Big businesses don’t face the same problem, he says. They have lots of customers to spread costs over. They have “installed base.”

For medium-sized firms like his, however, there is little wiggle room to absorb the costs of regulatory change. Because he possesses neither lobbyists nor clout, he says, Washington doesn’t care whether he hires more workers or closes up shop.

Here's what's remarkable: Carter, a law professor at Yale, apparently never once bothered to ask this guy just what regulations he's talking about. Is he concerned with general stuff like the healthcare law? Or something highly specific to his industry? Or what?

Regardless, I've heard this kind of blowhard conversation too often to take it seriously. Sure, it's possible this guy manufactures canisters for nuclear waste or something, and there's a big regulatory change for nuclear waste storage that's been in the works for years and has been causing everyone in the industry heartburn for as long as they can remember. But the simple fact is that regulatory uncertainty is no greater today than it's ever been. Financial uncertainty is high, but the Obama adminstration just hasn't been overhauling regs that affect the cost of new workers any more than usual. The only substantial exception is the new healthcare law, and if you oppose it that's fine. But it was passed over a year ago and its effects are pretty easy to project.

So I call BS. Even Will Wilkinson, who thinks the regulatory uncertainty theory has some merit, is dubious. He suspects that to the extent any of this is happening at all, it's mostly some kind of Fox effect: Republican business owners have been hearing about the endless socialist evils of the Obama administration for so long that they've actually started believing it now and they're scared to death. There's no real reason for it, but hey — where there's smoke there's fire, right? And if enough different people on Fox and Drudge and Limbaugh, their rantings all passed along via the local Chamber of Commerce or something, keep talking apocalyptically about how Obama is wrecking the country, then there must be something to it. I guess I'd want to see some evidence for this, but it at least sounds plausible. More plausible than the alleged tsunami of new regulations that's preventing people from hiring even when business is booming, anyway.

(Will then goes on to posit that this is a permanent feature of the economy that we ought to take account of, perhaps by electing more Republicans. I think I'd prefer a somewhat different, more reality-based approach to this problem myself.)