How Regulations Cause Uncertainty and Slow Job Growth


There’s been a lot of back and forth between pro-nanny state folks and pro-market folks concerning the impacts of either policy on job growth.  On one hand there is the argument that the uncertainty of regulations causes a pause in investment.  The case being that businesses are unable to predict the return of their investment due to unknown costs in the environment.

I have suggested in the past that this is akin to playing blackjack.  Consider the game as we know it.  A dealt 21 is a winner at 150% of the wager.  Dealer has to hit up to 16 and wins on a tie.

Further consider a table of players.  Upon being told that the rules might change mid “shoe”, that the changes to the rules are not yet finalized and that once you commit to playing, you can’t back out, do you think the players would play more, play less or play the same?

I suggest that the players would “hold onto their capital” until they knew the rules, and then, based on the new value proposition, would play at a level that reflects the advantage to the house; less play if the rules benefit the house, more play if those rules benefit the player.

Why we would expect business to react differently isn’t rational.  And, as it turns out, is exactly what we are seeing:  Hat Tip Carpe Diem

Because we don’t know what our health-care expenses will be in two or three years, we are unable to determine with any certainty how much our investments will have to return for us to be profitable. All of that counsels in favor of holding off on new investments and saving our funds. We want to grow. But we are unable to do so knowing that large and undetermined liabilities will absorb funds we otherwise would invest for expansion.

It is simply not reasonable to suspect that people or organizations will invest at the same level when the risks are unknown.

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2 comments
  1. With no regulations you have the risk of severe safety threats, both to consumers and workers, as well as threats the environment and perhaps communities. History has proven this.

    So the key is have the regulations that are necessary to protect the public good, but no excess regulations that cost more in jobs and growth than any benefit they might provide. The devil is in the details!

    I’ll try to find it, but I saw a study a couple weeks ago that said it’s a Republican myth that anything this administration is doing is causing people to hold on to capital. It’s just the way a slow economy functions.

    • pino said:

      With no regulations you have the risk of severe safety threats, both to consumers and workers, as well as threats the environment and perhaps communities.

      Who would buy products that aren’t safe?

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