Whatever happened to the dread horror of job-killing uncertainty? Just last year, the talking point was all the rage, unanimously chorused by GOP pundits, politicians and economists looking to hammer President Obama for a stalled-out economy.
The argument was simple: Employers were refusing to hire because they feared the "regulatory uncertainty" flowing in the wake of the passage of the Affordable Care Act and the Dodd-Frank bank reform law. Terrified that the future implementation of these reforms would crimp their profits, employers laid low. A policy analyst at the Heritage Foundation provided the smoking gun: He argued that job growth slowed dramatically almost immediately after the passage of the Affordable Care Act in April 2010 -- "this suggests," he wrote, "that businesses are not exaggerating when they tell pollsters that the new health care law is holding back hiring."
Less than a year later, however, judging by multiple Google searches, references to the intersection between regulatory uncertainty, healthcare reform and the labor market have plummeted. There's a very obvious reason for that: The private sector has added over a million jobs over the last six months while the unemployment rate has fallen steadily.
And yet nothing fundamental has changed on the regulatory front; if anything, the future of healthcare reform, which is facing both a Supreme Court ruling and a presidential election, has never been more uncertain. Not only do we have no real clue as to which political party holds the upper hand in the race for the White House, but with each day that passes, there's less and less certainty as to who the Republican nominee will be. Leading GOP candidates have promised to repeal both healthcare reform and Dodd-Frank; if one were inclined to hold fire and keep a low profile, now would seem to be the time.
So what's changed? The first possibility that jumps out is that those who argued that the real problem with the economy was a lack of demand, instead of the socialist overkill of Obama's new laws, were right. Even when job growth was at its nadir, those critics argued, surveys routinely demonstrated that the No. 1 concern cited by business owners was dissatisfaction with poor sales. Yes, business owners also complained about regulations and taxes, but they always complain about regulations and taxes. On the issue of complaints by small business owners, Larry Mishel, president of the Economic Policy Institute, produced a compelling chart proving that by far the biggest difference between Obama's tenure and that of the previous three decades' worth of presidents was a sharp rise in concern about low sales.
If there was uncertainty, it had to do with doubt about the current state of the economy and not the future implementation of healthcare reform. Generally speaking, if business owners see sustained demand for their products, they can usually be counted on to ramp up production in the present, no matter how warily they view the future. And even as job growth flat-lined, there were other indications that demand was the real constraining factor. Businesses continued to invest in equipment and software upgrades, signaling that they were preparing for a better future even as they saw no need to increase staff in the present. More to the point, the average hours worked by existing employees barely budged, a sign that employers felt no pressure to squeeze more labor out of their existing workforce.
Last July, Steven Horwitz, chairman of the Department of Economics at St. Lawrence University in New York, cited the Heritage Institute's report as "pretty good evidence that 'Obamacare' has been a job killer." I asked him whether the recent good news on jobs contradicted the thesis.
His guess, he said, was that "factors other than regulatory uncertainty have moved in positive ways leading to more job creation even though the uncertainty remains."
"At some point in time, recovery will happen as resources get reallocated away from the mistakes of the pre-2007 boom and find their currently most productive uses. The regulatory environment might well have (and maybe still) made that process slower than it would have been, but eventually it will happen. Given the fluidity of the presidential race, I’m doubtful that uncertainty has been reduced any real amount, so my quick observation is that we are seeing the recovery pick up some speed as it eventually would. The argument was never that we’d be stuck with 9 or 10 percent employment forever, just longer than we needed to be thanks to the uncertainty."
It is definitely true that the economy was bound to eventually recover. (It also stands to reason that a particularly devastating economic shock would precipitate a longer-than-usual recovery.) But what's interesting about Horwitz's argument is how it is reminiscent, in an inverse kind of way, to the pro-stimulus rationale we're used to hearing from the White House. Without the stimulus, we have been told incessantly, the economy would have performed even worse than it actually did.
But we'll never know if the White House is correct on the stimulus, or Horwitz is correct about the effects of uncertainty, because there's no way for us to test their arguments. We can't go back in time and rerun the experiment, this time without the stimulus, and without healthcare reform, to see what would happen. All we can say with authority is that the labor market has had its ups and downs and ups, all while the level of "uncertainty" about future regulation seems more or less consistent.
But even that observation opens up a can of worms. In 2011, the labor market's worst performing months coincided almost perfectly with multiple Republican efforts to bring government to a halt in a series of budget showdowns. What's more likely to cause uncertainty about the future: the gradual phased-in implementation of laws passed by Congress, or the prospect that the federal government will not be functioning next week?
Indeed, as EPI's Larry Mishel, author of a strong attack on the regulatory uncertainty thesis, told me, if you took the argument to its logical conclusion, you would have to concede that "democracy is bad for economic growth."
After all, what could be more uncertain than the prospects for economic policy in a country where the opposition party is campaigning on a platform predicated on repealing all the major accomplishments of the incumbent? It's a wonder that there's any economic activity in the United States at all.
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