Malaise producers

13 September 2011 By Martin Hutchinson

JPMorgan’s CEO thinks new financial red tape is slowing the recovery, and Obama just blocked an emissions rule on a similar rationale. A flood of regulation coincided with a plunge in productivity from 1973. The recent U.S. rulemaking surge may be part of today’s economic woe.

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JPMorgan Chief Executive Jamie Dimon told the Financial Times in an interview published on Sept. 12: “We’re all simultaneously working on understanding and complying with Basel III rules, liquidity rules, operating capital rules, derivatives rules, Volcker rules, cash flow rules, Durbin rules, disclosure rules, consumer rules. I do feel all of these things together are slowing recovery, but I can’t prove it.”

U.S. President Barack Obama on Sept. 2 asked the Environmental Protection Agency to withdraw a plan to place new limits on smog pollution.

A 2001 paper by Massachusetts Institute of Technology professor Michael Greenstone suggested that environmental regulations deriving from the 1970 Clean Air Act cost 590,000 jobs, $37 billion (in 1987 dollars) in capital stock and $75 billion in output in the period 1972-1987.

Labor productivity growth declined from 2.7 percent per annum in 1963-73 to 1.1 percent per annum in 1973-83.

According to a 2010 study conducted for the Small Business Administration, the annual cost of federal regulations was $1.75 trillion in 2008, or 12.5 percent of GDP. Small businesses with fewer than 20 employees incur regulatory costs per employee of $10,585, 36 percent more than the cost for businesses with over 500 employees.

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