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THE SCANDALOUS COSTS OF GOVERNMENT REGULATIONS

The costs of complying with government regulations are fully one-half as large as federal taxes, according to a new report from the Center for the Study of American Business.

The total cost imposed by health, safety, tax and other rules came in just under $670 billion last year -- equal to almost 10 percent of the total economy.
If people were taxed directly for these costs, the average household would have to fork over $7,000 a year.
Since firms with fewer than 500 workers pay about twice per worker what those with more than 500 workers do to comply with federal rules, the regulatory issue is of particular concern to small businesses.
Under the Clinton administration, regulatory compliance costs have climbed 5 percent in real terms -- and are slated to rise another 6 percent by the end of the century.

The platforms of the two major political parties differ fundamentally from one another on what to do about regulations.

The draft Democratic platform lauds Clinton's efforts to regulate health insurance firms, boost the minimum wage, block workforce teams and stop environmental deregulation.
It goes on to propose new laws and regulations governing labor relations and other matters.
The Republican platform, by contrast, proposes a periodic review of government regulations, a regulatory budget to reveal to Americans the total cost of regulations and cost-benefit analysis of proposed rules.

Source: John Merline, "Political Parties Differ Sharply on Regulatory Reform," Investor's Business Daily, August 22, 1996.

"DOWNSIZING:" A MANUFACTURED CRISIS

While the word "downsizing" may initially strike dread in the hearts of corporate employees, it is actually a natural and economically beneficial process, economists explain. They say that policymakers want to turn employees' anxieties into a national crisis, in order to extend government control over the economy.

Perhaps the first sector of the American economy to experience heavy-duty downsizing was agriculture -- which employed 95 percent of the population at the time of the nation's birth and employs only 2 percent today.
In the heavy construction industry, one man pushing a few buttons and pulling a few levers on giant equipment can today produce what it took hundreds of laborers to do a century ago.

Since labor tends to be the costliest production input, downsizing means finding cheaper, labor-saving methods of production. This frees up workers to provide the manpower for expanding industries engaged in developing new products and processes. So as some jobs are eliminated, others are born.

While AT&T and IBM and others were downsizing, Wal-Mart increased its staff by 41,000, 5,000 employees were added at Motorola and 10,000 were hired at Intel.

Economists caution against policies that would cripple the economy and stifle innovation to benefit a tiny percentage of the workers who are temporarily unemployed as a result of natural changes in labor use.

Source: Walter Williams (George Mason University), "Talking Up a Crisis Over Downsizing," Washington Times, August 16, 1996.

JUGGLING UNEMPLOYMENT AND INTEREST RATES

Not too long ago, many economists agreed that an unemployment rate of less than 6 percent would set off wage and price inflation. A lower unemployment rate would signal the Federal Reserve to raise interest rates in order to dampen economic growth. But, according to economists, that consensus is no more.

The rate that policy makers ultimately agree on as an appropriate unemployment-interest rate trigger is important to business, investors and people looking for work.

After the unemployment rate fell below 6 percent in mid-1987, labor costs began accelerating significantly in 1988.
That experience more or less determined Fed policy until recently.
But joblessness has been well below 6 percent for nearly two years now and labor costs have remained quiescent.

So what is the new trigger rate? Some economists are looking at data from the midwestern states.

During the last two years, in the 12 states from North Dakota to Ohio, and from Wisconsin to Missouri, unemployment has averaged 4.5 percent.
Yet growth in regional labor costs -- the biggest single warning sign of inflation -- has been contained.

Some see this as evidence for the need to shift thinking about the unemployment-inflation relationship.

Business leaders have often argued that changing conditions -- including downsizing and globalization of the economy -- have altered inflation dynamics, making the economy capable of faster growth and lower unemployment.
But many economists and policy makers are skeptical, reluctant to assign such changing conditions an important role in recent economic trends.
Still other economists argue that labor cost inefficiencies of the 1970s and 1980s are being ironed out and that labor costs are being pushed closer to market realities.
They argue that companies are giving fewer non-wage benefits, automatic raises, salary increases and cost-of-living adjustments, and replacing them with performance-based awards.

This would suggest, they say, that the higher economic efficiency is, the lower unemployment can be without triggering wage and price inflation. By allowing the market to reorder its own activities -- without imposing roadblocks, such as anti-downsizing laws -- the foundation can be laid for sustained economic growth. With growth would come strong profits, low inflation, modest unemployment, rising financial-asset prices, rapid investment, robust productivity gains and a resumption in the growth of real wages and higher living standards.

Source: James Annable (First Chicago NBD Bank), "No Need to Fear Lower Unemployment," Wall Street Journal, August 21, 1996.

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