Costly Red Tape and Regulation Is Not the Answer

By at 19 February, 2021, 9:44 am

by Raymond J. Keating-

For those expecting a cranking up regulatory activity under a Biden administration, unfortunately, their expectations thus far have been met. Increasing regulatory burdens always take a toll on entrepreneurship; small business; American competitiveness; and economic, income and employment growth (for a refresher, see this SBE Council report), but ratcheting up such costs in an otherwise already-grim economy is grossly ill-conceived.

Consider a few examples of assorted regulatory policies heading in the wrong direction:

Hiking the Minimum Wage. President Biden proposes to raise the national minimum wage from $7.25 to $15, which started with an executive order on January 22 promoting and moving toward the imposition of this government mandate. The massive $1.9 trillion spending package moving through the Congress currently includes the phased-in $15 minimum wage hike.

In a recent SBE Council analysis, the problems of raising the minimum wage were explained, including the elimination of job opportunities for low-skilled, young, inexperienced workers, and increased costs for small businesses. In the end, compensation ultimately is linked to productivity and the value brought to the market. Government cannot simply step in and erase this economic reality via a minimum wage increase without negative consequences. The impact will be even harsher given the effects of COVID-19 shutdowns, and especially on small businesses in those sectors that have been hit the hardest.

Revoking a Host of Previous Efforts to Modernize Regulation, Address Outdated Regulation and Slow the Imposition of Regulatory Burdens. Without getting into the functional and constitutional questions swirling around the use of executive orders, President Biden signed a rather sweeping executive order that wipes out previous executive orders meant to slow, rationalize, modernize or rein in the burdens of regulation.

Specifically, the Biden executive order revokes “Executive Order 13771 of January 30, 2017 (Reducing Regulation and Controlling Regulatory Costs), Executive Order 13777 of February 24, 2017 (Enforcing the Regulatory Reform Agenda), Executive Order 13875 of June 14, 2019 (Evaluating and Improving the Utility of Federal Advisory Committees), Executive Order 13891 of October 9, 2019 (Promoting the Rule of Law Through Improved Agency Guidance Documents), Executive Order 13892 of October 9, 2019 (Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication), and Executive Order 13893 of October 10, 2019 (Increasing Government Accountability for Administrative Actions by Reinvigorating Administrative PAYGO).”

The effect of this Biden measure removes reasonable constraints on federal regulatory activity, removes checks and balances, and effectively opens the floodgates for a potential onslaught of regulation. It simply makes it easier for the federal government to impose a wide array of regulations, and the end result will be vast uncertainty for businesses – especially small businesses – which will hurt risk-taking, growth and investment.

Inflicting Unnecessary Constraints on the U.S. Energy Sector. President Biden has signed assorted executive orders that will undermine the U.S. energy sector, which, by the way, is overwhelmingly populated by small and mid-size businesses. Consider, for example, that in the oil and natural gas extraction sector, 89.4 percent of employer firms have fewer than 20 employees (according to the latest U.S. Census Bureau data).

One Biden executive order cancels the Keystone XL pipeline permit, and another temporarily ceases oil and natural gas leasing in Alaska’s Arctic National Wildlife Refuge.

The Keystone pipeline is meant to transport oil from Canada and North Dakota to refineries in Texas and Louisiana, and while significant parts of the pipeline already have been constructed, stretches remain, in particular in Nebraska, to be built. Halting the pipeline would undermine U.S. trade policies; harm our relationship with Canada; and inflict losses on U.S. firms in the energy sector, their employees, and assorted small businesses that serve those companies and workers in the energy sector and in other industries. Similar ills will play out by stopping leasing in ANWR – specifically, erasing opportunities for economic, income and employment growth.

The U.S. economy has lost millions of small businesses (see SBE Council’s recent analysis) and millions of jobs during this pandemic. The flood of new governmental regulations under such circumstances makes for grossly misguided policymaking. One would hope that, instead, our elected officials, from Congress and the White House down to the smallest town halls, would be emphasizing constructive efforts to clear away government costs and obstacles so that free enterprise, economic growth, and job creation might flourish. This is especially critical as the U.S. economy works to rebuild from the devastation wrought by COVID-19.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


News and Media Releases