Friday, September 02, 2011

Labor Day 2011

I am an optimist by nature, but it is difficult to be optimistic about the nation's economy this Labor Day. Indeed, as he prepares to address the nation next week on the dire jobs situation, President Obama acknowledged on August 31 that the nation faces "unprecedented economic challenges."
President Obama has a certain special way of exaggerating – does he recall the Great Depression? – but there is no doubt the economy is in serious straits.
It is sad to take note, on this Labor Day, that the most recent report shows the nationwide unemployment rate at 9.1%. Yesterday the Obama Administration announced that it expects the rate to remain around 9% well into 2012. When President Obama took office in January 2009, the unemployment rate was 7.6%. The latest report indicates there are13.9 million unemployed persons in the U.S., with 6.2 million of those classified as long-term unemployed.
President Obama's policies are not solely responsible for the current poor economy and jobs situation. But they must bear significant blame for the sorry state of economic affairs.
And surely President Obama's regulatory policies are a substantial contributor to the economic malaise. Despite recent rhetoric to the contrary, however welcome, the Administration has been on a regulatory binge, apparently oblivious to the costs imposed by unnecessary regulations. These costs raise prices to consumers, and they dampen incentives to invest in new plant and equipment – and, importantly, in new job hires.
There are many research reports tracking the Obama Administration's increased regulatory activity and the costs imposed. Here is a relevant excerpt from a recent Heritage Foundation research report:

The cost of new regulations, however, can be tracked, and it is growing substantially. Following record increases in fiscal year (FY) 2010, regulatory burdens have continued to increase in 2011. Overall, from the beginning of the Obama Administration to mid-FY 2011, regulators have imposed $38 billion in new costs on the American people, more than any comparable period on record.

In total, according to the Government Accountability Office, 1,827 rulemaking proceedings were completed during the first six months of FY 2011 (between October 1, 2010, and March 31, 2011). Of these, 37 were classified as “significant/substantive” or “major,” meaning they each had an expected economic impact of at least $100 million per year.

Fifteen of those rulemakings increased regulatory burdens (defined as imposing new limits or mandates on private-sector activity). No major rulemaking actions decreased regulatory burdens during the first half of fiscal 2011.

The annual costs of the 15 new major regulations total more than $5.8 billion, according to estimates by the regulatory agencies. In addition, the regulations impose nearly $6.5 billion in one-time implementation costs.

The Free State Foundation focuses primarily on communications and Internet law and policy, and related high-tech issues. Here the Obama Administration's FCC record mirrors that in other areas – adopting and proposing new regulations that are not necessary to protect consumers or the public, and the failure to repeal costly, outdated regulations that are no longer needed.
The FCC's adoption of new "net neutrality" regulations to control the business practices of Internet providers, which the agency pursued doggedly for a year-and-a-half in the face of the expenditure of significant public and private resources, is a prime example. The FCC never presented any persuasive evidence of existing market failure or consumer abuse. Yet it adopted the Internet regulations before it even attempted to quantify their costs and weigh the costs against the claimed benefits.
Even now, more than eight months after the FCC majority voted to adopt them, the new Internet mandates (thankfully) have yet to become effective as the Administration's Office of Management and Budget conducts an after-the-fact proceeding to try to quantify just the information collection costs associated with the new regulations. CTIA, the association representing wireless operators, has told OMB that the transparency prong of the new Internet regulations specifies over 30 different topics an Internet provider may be required to disclose in order to offer service.
As for proposed regulations, the FCC's so-called "bill shock" regulation, which would require wireless operators to provide a range of new usage notifications and additional information disclosures, is another case of regulatory overkill. A review of the Commission's rulemaking notice indicates this proposal is driven primarily by anecdotal evidence of a small number of claimed abusive incidents without regard to the substantial overall costs that would be imposed.
There are other examples, of course. The FCC's current so-called "AllVid" proposal to mandate, despite the fierce competition among providers in the video marketplace, uniform technical standards for the delivery of video through set-top video boxes, comes readily to mind as another example of a costly, unnecessary regulation. And like other FCC regulations affecting media companies, this one raises serious First Amendment concerns, as my colleague Seth Cooper explains here. The same is true for the FCC's outdated media ownership regulations, which were adopted over three decades ago when most Americans got the news from a daily newspaper and three television networks.
Most importantly for present purposes, aside from the impact of unnecessary regulation in other market sectors, the adverse economic impact caused by such unnecessary regulation in the communications, Internet, and high-tech market sector is likely to be especially acute – and unfortunate. This is because the communications/Internet/high-tech sector is one of the few bright spots in the nation's economy, one of the few sectors that has experienced increased investment and job growth.
Again, there is much evidence for this. But an August 16 report in USA Today, entitled "IT Jobs Thrive Despite Lackluster Economy," captures the point well:

"Even in a tough labor market, IT is where the jobs are. The unemployment rate for technology jobs was 3.3% in June, compared with a 9.2% unemployment rate overall that month, according to the Bureau of Labor Statistics. In the most recent edition of its Occupational Outlook Handbook, the BLS said it expects IT employment to grow 'much faster than the average' of all occupations through 2018."

According to Dice's Spring 2011 report, "The Rising Demand for Tech Talent," "the unemployment rate for technology professionals has been generally half the rate of the overall labor market in the U.S."
The long and short of it is that, confronted with an increasingly competitive and dynamic communications and Internet marketplace, the FCC should be aggressively seeking to reduce unnecessary regulations, not seeking to impose new ones. Following the lead of President Obama's recent rhetoric and Executive Order on Regulation for Independent Agencies, FCC Chairman Julius Genachowski has now begun to talk the talk. On August 22, as the FCC announced in a news release that the agency was eliminating outdated rules, Mr. Genachowski stated: Our extensive efforts to eliminate outdated regulations are rooted in our commitment to ensure that FCC rules and policies promote a healthy climate for private investment and job creation." Good.
It's one thing, however, to talk the talk. As they say on the streets, Mr. Genachowski now needs to walk the walk. For while he touted the elimination of the Fairness Doctrine rule, which hasn't been enforced for a quarter century, and the Broadcast Flag rule, which hasn't been enforced for many years, taking these and other outdated non-enforced rules off the books has no practical impact, except perhaps to make the Code of Federal Regulations volumes a slight bit slimmer. Mr. Genachowski's FCC has yet to seriously engage in a review of the multitude of outdated regulations that do remain on the books and that do have a practical – and costly -- impact.
President Obama's Executive Order No. 13563 ["Improving Regulation and Regulatory Review"], issued on January 18, 2011, directs agencies to review existing regulations to determine whether they are "outmoded, ineffective, insufficient, or excessively burdensome." This order was issued to carry out President Obama's injunction, as he put it in his January 2011 "Towards a 21st Century Regulatory System," Wall Street Journal commentary, to initiate a government-wide review to "remove outdated regulations that stifle job creation and make our economy less competitive."
As I write this, we have just learned that the Department of Justice will go to court to block the proposed AT&T/T-Mobile merger. Without delving into the merits of that decision here from a strict antitrust perspective, I have little doubt that in the high-tech, communications, and Internet venues in which executives are making day-to-day decisions, the Administration's action will be viewed more negatively that positively with regard to future hiring and investing. After all, the wireless sector is one of the economy's most dynamic – with a consistent record of declining prices and increasingly innovative product offerings.
It is way past time for the Obama Administration generally, and the FCC specifically, to forget the rhetoric. It is time to get serious about the elimination of unnecessary regulations.
On this Labor Day, the country desperately needs more job creation and more investment that elimination of unnecessary regulations would bring. Period.
As I said at the outset, I am an optimist by nature. It is in that spirit that I wish you all a happy and safe Labor Day.