August 2 2011

We Need a Dynamic Economy, Not More Government Regulations

It's hard to keep up with the drumbeat of bad economic news these days. Attention has been focused on the debt ceiling debate, and for good reason. No one knows exactly how long the U.S. can finagle the accounting system so that it can continue to borrow absent a deal. No one knows when the rating agencies will finally make good on their warnings to downgrade the federal government's credit unless Washington makes serious changes to its trajectory of runaway spending and debt accumulation. And no one knows exactly what that downgrade will mean for the United States, and even the world, economy.

Yet there's more disturbing news than just the debt ceiling debate. Our already anemic economic growth is slowing again, sending warning signs that we may be slipping back toward an actual recession. Rather than a rebounding job market, the unemployment rate is once again ticking up. And this increasing rate of unemployment comes despite the steady flow of workers exiting the labor force, giving up on looking for work entirely.

Many lament Washington's reaction to these terrifying economic signals. Washington's struggle to agree on a debt limit increase pales in comparison to its more frightening inability to confront the more fundamental problem of government's bloat and long-term crushing debt. Increasing the debt limit and trimming future spending increases isn't even a band-aid for what ails us. A debt ceiling increase may be necessary, but it shouldn't be an excuse to continue business as usual.

While the media reports the potential credit-downgrade as a consequences of our failure to adequately raise the debt limit, rating agencies have been warning of a potential downgrade long before the debt ceiling became the issue. It's the underlying runaway debt-not the debt limit-that drives uncertainty about America's long-term ability to pay creditors and general economic prospects.

Congress's reluctance to make even modest changes in future outlays suggests that the American system is incapable of contemplating the kinds of meaningful reforms-real changes to our entitlement programs and cuts to bloated agency budgets-that are unavoidable if we are serious about getting our fiscal house in order.

Yet it's not just our federal government that seems unaware that this economic crisis requires new thinking, not just business-as-usual. One might assume that state governments at least would be looking for ways to reduce burdens on employers in order to facilitate job creation. Yet many states are instead crafting new burdens to put on business.

Earlier this year, Connecticut's Governor signed legislation to require businesses with more than fifty employees to offer paid sick leave to workers. Now Massachusetts' State Legislature's Joint Committee on Labor and Workforce Development has starting holding hearings and taking testimony from unions and employee advocacy groups pushing the Bay State in the same direction. If these organizations have their way, all businesses, big and small, will be required to offer full-time workers up to seven paid sick days per year.

In flush times, it's easy to see how such mandates have appeal. No one wants to oppose giving someone time off to care for a sick child or recover from an illness. But advocates for the poor and working class should be warned: Mandates like these come with costs, and the poorest and lowest skilled workers are likely to bear the brunt of the law's unintended consequences.

While the vast majority of businesses already provide paid leave without a government mandate, a new mandate would impose new costs on those that currently don't. These businesses would have to re-budget to pay both existing workers on leave and temporary workers who replace them. Since the existence of paid leave leads to the greater use of leave, businesses would have to prepare for more workplace disruptions. Many would also have to step up their human resources system to account for hours worked and leave taken to ensure compliance with the law. All of this will be particularly hard on small businesses.

How would businesses, many of which are already struggling to survive in this economy, make up for these new costs? They'd have several options. They could cut down on workers to limit their exposure to the new regulations by outsourcing or eliminating non-essential jobs. Take-home pay would likely go down since more compensation would go toward benefits.

This is bad news for Massachusetts' unemployed workers and those who worry about losing jobs. It is also evidence that politicians believe that they know best how the economy should run. They continue to see the private sector as something that they can manipulate without consequence. Yet evidence to the contrary abounds, as employers continue to lay off workers and move jobs overseas.

Americans should say enough with politicians who seem to believe that all answers lie in Washington and the state capitols around the country. We've had enough with government dictates and tax-and-borrow-and-spend mentality. Our continuing economic crisis proves that it's time to stop burdening private enterprise, cut government spending, and return control of our economy to the people.

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