A pretty popular meme among the usual suspects about why we're not adding jobs nearly fast enough to lower the unemployment rate is that they're "uncertain about taxes and regulation." Basically, the idea is that our economic problems must be government's fault, and lowering taxes and deregulating will somehow fix everything. Of course, that claim is complete baloney. Those who are intellectually honest about it (Robert Lucas) say that they "suspect" that it's the cause and admit that they have no evidence. Others just assert it without bothering to provide evidence.
The Economic Policy Institute's Lawrence Mishel has a very good piece debunking that nonsense claim. Mishel doesn't even have to mention that, as a share of GDP, taxes have been lower in 2009 and 2010 as a share of GDP than they have been in any two-year stretch since 1949 and 1950 (and that's doubly significant considering that GDP has been depressed for those two years). He just compares addition of private sector jobs in the recovery from this recession to their addition in previous recessions (they're actually stronger this time than they were from the 1990-1991 recession under Bush Sr. and the early 2000s recession under Bush Jr.). He also points out that recovery from recessions following financial crises is almost always weaker than from typical cyclical recoveries (Ken Rogoff and Carmen Reinhardt's work makes that case pretty definitively). But most telling is the chart he puts up showing surveys of small business confidence going back to the 70s. The survey asks what the biggest problems facing small business are. And that's where the results are telling. Taxes are cited by about 21% of respondents: marginally more than under Bush Jr. (they look to have averaged between 19 and 20%), but less than during the Clinton era, when private sector job growth was very strong. Similarly, regulations are listed by about 14% of respondents: again, marginally more than under Bush Jr., but less than at any point before him going back to Reagan's second term. So what's the biggest problem cited? Unsurprisingly, POOR SALES (meaning lack of demand), by almost 30% of respondents. What's most remarkable is that this is the highest level at which "poor sales" has been cited since surveying started. By a very broad margin. By comparison, the last peak for "poor sales" was under Bush Jr.'s first term... when a full 15% of respondents cited it. In other words, the numbers are incredibly clear: the problem is lack of demand, NOT the regulatory uncertainty/tax nonsense being peddled by the Wall Street Journal and company.
So, of course, the American Enterprise Institute's James Pethokoukis decided to issue a rebuttal to Mishel's study... which makes it crystal clear that Mishel is spot-on. The response is, in a word, pathetic. It essentially amounts to two claims. First, that businesses still cite taxes and regulations more than they cite poor sales as a cause of their lack of hiring. Ummmm, OK. He kind of ignores the point. Which is that taxes and regulation have ALWAYS been cited more than poor sales as a cause of the lack of hiring. But we've added jobs reasonably well for long stretches of the last 40 years, and poor sales has NEVER been cited close to as much. So what that's telling you is that taxes and regulation aren't any more of a problem now than they were under Clinton, when the private sector added jobs at a better clip than it did pretty much at any point since the 60's (the recovery from the Volcker-induced early 1980s recession possibly excepted; jobs will ALWAYS be added rapidly when interest rates are at 19 percent and the Fed cuts them rapidly). Second, AEI claims that, well, the economy recovered more quickly under Reagan in the early 1980s. The simple answer is, "No kidding." Paul Volcker hiked interest rates to 20% in 1981 to fight inflation. Then he lowered them to 8.5% by the end of 1982. Of course job growth was spurred. By contrast, the federal funds rate was... 0 when Obama took office. And is still zero. That is called a liquidity trap. And it explains why Mr. Pethokoukis's comparison is complete nonsense.
So, when you hear a meme presented without evidence, assume it's wrong. This is a pretty good example of the standard operating procedure of those who just KNOW too much government is the problem and don't bother looking at evidence.
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