Countercyclical Regulatory Policy Gains Momentum

The Economist has a nice piece about countercyclical regulatory policy here. The piece ends with:

Just as fiscal and monetary policy vary according to the economic cycle, so perhaps should regulatory policy: lighter when unemployment is high, heavier when it is low. The economics of incorporating employment considerations into regulatory policy is in its infancy. Mr Sunstein calls it a “frontiers question”. Given the sorry state of America’s job market, it is worth answering.

Hamilton Advocates Countercyclical Regulatory Policy

James Hamilton asks What could America be good at?  and considers the impact of regulations:

… if new regulations cause someone to lose their job or kill a new project that would have been hiring, the regulations are making a direct contribution to our cyclical problems, and are significantly more costly than if the same regulations had been implemented when the economy was operating at full employment.

Hamilton’s major concern is regulations that affect our ability to take advantage of natural resources, but it applies to all regulations. He then goes on to say:

Obviously what we need to do is weigh the costs of regulation against the benefits. Just because the costs are higher in a recession, that does not mean that new regulations during a recession are always a bad idea. But I do believe Americans need to acknowledge that, both because of the current economic weakness, and because of the longer-run challenge in finding a basis for future economic growth and current-account balance, we are poorer than we used to be. A challenge of this magnitude needs to be approached with some humility about just what we should be willing to do to get back on track.

Just the argument that I have made for countercyclical regulatory policy (see here and here).   In periods of economic weakness, we have learned how to change our monetary and fiscal policy in order to stimulate the economy, cutting interest rates and running deficits that would be unthinkable in normal times. We should consider using the very powerful regulatory apparatus of the government in the same way.

Does Larry Summers Support Countercyclical Regulatory Policy?

Here’s an interesting excerpt from Ezra Klein’s interview with Larry Summers:

EK: What about ideas to simply speed up the regulatory process during downturns?

LS: This could be very important. Harvard built a whole football stadium in the 1890s with less than two years from the idea’s conception to the stadium opening. That kind of thing does not happen today. My attitude is we probably slow things down unnecessarily with our various approval processes. So I’m sympathetic speeding the regulatory process during recessions. But I have to be honest and say my enthusiasm for reducing regulatory processes in recessions is in significant part a reflection of a more general concern about regulatory delays.




(Hat tip to William Hoffman)

Stem Cell Research Ruling and Growth

I’ve been writing about countercyclical regulatory policy as a way of boosting U.S. economic growth and innovation. The latest judicial move against stem cell research, though, is just the opposite.  Just to quote from an old colleague of mine at BW, Bruce Einhorn

Asian countries are well-positioned to benefit from the latest setback for stem cell research in the U.S. During the Bush years, countries such as Singapore and China took advantage of the U.S. ban on embryonic stem-cell research by providing a more welcoming environment for scientists to work. See, for example, this story I did back in 2005 about Asian efforts to capitalize on the U.S. ban. Describing what he called the “astonishing” progress made in Asia, Robert A. Goldstein, chief scientific officer at New York-based Juvenile Diabetes Research Foundation International, told me then that many Asian governments were asking themselves: “Since the U.S. doesn’t seem to be taking a lead role, why don’t we?”

With Obama’s election and his easing of restrictions, that question became moot as the U.S. got back in the game. Now, though, the Aug. 23 ruling by U.S. District Judge Royce Lamberth halting U.S. funding for embryonic stem-cell research is a reminder of the uncertainty surrounding the issue in the States. Even if Judge Lambert’s ruling is overturned on appeal, what happens if Sarah Palin, Newt Gingrich, or some other conservative Republican defeats Obama in 2012? Count on a new executive order banning research before the Inauguration Day balls are even over. There’s almost zero chance of any such change in policy in Singapore, China, or other Asian countries aspiring to be centers of stem cell research.

If the U.S. wants to grow, making research harder is not the way to do it.