Removing regulatory friction to accelerate economic recovery

Remove regulatory friction to accelerate economic recovery

Todd Myers

The coronavirus quarantine is causing an unparalleled economic shock, creating a record number of unemployment claims in Washington state. During the first months of 2020, the unemployment rate skyrocketed, with the state receiving 1.9 million initial unemployment claims by the end of May. This represents an unprecedented loss of jobs. Some of these jobs may reappear when the quarantine is relaxed, but many of the jobs—and the small businesses that created them—will simply be gone.

To find a new economic equilibrium, people will have to search for new business opportunities and new jobs, and consumers will have to change how they spend their money.

In his book “Specialization and Trade: A Re-introduction to Economics,” Economist Arnold Kling provides a useful way to think about shocks to the economy, pointing to the disruption of “patterns of specialization and trade.” In a market economy, businesses and consumers can predict to some degree what they will purchase and what needs to be supplied. Prior to the coronavirus hitting us in February, restaurants knew how much food they needed to buy, and supermarkets knew how much toilet paper to stock. One month later, those patterns were completely disrupted.

Once that disruption occurs, it takes time to discover a new, sustainable pattern of specialization and trade. Patterns of specialization and trade in the market, Kling explains, “emerge from the actions of countless individuals, not from the minds of a few designers. And the factors that affect the value of market production or Internet resources are many, complex, and not all quantifiable.”

There will be a reshuffling of jobs and businesses, requiring experimentation on the part of millions of people who have been displaced. Will people want the flexibility of working from home or other remote locations as independent workers in the gig economy? Or will they want the security— but constraints—that come with being employees? How much more will people be willing to spend on iPhones, prescription drugs and other products made in the U.S.? Will more of us be working from home and ordering from Grubhub? The answers to these questions will emerge over time.

Reducing friction in the economy by eliminating costly regulation will help entrepreneurs and workers find these answers more quickly. To speed up our response to the virus, some regulatory barriers are already being torn down.

The governor has issued a significant number of emergency orders affecting the economy and health care. Rather than adding restrictions, however, the executive orders waive regulations. For example, cities are waiving rules about using paper and plastic bags, acknowledging the health risks associated with reusable bags. At the federal level, the Food and Drug Administration is (slowly) waiving restrictions, such as one that limited the availability of sterilized protective gear. It took a public

People will disagree about the role of financial support from government and taxpayers, but at the very least, government should not hinder the process of creating and finding new work.

scolding from the governor of Ohio, but the FDA finally backtracked.

The once-hidden costs of these regulations have now become obvious. Each regulation adds friction to the process of putting resources where they are most needed. As more quarantine-related restrictions are lifted, hundreds of thousands of people will begin searching for new jobs, putting their skills to use where they are most needed. We need to reduce friction in the economy and allow businesses to create jobs without regulatory barriers. 47

JUL/AUG 2020 | BUSINESSPULSE.COM

One place to start greasing the skids of job creation is to reduce licensing re- quirements for people who have prov- en skills. Earlier this year, House Bill 2355 passed unanimously out of the House Consumer Protection & Busi- ness Committee. It died in the House Appropriations Committee after the Washington State Labor Council tes- tified against it. The bill would have allowed people who demonstrate com- petence in certain areas to be licensed for those activities.

Imagine, for example, a restaurant worker who has skill at being a mani- curist or a dietician. Should that person have to sit through 600 or 900 hours of classes to get a license in a skill they already have? By way of comparison, if you want to be an escrow officer— dealing with people’s money and trust funds—you only have to apply and pass a test.

These sorts of barriers will need to be removed to help people adjust to the new pattern of specialization and trade that develops after COVID-19 is controlled.

As the economy recovers, the at- tention of policymakers will be on tax relief and financial support for workers and businesses. Much of that is im- portant, but those efforts are mostly about providing a safety net for the many people who need it.

To get the economy going, we need to let people innovate and take advantage of the full range of their skills. People will disagree about the role of financial support from government and taxpay- ers, but at the very least, government should not hinder the process of creat- ing and finding new work. ■

Todd Myers is the director of the Center for the Environment at Washington Policy Cen- ter. He is one of the nation’s leading experts on free-market environmental policy. Todd is an author and researcher. He formerly served on the executive team at the Washington State Department of Natural Resources.