Uncertainty? Over-regulation? Here’s the proof…

Treasury Department’s Jan Eberly recently made a bold and puzzling statement that there is no “data” to support the notion that regulatory uncertainty is holding back hiring and economic growth.

Signs of the impact of uncertainty on the U.S. economy can be seen in the fact that gross private domestic investment is still $327 billion lower in the 3nd quarter of 2011 than in the 4th quarter of 2007 (see chart below).  Each $1 billion loss in investment is associated with 15,000 to 22,000 fewer jobs.

The federal government clearly recognizes this phenomenon as pointed out in a statement from the Energy Information Administration that the cost of capital for a coal-fired utility investment could rise by 42% (from 7% to 10% or a 3 percentage point increase from 7%) due to the uncertainty surrounding environmental regulations is a sign the government recognizes this phenomenon.

 From EIA: “Although currently there is no Federal legislation in place that restricts greenhouse gas (GHG) emissions, regulators and the investment community have continued to push energy companies to invest in technologies that are less GHG-intensive. The trend is captured in the AEO2011 Reference case through a 3-percentage-point increase in the cost of capital when evaluating investments in new coal-fired power plants and new coal-to-liquids (CTL) plants without carbon capture and storage (CCS).”

Additionally, multiple statements made by CEOs of companies large and small have lamented about the impact of the administration’s regulatory overreach including Apple’s Steve Jobs, Charles Schwab of Charles Schwab Corporation, Steve Wynn of Wynn Resorts, Verizon CEO Ivan Seidenberg.

Lastly, Monday a Gallup poll was released showing that government regulation remains among the top concerns of small business owners.

Proof enough?


Margo Thorning

Dr. Margo Thorning has frequently testified as an expert witness on capital formation, tax, energy and environmental policies before multiple U.S. congressional committees. She has also traveled coast to coast to present findings to state and local lawmakers, business organizations and the media on the economic impact of climate change policies on local job and economic growth.

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