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CBO analysis: Deregulation won't spur major job growth

November 16, 2011|By Lisa Mascaro, Washington Bureau
(Joshua Roberts / Bloomberg )

The nonpartisan Congressional Budget Office reinforced what private-sector economists have been saying for months: The best proposals to spur the economy would cost the government but prove better at quickly creating jobs than pursuing an anti-regulatory policy as proposed Republicans in Congress.

CBO Director Douglas Elmendorf said extending unemployment benefits or payroll tax breaks to those who are most likely to spend the money, as well as providing as tax credits to companies that hire new workers, are among the types of policies that could best boost the economy and create jobs. Rolling back regulations would not have the same immediate jolt, according to a new report.

"The economic effects of certain changes in regulatory policies probably would be too small or would occur too slowly to significantly alter overall output or employment in the next two years," Elmendorf wrote this week on the CBO blog.

The CBO's analysis comes as Congress is deeply divided over the best approach for strengthening the sluggish economy at a time when jobs are the top issue on voters' minds. The congressional super committee is also struggling to reduce deficits. The report offered a gloomy outlook under current policies, with an estimated 9% unemployment rate through 2012 and economic growth lower than potential.

Republicans have rejected most aspects of President Obama's jobs plan, which would have accomplished some of the prescriptions the CBO suggests. The GOP jobs agenda has consisted largely of limiting government regulation and cutting corporate taxes.

House Speaker John Boehner has noted the more than 130 private economists that support the GOP approach.

One of them, Wayne Brough the chief economist at the tea party-aligned FreedomWorks, said limiting government regulations can provide short- and long-term benefits.

"There are opportunities for employment gains from deregulation, even in the short term," Brough said by email. "Removing regulatory barriers provides firms new opportunities to invest.  While the benefits will be greater over time, removing regulatory barriers will provide short-term benefits as well."  

But other private economists have said regulatory rollbacks would not lead to major job growth in the near-term. They say regulations need to be assessed individually for their costs and benefits to society, rather than judged as a group.

The CBO warned that spending money now to bolster the economy would contribute to annual federal deficits, which are too high to be sustained. It said a long-term deficit-reduction strategy was vital to the nation's financial health.

"To achieve long-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade," the CBO wrote.

You can read the full CBO report here.

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