The Rust Belt Is Right to Blame Obama

The risk that regulators pose to business is up 79% from 2010—a burden that falls heavy on industry.

By Clark S. Judge, in the WSJ. Mr. Judge is managing director of the White House Writers Group Inc. and chairman of the Pacific Research Institute. Excerpt:

"Then, firing up a suite of algorithms and formulas, they generated a regulatory-risk score for every company in the Fortune 500. Hedge funds are using the findings to gauge how potential investments could be affected by new regulations, court filings and other breaking events.

But the news here is in the next steps. The Vogel and Hood team analyzed corporate lobbying and turned out company-by-company ratings of its effectiveness. They put into the calculations the amounts that firms spend on government relations, the size of government-relations staffs, the expertise of the outside lobbyists hired, and the number of lobbying registration reports filed. Each company can then be ranked in the hierarchy of Washington influence.

Messrs. Vogel and Hood say their method is like a capital asset pricing model with one exception: In place of the standard measure for market risk, they substituted their metrics for regulatory risk and corporate response. What were the results?

First, and no surprise here: From 2010-15 regulatory risk jumped—an average increase across all industries of 79%.

Second, and more surprising: As regulatory risk climbed, annual capital expenditures fell, a total drop of nearly $32 billion when comparing 2010 to 2015. This negative relationship was strong across the board, but it was statistically tightest for “industrials” (heavy manufacturing plus railroads and airlines).

Third, as regulatory risks grew and capital expenditures shrank, major corporations also cut jobs by more than 1.1 million. Among the biggest losers were heavy manufacturing, airlines, railroads, information technology and consumer products—America’s industrial core.

Fourth, while the business of making things and moving them to market was eroding, the value of gaming the government increased. The Vogel and Hood team constructed two trial portfolios composed solely of companies that ranked high in lobbying strength. From 2010-16 these portfolios outperformed the S&P 500 by 22% and 27%."