Those familiar with the "confidence fairy" recognize that economic policy debates in Washington are dominated by imaginary creatures. The confidence fairy, which was discovered by Paul Krugman, is the mythical creature that brings investment, jobs and growth as a reward to countries that practice painful austerity.
Economies don't actually work this way, but important people in policy-making positions in Washington and Europe insist that they do. And they hope that they can get the public to believe in the confidence fairy, or at least a large enough segment of the public, to stay in power.
In this same vein, Mitt Romney and the Republicans are trying hard to promote the belief in the "regulation monster." The regulation monster is composed of the mounds of bureaucratic paperwork and red tape that strangles businesses. As a result of the regulatory monster, America's businesses aren't able to be the job creators that they want to be.
There are a few problems with this story. First and foremost, all the data show that businesses are doing just great. The profit share of gross domestic product is near its 50-year high. The after-tax profit share is at a 50-year high since the tax share of profits is down considerably from its levels in the '50s and '60s. This means that when we look at the economy as a whole, the regulation monster has not left any tracks.
Suppose we look at specific industries. Governor Romney and the Republicans say that President Obama's regulations on oil and gas drilling having stifled the development of domestic energy sources. This should tell us exactly where to look for the regulation monster.
Last week, New York Times reporter Jonathan Weisman went to western Pennsylvania, the middle of the Marecellus Shale, in search of the regulation monster. This should be one of the places where the monster is most visible because this is the center of the fracking industry.
Fracking is the relatively new and controversial process of extracting gas from deep underground shale formations. Many scientists and environmentalists have raised concern about environment risks from fracking as highlighted in the film "Gasland." Surely, the regulation monster must be lurking in this region preventing gas companies from creating jobs and producing domestic energy.
Remarkably, Weisman found no evidence whatsoever of the regulation monster. The people in the area said that the industry was able to do pretty much whatever it wanted. Many expressed serious concerns about the damage to their land and their drinking water.
The data are consistent with the industry's free rein. There has been a boom in gas production during Obama's administration, pushing prices down by almost 50 percent from when he took office. These low prices are now causing gas companies to curtail production, not the regulation monster.
The other obvious place where the Republicans' rhetoric would imply that the regulation monster is lurking is in President Obama's health insurance law. Romney and the Republicans have claimed that the laws mandates have impeded business hiring.
There is an obvious way to test this claim. The law only imposes mandates on firms that hire more than 50 workers. Smaller firms that employ 20-30 people would not be affected by the mandate, nor would larger firms that already provide health insurance for their workers. This means that if Obamacare prevented firms from hiring, the impact should be concentrated among mid-size firms (near or over the 50 worker cutoff) that don't currently provide insurance for their workers.
If the weakness in job growth is concentrated among this group of firms, no one has produced evidence for this fact. The data from the Bureau of Labor Statistics show weak job growth in firms of all sizes. This is consistent with the story that the economy suffers from weak demand. It does not provide evidence of the regulation monster.
The fact that Republican claims of massive regulatory burdens are so out of line with reality should be a cause of ridicule. The media should be pressing them to produce some evidence to back up what they are saying. After all, the public has a right to know whether the people running for or holding office are completely out touch with reality.
With rare exceptions, like Weisman's article in The New York Times, the media don't bother to tell their audience when candidates are making assertions that are utter nonsense. As a result, we can expect to have an election in which at least one party is basing its economic agenda on the confidence fairy and the regulation monster.