Misleading Economic Analysis By Big Corporations Demonstrates Importance Of CBO

November 29, 2011 2:39 pm ET — Jamison Foser

The Hartford CEO Liam E. McGee

When the Hartford Financial Group recently surveyed small business owners about barriers to success, few mentioned government regulations or taxes; a lack of customers was cited far more frequently. That isn't much of a surprise: Business owners, economists, the Treasury Department and more have long made clear that lack of demand, not excessive regulation, is holding back the economy. What's remarkable about this latest poll is the way The Hartford described it.

Take a look at the headline and lede of The Hartford's press release about the poll. "Burdensome federal regulations" is the very first problem mentioned; "a lack of customers" isn't mentioned until much later in the release, when The Hartford employs some nifty sleight of hand with its poll data: 

Small businesses are also challenged by government regulations, which result in greater administrative and accounting burdens. According to the study, small business owners identify economic constraints, such as government rules, regulations and taxes, as the single biggest factor holding them back (37 percent). And, they say that uncertainty about how public policy could potentially stunt the future growth of business is hindering their ability to plan ahead.

Other barriers include rising energy and fuel prices, and a lack of customers.

The New York Times' Robb Mandelbaum explained how misleading this is:

It turns out that this 37 percent also includes people who cited other factors beyond taxes and regulation, including a lack of paying customers and unspecified complaints about the economy. In fact, regulations and taxes were the two smallest of the four factors constituting the 37 percent, while lack of paying customers and those unspecified complaints were cited by 26 percent of all responders.

Mandelbaum also noted that "when small-business owners were asked to name the single biggest barrier to success, only 9 percent cited government rules and regulations. Just 2 percent cited 'too many taxes or uncertainty related to taxes.'"

The Hartford's poll found that a lack of customers was the most frequently cited problem, with taxes and regulations bringing up the rear. But rather than simply saying that business owners are most concerned about a lack of demand, and relatively unconcerned about taxes and regulations, The Hartford combined several different responses into one number and suggested the least frequently mentioned problems were the largest component of that number, and the most frequently mentioned were the smallest. The Hartford's release, in short, grossly misrepresented the findings of the company's own poll, using the same misleading tactic recently employed by Rep. Dan Burton (R-IN).

The simplest explanation for such dishonest behavior by Republicans like Burton is that, consciously or otherwise, they're sabotaging economic recovery for political gain and putting the narrow financial interests of the richest Americans ahead of everyone else. But why would The Hartford misrepresent its own poll? That's less obvious, but it is worth noting that Hartford President and CEO Liam McGee wrote an op-ed for the far-right Washington Times in September, in which he pretended that regulatory policy is holding the economy back. After citing a National Federation of Independent Business poll finding small business owners are most concerned about weak sales, McGee went on to ignore the concept of demand and rail against regulations and taxes:

The United States needs to foster an environment that is more hospitable to entrepreneurship and small businesses. Washington should learn more about the special needs of small businesses and not view them simply as big businesses in miniature. Unlike large companies that have access to equity markets, small businesses often rely on personal savings, credit cards or collateral such as their homes to apply for a loan. As a result, their access to credit hinges on creating a more stable housing market, as well as removing regulatory hurdles and compliance burdens that remain for banks that want to make loans to small businesses

We can also help small businesses by ending the one-size-fits-all approach to regulatory policy. Back in May, when the White House released "The Small Business Agenda," one of the provisions called for "ensuring flexibility with regulations that disproportionately affect small businesses." All of our federal agencies should be looking for ways to reduce regulatory millstones on small businesses. We should be liberating, not burdening, entrepreneurs.

We also should provide small-business owners with incentives that encourage hiring, investing in plants and equipment, and expansion. As studies from the Small Business Association's Office of Advocacy show, increasing taxes on small businesses does not make economic sense. The SBA concluded that higher taxes on individual income, higher sales tax rates, and state-level estate and inheritance taxes above the federal level all tend to reduce a state's share of the national entrepreneurial stock.

In light of McGee's opposition to "higher taxes on individual income" and "inheritance taxes," it's worth keeping in mind that The Hartford paid McGee $10.6 million last year alone. Also in September, McGee went on CNBC to criticize President Obama for the "demonization of businesses" and to call for fewer regulations:

The Hartford's CEO said in a television interview that he would like President Obama's administration to offer incentives to businesses, cut back on regulation and stop "demonizing" the business community.[...]

McGee then made three points that he would like to see in Obama's jobs speech tonight. The first two: provide incentives for businesses and entrepreneurs and change the political tone.

"There has been sufficient demonization of businesses and entrepreneurs," McGee said. "I think we ought to be celebrating our entrepreneurs, and those that are creating vibrant businesses and creating jobs, and I think the president can change that dynamic. Entrepreneurs are bothered by the rhetoric, and it's not creating confidence."

The third point - reduce regulation for businesses.

"I think, to the president's credit, he has said that his administration should look to moderate regulation. I don't think he can say that enough, and I think he needs to hold his cabinet secretaries accountable for that."

So The Hartford's press release about its small business survey misled about the actual results of that survey — and just happened to substitute the anti-regulatory (and anti-reality) views of its CEO for the views of the small business owners it purported to report. Combined with the comically flawed McKinsey & Co. health care study earlier this year and the dubious track record of ratings agencies like Standard & Poor's, The Hartford's misrepresentation is a useful reminder of the unreliability of corporate-produced economic analysis — and of the folly of calls to privatize the Congressional Budget Office.