Cataloging Washington’s Hidden Costs, Part 4: The Costs of Poor Regulatory Sausage Making

by Wayne Crews on December 18, 2013

in Deregulate to Stimulate, Economy, Features, Regulation

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In the first installment of “Cataloging Washington’s Hidden Costs,” the focus was the loss of liberty in our enthusiastic nanny/”Nudge” state.

So-called “libertarian paternalism” remains unappreciated by unenlightened people like me.

In Part 2, we looked at unmeasured economic costs.

Regulators always assume their regulations create net benefits, so in Part 3 we looked at how regulatory benefits can may actually be costs.

Some costs of government arise from how regulations are enacted and accounted for (or as is actually most often the case, unaccounted for). Here in Part 4 we glance at some of these shortcomings. If lawmaking up on Capitol Hill is compared to sausage making, it gets even worse down here in the agency packing houses.

Political failure: Regulatory agencies see alleged market failure everywhere, but remain unconcerned with their own status as a static, imperfect man-made institutions.

Sometimes reality dictates that an agency scale back as new human institutions emerge to discipline risk, uncertainty, market power or you name it. Instead agencies seek solely to expand, such as regulation of net neutrality, low-earth orbit experimentation, and nanotechnology. There is such a thing as pretense of knowledge. It’s costly.

Costs of rules not deemed “economically significant” by the agencies but that in fact are: Many of the thousands of regulations issued by agencies may exceed $100 million annually, but no one actually knows and they never get counted.

The net neutrality order is again an example. Others have noted an EPA navigable water rule that became a $1.2 billion rule, and diversity training that left out costs of countless meetings. Rules can be extraordinarily significant without the public being told.

Independent agency regulations’ startup costs: A small fraction of independent agency costs get tabulated, but these are not reviewed by the Office of Management and Budget (OMB) as executive agency rules (theoretically but not really) are. The Heritage Foundation’s Red Tape Rising series notes tens of billions of dollars in this category.

Cumulative effects of rules: As rules accumulate, their overlap can worsen regulatory outcomes. Underbrush is never cleared. Like former Sen. Phil Gramm in the 90s, the Progressive Policy Institute regrets the “regulatory accumulation” and calls for a bipartisan commission to reduce them. Just basic housekeeping.

“Guidance Documents” with economically significant impact: Decisions may be made by agencies, and parties pressured to act without formal regulation or appreciation of costs. Examples include EPA Clean Water Act jurisdictional guidance on “Waters of the United States,” and the Federal Trade Commission’s “Guidance” on disclosure of paid search engine results.

A July 2012 U.S. House Committee on Oversight and Government Reform publication noted:

Guidance documents, while not legally binding or technically enforceable, are supposed to be issued only to clarify regulations already on the books. However… they are increasingly used to effect policy changes, and they often are as effective as regulations in changing behavior due to the weight agencies and the courts give them. Accordingly, job creators feel forced to comply.

Sue and Settle Agreements: Environmental pressure groups “sue” an agency that is all to happy to be sued to have its power increased over private actors.

Misguided notions of what counts as environmentalism: Failure to address tragedy of commons, the failure to extend the institution of property rights, and to incorporate resource expansion into the wealth creating sectors as an alternative to political oversight undermines conservation and environmental improvement.

“Budget” or “Transfer” rules, and their associated deadweight costs: Budget rules implement federal budgetary programs, primarily income transfers from taxpayers to beneficiaries. Program changes involving Medicare and Medicaid are examples.

Such wealth transfers, like taxes, are not our primary concern here. But transfers matter, since governmental programs are plausibly and often correctly regarded as improperly displacing what private sector could do, and impose “deadweight” costs.

The OMB notes that:

[T]ransfer rules may…impose real costs on society to the extent that they cause people to change behavior, either by directly prohibiting or mandating certain activities, or, more often, by altering prices and costs. The costs resulting from these behavior changes are referred to as the “deadweight losses” associated with the transfer.

Unfunded mandates On States and Localities: Congress should consider fuller treatment of unfunded mandates both on the budgetary and regulatory side.

Mandates’ impacts get reviewed in the annual OMB benefits and costs reports to some extent, but Congress should consider fuller treatment of both their budgetary and regulatory impacts. According to the National Conference of State Legislatures’ (NCSL) Mandate Monitor report, from 2004 to 2006, Congress had shifted $131 billion in costs to the states. It would be useful to have better appreciation of such costs.

Regulation by International Treaty: International regulatory costs are terra incognita. Treaties regulate: attempted greenhouse gas agreements, the Law of the Sea Treaty, the Outer Space Treaty; exploration of their costs is an omission.

For more on regulatory costs see Tip of the Costberg and Ten Thousand Commandments.

Next Time: The Costs Of Adverse Health And Safety Impacts

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