Reining in the Executive Branch Bureaucracy, Part 1: Measure Regulatory Costs

by Wayne Crews on January 21, 2014

in Deregulate to Stimulate, Economy, Features, Nanny State, Personal Liberty, Regulation, Transparency

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Since the Federalist Papers, America has debated “Energy in the Executive.” But President Obama’s 2014 agenda framed by his State of the Union address heralds a class warfare agenda, one fusing an “income inequality” theme with perverse federal industrial policy.

When I can act on my own without Congress, I’m going to do so,” Obama promises. This spend-and-transfer fixation makes Americans poorer and dependent except for the lucky few running things.

Others have argued for federal budget rationality as essential to a true anti-poverty agenda. This series proposes a greater prosperity enhancing opportunity, streamlining the nearly $2 trillion hyper-regulatory state and the needless uncertainty and destruction of wealth and job opportunities it creates.

Federal agencies often overstate the benefits of their intervention to enlarge their powers over the public; This is not derogatory, the theory of bureaucracy and insights of public choice economics virtually compel it.

The Food and Drug Administration is doing it right now with e-cigarettes that emit only water vapor, the FCC with net neutrality, the EPA with its “social cost of carbon” witchcraft.

Meanwhile, most of the cost of regulation gets ignored. Big time.

We endlessley hear of regulation’s benefits. But of over 46,000 rules and regulations published in the Federal Register since 2001, but only 146 have both cost and benefit analysis. Another 72 bothered with cost analysis.

Furthermore, what bureaus deem benefits are sometimes costs.

Rest assured that the wealthy can endure the the costs of regulation more easily than the poor or the jobless. Over-regulation aggravates income inequality; will Obama respond?

Agencies’ benefit estimates can be subjective and self-serving. It’s even worse when regulations trample health and safety rather than boost them.

When agencies offset costs of a regulation with benefits, as they all are urged to do in the bureaucratic rulemaking process, rarely will any regulation fail to exhibit “net benefits” from an agency’s viewpoint. It is not impossible, but nearly so.

Cost and benefit assessments are unfortunately highly subjective. All cost estimates, and certainly benefit estimates, have a fundamental invalidity to them. (The subtitle of my Tip of the Costberg working paper is, On the Invalidity of All Cost of Regulation Estimates and the Need to Compile Them Anyway.)

Agencies can punish, though, so their getting it right is more important than the exaggerations of someone affected by regulation.

The Office of Management and Budget’s annual consolidated “net benefit” range is arbitrary because of this subjectivity, and because OMB relies upon the random handful of rules with both benefits and costs quantified, as I illustrate here in “The Funnel.” OMB’s 2013 Report to Congress on the Benefits and Costs of Federal Regulation remains Missing In Action, incidentally; we still only have the draft.

Agencies should concentrate on presenting the costs of their initiatives — much as our fiscal budget focuses only on the amounts of outlays and deficit, not their benefits (see the “Costs in Dollars, Costs in Common Sense” chapter in Tip of the Costberg).

Even comparative benefits of federal budgetary activities are difficult to assess: It’s hard to weigh federal outlays on Amtrak versus money spent on welfare.

A cost emphasis to rationalize the regulatory sphere doesn’t mean benefits can be ignored, however.

Instead, known benefits are what Congress should have had in mind before it delegated the power of regulatory compulsion, which was itself probably constitutionally inappropriate.

Congressional over-delegation combined with executive over-reach account for much of today’s State of the Union.

No matter how good they may be, regulators can’t save more than 100 percent of the population. As with the tax code, Congress should make the judgments about where relative benefits lie and take responsibility for the benefits or lack thereof implied in the regulatory priorities that prevail.

If OSHA saves more lives than EPA, Congress’s future allocation of relative regulatory authority could reflect that. Agencies acting of their own accord, imposing costs and ignoring tradeoffs, ensures over-regulation.

Unfortunately, the findings of a January 1997 House Commerce Committee report on regulatory costs basically still apply:

We have found that the agencies have little, if any idea how their regulations affect the American people [and] agencies cannot possibly know whether they are doing more good than harm.

Since rules sporting both cost and benefit assessments barely exist even though the Regulatory Right to Know Act requires both, an energized approach to measuring regulatory costs is needed.

Obama bragged about the power of the pen he has:

I’ve got a pen, and I’ve got a phone. And I can use that pen to sign executive orders and take executive actions and administrative actions that move the ball forward.

I’d be nice to to see him use that pen to reduce the state rather than expand it.

Future executive orders and legislation could further strengthen cost emphasis, like Executive Orders like 12866 and 13563 have done to some decree.

De-prioritizing benefit calculations would also leave room for agencies to disclose indirect costs and job losses, which they ignore now.

A cost focus could prod agencies to maximize benefits without forcing it. Congress could reapportion regulatory authority based on reality.

That is, rather than simply claim a net benefit for every rule, agencies should have to “compete” and demonstrate that they save the most lives or advance some other value at least cost — or risk having their “regulatory budgets” reallocated by Congress.

Fully portraying costs in annual regulatory reports to Congress will be fraught with difficulties and uncertainties enough: we should keep the job manageable.

Addressing costs and dealing with over-regulation help maintain a prosperous economy, which can reduce future Opportunivore tendencies to redistribute income, sparing us top-down agendas like we shall endure in 2014.

Next Time: When Regulation Hurts More Than Helps

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