During a recent teaching assignment in Shanghai, China, the view from my apartment was obscured by smog. Lots of smog. That noxious haze had me pondering a recent report published by the Competitive Enterprise Institute (CEI) complaining that government regulations are “America’s hidden tax.” By their questionable estimate, complying with federal regulations last year amounted to a $1.88 trillion cost in higher prices and lower paychecks. They also protest, without explanation, that of the thousands of new rules issued in 2014 less than 1 percent was subjected to government-mandated cost-benefit calculations. They call for fewer regulations and a law requiring Congressional approval of “major rules” before they’re binding. The effect, they argue, would be a shot of adrenaline to the economy. The soupy-brown horizon outside my window, however, is an ugly testament to the enormous health, safety, and welfare costs of inadequate, or nonexistent, regulations, and the tremendous benefits that accrue from prudent government rulemaking.
CEI’s report further recommends an expiration period of five years for new rules, and a commission to comb through the Code of Federal Regulations to eliminate harmful, or outdated, provisions. Everyone agrees that reducing obsolete and injurious rules are worthy goals, but aside from cutting regulations, the report’s other three suggestions appear to be new ideas for reform. A closer examination reveals two of them are not new and have already been implemented. The other one is probably unwise.
First, semantics matter. The term “major rule” means any rule with an estimated economic impact of $100 million or more. Only major rules must undergo cost-benefit analysis. This is the omitted explanation for the report’s lament about the low percentage of 2014 rules undergoing this analysis. CEI’s report says absolutely nothing about benefits for the remaining 99 percent of rules, only alleged costs. Second, Congress’ ability to overturn egregious rules already exists. It was used, famously, to overturn proposed rules on ergonomics in the workplace several years ago. Third, the idea of scrutinizing existing regulations for outdated and harmful ones was implemented by President Obama in 2011. Future Presidents can, and should, continue to require agencies to perform this important function. Finally, the new proposal for a 5-year expiration requirement would not only sweep away bad rules, but good ones too. Such a dragnet authority would undermine effective governance and business’s own oft-stated need for consistency in the federal code.
The Office of Management and Budget oversees agency rulemaking and most independent observers believe it does a credible job. Its 2014 report showed total estimated benefits of major rules between $217 and $863 billion and total estimated costs between $57 and $84 billion for the period 2003-2013. These less-biased estimates demonstrate that the net benefits are immense. Health problems from second-hand smoke, scandalous wall-street bank shenanigans, and the polluted view outside my Shanghai window exemplify the true costs of too few regulations. Rather than a one-sided rant against “costly rules,” a more balanced assessment that considers both costs and benefits better serves the public’s interest.