It’s Simple: Quantify the Regulatory Costs

Clyde Wayne Crews isn’t the best public speaker in the world. I know that because we brought him in for an Indiana Chamber board meeting a few years ago. Oh, he knew his subject area — the world of federal regulations — but audience members weren’t thrilled by his presentation style.

The most important part of that opening paragraph was the phrase "he knew his subject area." Crews, a policy vice president with the Competitive Enterprise Institute, is right on target again with his latest writing as he takes Congress to task for the over-regulation that is threatening so many companies.

It might be easy to blame the agency regulators. But they’re only taking those steps because Congress is simply not doing its job. The partisan politics is preventing progress of any kind; then it becomes worse when our representatives abdicate their responsibility.

Crews writes:

“Ultimately, voters need the ability to hold Congress directly accountable for regulations by requiring congressional approval of new rules. Thus, legislation that will lead to costly agency rules regulating, say, lamp ballast energy efficiency may or may not make sense to a congressman who may have to vote directly to approve the accompanying costs.

“As Congress becomes more answerable for regulation, it will face greater incentives to ensure that benefits exceed costs as determined by independent analysis, rather than by agencies’ own estimates. Greater ongoing oversight might dampen the tendency to overregulate in the future, thus creating pressure for a ‘regulatory ceiling’ to parallel the fiscal debt ceiling. Regulation does not control itself, and agencies will not apply the brakes.We have to do it, through our elected representatives.”

Read more from Crews and access his full report.

Federal Regs Got You Down? Let Us Know

The Competitive Enterprise Institute is a Washington, D.C.-based think tank that publishes an informative update titled Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State. While much attention has been paid to the rising deficit, yearly regulatory compliance costs are estimated to be AT LEAST $1.7 TRILLION.

Freshman congressman Todd Rokita (R-4th District) and the Indiana Chamber want to do something about that. In an effort to bring to light the harm that many federal regulations do to Hoosier businesses, a new initiaitive has been launched. "Cutting Red Tape, Creating Hoosier Jobs" is a way for business owners and managers to communicate directly to Rokita on issues critical to their business success.

The congressman offers more details in this letter. The Chamber has established a dedicated web site where you can provide feedback on proposed, pending or existing federal regulations. You can also submit through mail to Cam Carter at the Indiana Chamber or via email to [email protected].  

What kind of regulations are we talking about? The EPA trying to regulate carbon dioxide emissions through the Clean Air Act is a prominent one. But there are thousands of other "red tape" examples, rules that simply provide additional compliance headaches with little or no benefits.

Rokita needs specific cases (with impacts on business operations or new job creation) in his effort to see a return to limited, common sense government.

For those especially interested in regulatory issues, you may wish to join our D.C. Fly-in in September.

Tallying the Historic Regulatory Burden

Taxes have a higher profile (especially on Tax Day today), but regulations may carry a bigger share of the blame when the topic is government getting in the way of business growth and development. Consider these numbers, just part of a yearly comprehensive report from the Competitive Enterprise Institite:

  • The Federal Register stands at an all-time record-high 81,405 pages.
  • In 2010, federal agencies issued 3,573 final rules.
  • While agencies issued 3,573 final rules, Congress passed and the president signed into law a comparatively “few” 217 bills. Considerable lawmaking power is delegated to unelected bureaucrats at agencies, an abuse addressed recently in proposals such as the REINS Act.
  • Alarmingly, proposed rules in the Federal Register have surged from 2,044 in 2009 to 2,439 in 2010, a jump of 19.3 percent.
  • Of the 4,225 rules now in the regulatory pipeline, 224 are “economically significant” meaning they wield at least $100 million in economic impact—this is an increase of 22 percent over 2009’s 184 rules.
  • Given 2010’s government spending (outlays) of $3.456 trillion, the regulatory “hidden tax” of $1.75 trillion stands at an unprecedented 50.7 percent of the level of federal spending itself.
  • Regulatory costs exceed all 2008 corporate pretax profits of $1.463 trillion.
  • Regulatory costs dwarf corporate income taxes of $157 billion.
  • Regulatory costs tower over the estimated 2010 individual income taxes of $936 billion by 87 percent—nearly double the level.
  • Regulatory costs of $1.75 trillion absorb 11.9 percent of the U.S. gross domestic product (GDP), estimated at $14.649 trillion in 2010.
  • Combining regulatory costs with federal FY 2010 outlays of $3.456 trillion reveals a federal government whose share of the entire economy now reaches 35.5 percent.

Wayne Crews, author of Ten Thousand Commandments:  An Annual Snapshot of the Federal Regulatory State, says, “Trillion-dollar deficits and regulatory costs approaching $2 trillion annually are both unsettling new developments for America.  Every year, the federal government blows past previous deficit, debt, and regulatory burdens with no end in sight. No wonder Americans are fed up with Washington.”

Check out the full report.

Regulatory Relief or Justification?

A serious effort to reach out to job-creating businesses and stimulate economic growth or a political move now that the road to change in Congress is much less friendly? Reactions to President Obama’s call for reviewing federal health and safety regulations that might be too burdensome on business vary from those two camps to a few areas in between.

Two different perspectives, first from the Competitive Enterprise Institute, which has its doubts; second a CNBC analysis, which indicates the results might be surprising. As always, we’re interested in your take.

This executive order is hardly a war on red tape, and no affected businesses or consumers are going to be able to sue anybody to force compliance — it’s just an “order” to agencies to behave, says CEI’s Wayne Crews. 

Actually confronting regulation, the crippling extent of which remains unappreciated by both parties, requires going far beyond the words of an executive order. Some options include:

  • Implement a bi-partisan “Regulatory Reduction Commission” to vote up or down annually on a package of rules to eliminate.
  • Institute a moratorium or freeze on regulatory rulemaking now.
  • Hold hearings on Sen. Mark Warner’s (D-VA) “one-in, one-out” requirement for any new rule.
  • Rediscover federalism, that is, circumscribe the federal regulatory role regarding health and safety matters best left to states.
  • Enlarge regulatory flexibility and exemptions for small business.
  • Establish an annual Presidential address or statement on the state of regulation and its impact on productivity and GDP.
  • Sunset regulations after fixed period unless explicit reauthorization is made.
  • Implement a supermajority requirement for extraordinarily costly mandates.

As for CNBC.com, Senior Editor John Carney writes:

NBC news reports that the efforts will be run out of Cass Sunstein’s office inside the Office of Management and Budget. That’s hardly surprising. The entire op-ed reads as if Sunstein had a large role in authoring it. He’s long been an advocate of cost-benefit analysis of government regulation.

It’s important to note that in Sunstein’s interpretation, cost-benefit analysis does not have the implicitly libertarian outcomes that the leftist critics and some free market types expect. Indeed, it could be that both the critics and friends of this new executive order will be surprised.

Sunstein’s cost-benefit analysis, for instance, could well be used to support greater regulation of hedge funds or a stronger version of the Volcker Rule by pointing to the relatively modest costs involved and the potential costs of possible systemic risks. In advance of actually doing the cost-benefit analysis, we cannot know if any particular regulation will pass muster.

I suspect that in actual operation, we’ll discover that Sunstein-ian cost-benefit analysis is modestly pro-regulation. Especially when regulators are allowed to include vague things such as how a regulation impacts on equity, this kind of “watch the consequences” analysis is pretty open-ended and far more subjective than it might seem. 

Congress Appears to Vote “Nay” on Bailout

You have a nice weekend? Yeah, me too. Weather was nice, football was watched, fun was had. Oh, one small thing I should also mention: our entire economic structure is swirling in a giant (bleep)storm.

So in "Other than that Mrs. Lincoln, how was the play?" news, we’d like to discuss the bailout. (And as I write this, it appears the current proposal is on the verge of defeat in the House.)

According to John Berlau of the Competitive Enterprise Institute, defeat today would be ideal, as the proposed $700 billion could actually have had a net negative impact on the economy. He writes in The American Spectator:

"The government has to do something to keep markets from falling and the economy from getting worse." How many times have you heard that mantra this past week from President Bush, Treasury Secretary Hank Paulson, Democrat leaders, the news media, and even some ostensibly conservative periodicals?

But what if the bailout, as originally proposed and in its latest incarnation, would spend $700 billion of taxpayers’ money and actually make the economy worse? Believe it or not, there is good evidence this may happen. The inflationary prospects of the bailout price tag may lead to spikes in oil and crop prices that could hit ordinary Americans in their cars and on their kitchen tables. And government purchases of financial assets could ironically further constrain credit through causing write-downs on even the balance sheets of financial firms not participating in the bailout by worsening the effects of mark-to-market accounting rules.

But not everyone is so bearish on the matter. Obviously, Treasurer Paulson and many members of Congress didn’t think it was such an economic downer.  

Also of note, Ball State economist Michael Hicks is now on record saying the ultimate proposal could cost much less — $100 billion over five or six years.

Just $100 billion? Oh, see, and here I thought this was going to impact me financially.