March 20, 2012

Obama Administration's Latest Sop to the Anti-Regulatory Crowd: Buying the Cumulative Burden Pitch

This post was written by CPR President Rena Steinzor and CPR Policy Analyst James Goodwin.

Earlier today, OIRA Administrator Cass Sunstein released a new memorandum to agencies directing them to consider and account for the “cumulative” costs of their regulations.  Attacking the cumulative costs of regulation has been a favored tactic among regulated industries and their allies in Congress (it's a feature in many anti-regulatory bills, such as the Regulatory Accountability Act).  Rather than responding forcefully to the faulty cumulative costs premise, the Obama Administration has instead bought into it. The memo outlines principles and not specific technical prescriptions for how rules will be written, but it’s likely the agencies will follow the directions from the White House. What we’re left with is a solution in search of a problem that could further delay or derail badly needed solutions to real problems. 

As with so many of the arguments offered by regulatory opponents, the cumulative burdens concept is intended to provide a one-sided view of regulations—one that focuses exclusively on the costs of regulations without any consideration of their benefits.  Such a one-sided view, of course, provides no useful information about the real value of regulations.  Rather, it portrays them as an inescapable drain on the economy, while ignoring how they help people by saving lives or preserving irreplaceable ecosystems for future generations.

Counting up all the costs of all the regulations that affect an industrial sector would be a time-consuming task, although what problem careful attention to the cumulative costs of regulations would solve is far from clear.  Obviously, fans of this number crunching hope to to identify areas were regulatory costs can be reduced.  Conceivably, heightened awareness of how all applicable regulations affect a sector could promote streamlining of the paperwork that regulated entities must submit.  For example, the EPA might design a new electronic form for power plants to fill out regarding their emissions of two different air pollutants, rather than having those power plants fill out two separate electronic reports.

By and large, though, cumulative regulatory costs exist for a good reason:  If a particular industry is subject to multiple regulations, it’s because they produce several kinds of external costs, each of which must be addressed through separate regulations.  Take coal-fired power plants for example.  They release greenhouse gas emissions and toxic air pollutants, dump toxic water effluents, produce toxic coal ash, and employ water intake systems that are harmful to aquatic ecosystems.  Generally, these must be addressed through separate regulations, with little room for killing two or more birds with one regulatory stone.  Yes, all of these regulations together produce a high cumulative regulatory cost on these facilities, but only because these facilities impose high cumulative costs on society.

If these cumulative regulatory costs prevent certain firms from being profitable, then an honest economist would have to accept that result.  If a factory is poisoning nearby children with many different toxic chemicals at high levels, for example, government’s role should be to protect the public—not to say “cut down on one pollutant, but the others are okay, because we don’t want to be too tough.”

 Of course, the Obama Administration or Congress may decide that for some non-economic policy reason they want to let such firms or industries off the hook for some of the costs they impose on society.  But if they act on that conclusion, policymakers should recognize that deliberately reducing regulatory burdens amounts to subsidizing that industry, in the same way that government aid or a tax break would.

It’s also telling that the new memorandum addresses no parallel concern about the cumulative costs on victims of pollutionand the matching benefits of regulation.  Some populations are on the receiving end of greatly disproportionate amount of industrial external costs.  Take poor and minority communities in Louisiana’s Cancer Alley for example.  Presently, the EPA is engaged in several initiatives—such as Plan EJ 2014—to ensure that populations overburdened by pollution are properly accounted for in agency decision-making.   The OIRA memo would seem to directly contradict those efforts. If a factory is spewing multiple toxic pollutants into a nearby town, the EPA wants to address all of them in a way that is sensitive to the unique disproportionate burden that town is bearing; OIRA wants to give the factory some dispensation from having to lessen all of the pollutants.

What is perhaps most concerning about this memo is that it reinforces the Obama Administration’s muddled thinking about regulation.  On the hand, Administrator Sunstein continually professes to be concerned with the goal of maximizing the net benefits of individual regulations.  Yet, on the other hand, nearly all of the White House’s regulatory policies—including today’s memo—focus exclusively on the goal of reducing regulatory costs.  In reality, these two goals—maximized net benefits and minimized regulatory costs—are mutually incompatible.   In many cases, maximizing net benefits requires increasing marginal regulatory costs, because the resulting increase in marginal benefits will be even greater.

Despite the rhetoric, it’s clear which regulatory goal is the White House’s highest priority.  As usual, though, the President’s sworn enemies gave him no credit for this pandering.  The Chamber of Commerce was lightning fast in putting down the Sunstein memo, unsatisfied.

 


Rena Steinzor, Professor of Law, University of Maryland Carey School of Law. Bio.

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