The Economist’s February 18 edition offers a cover package of five articles on “Over-regulated America” (1, 2, 3, 4, 5). Our British friends want you to know there’s a problem here in the States that needs fixing:
A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.
You can almost feel The Economist’s pain: the jobless rate should be a lot higher than it is, if the premise about the costs of regulations is correct. Surely if the regulatory burden were actually 12 percent of GDP – that’s what the SBA numbers say, if you draw them out – things would be far worse than they are. Ideologically unable to consider the obvious alternative – that regulations don’t add $10,585 in costs per employee, The Economist, just, well, “wonders” aloud.
Here’s what The Economist would have found if they’d dug just a little bit: Fully 70 percent of the SBA estimate was actually based on a regression analysis using opinion polling data on perceived regulatory climate across countries (in a strange twist, a separate article in the same issue actually questions the study, briefly). Whole reports have been written on why that number is bogus.
Our economy is still recovering from a tremendous collapse largely caused by under-regulation of financial institutions. But in its group of articles, The Economist wants us to think the opposite: “The home of laissez-faire is being suffocated by excessive and badly written regulation.” That premise, in turn, leads the magazine to – you guessed it – a series of warmed-over right-wing policy ideas aimed at gutting regulations. Let’s take a closer look.
The fundamental challenge for The Economist is squaring its anti-regulatory critique with its admission that “most” of today’s regulations have monetized benefits exceeding costs. The magazine likes that, after all. So where’s the problem?
Big business in the United States spent years pushing to institute a system where regulations are only approved if their monetized benefits exceed their monetized costs. So, for example, a polluter can’t foul a waterway and kill a couple people along the way, unless it makes a whole lot of money doing it. But a challenge emerged for these industries: many of the biggest regulations – EPA air pollution rules, in particular – have benefits far exceeding costs. Of course, the companies who will have to bear some of the cost of finally cleaning up their act still want to stop these regulations. So what to do?
The Economist has industry’s back, dedicating one of its articles to arguing that the federal agencies have been over-stating the benefits of their proposed rules. Exhibit A: the EPA’s “Utility MACT,” which will put limits on certain pollutants for coal-fired power plants, and save literally thousands of lives every year. In reality, the Utility MACT perfectly refutes The Economist’s premise: it is actually an example of an agency underestimating, not overestimating, benefits.
The magazine is upset that in the EPA’s calculation of $37 to $90 billion each year in health benefits for the rule (compared with $9.6 billion in costs), “less than 0.01% of the monetary benefits” came from reductions of mercury pollution. The monetized benefits came from reductions in particulate matter and other harmful pollutants, but not from the mercury that was the prime target of the rule. This is an argument we’ve heard ad nauseam from the coal power industry and its allies. It’s nonsense: the quantified mercury benefits are low because EPA didn’t calculate them. Putting an exact monetary value on not poisoning our children with neurotoxins that stunt their mental development is difficult and there’s no right number; the EPA just left it out, relying on the benefit calculations for the reduction of other pollutants. The case is a prime example, in fact, of how agency analyses usually underestimate regulatory benefits. Likewise, independent studies have shown the agency projections of costs of regulations to be too high.
The Economist settles on a series of unfortunate recommendations. Let’s start with the championing of sunset provisions: “All big regulations should also come with sunset clauses, so that they expire after, say, ten years unless Congress explicitly re-authorises them.” But the same pages contain a plea against involving Congress in rules, as they rightly criticize the REINS Act: “Passed by the House, it would involve Congress more heavily in rule-making. If there is a body worse than the executive agencies at this kind of thing, it is Congress.” The magazine also seems to realize another problem: “Lastly, automatic ‘sunsets’ of laws have their fans, though Congress could mindlessly reauthorise laws gathered up in omnibus bills (and a bitterly divided Congress might allow good laws to lapse).” The magazine has laid out some of the important arguments against one of its key recommendations.
Here’s one of their other big ideas: “More important, rules need to be much simpler. When regulators try to write an all-purpose instruction manual, the truly important dos and don’ts are lost in an ocean of verbiage. Far better to lay down broad goals and prescribe only what is strictly necessary to achieve them. Legislators should pass simple rules, and leave regulators to enforce them.”
This call for stripping laws or regulations of clear mandates, championed for decades by Philip Howard, is a prescription for giving up our existing public protections for some future, nebulous protection system with no clear teeth. And it would lead to, among other things, a storm of action in the courts, which would have to spend years interpreting what the broad rules meant. That should be troubling for The Economist, which says it’s worried about courts interpreting rules: “The courts, in fact, are the source of the worst uncertainty surrounding environmental regulation.”
The magazine touts “creating a full-time advocate for regulatory rollback” – seemingly unaware that our tax dollars already fund such an office, the SBA’s Office of Advocacy. Just this week, that office trumpeted a list of rules that it says it played a roll in weakening or gutting.
Perhaps most troubling, The Economist floats the idea of requiring that an existing regulation be revoked any time a new one is instituted. This idea is not new; anti-regulatory guru Chris DeMuth of AEI was pushing this idea at least as early as 1980. And it makes no more sense today than it did then. New and existing regulations should be evaluated on their merits, not an arbitrary system that says we have to get rid of the rule on peanut safety if we need to make a new one on cantaloupe safety. We need to be able to address new threats, be they toys from China or BPA in water bottles.
The Economist wants us to take its proposals seriously. But all it has done is repackage false claims about the problem – and about the solutions.