Red Tapeworm 2014: Reckoning the Dollar Cost of Federal Regulation

This is Part 3 of a series taking a walk through some sections of Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State (2014 Edition).

The Office of Management and Budget’s (OMB) 2013 Draft Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates, which surveys regulatory costs and benefits, pegs the cumulative costs of 115 selected major regulations during the decade 2002-2012 at between $57 and $84 billion.
Costberg Pie 2014
(That compares with 106 rules at between $43 billion and $67 billion in the 2012 report.)

Meanwhile, the estimated range for benefits spanned $193 billion to $800 billion. These figures are in 2001 dollars, not 2013. The final 2013 report is overdue, and in turn the draft 2014 report is not available.

The OMB’s cost-benefit breakdown incorporates only benefits and costs which the OMB or agencies have expressed in quantitative and monetary terms. It omits numerous categories and cost levels of rules altogether, and rules from independent agencies are entirely absent.

OMB shows that for the 14 rules added during the fiscal year ended September 2012 sporting both benefit and cost analysis, costs of from $14.8 billion to $19.5 billion were added. This encompasses 14 rules only.

The latest official aggregate cost assessment of the entire federal regulatory enterprise was prepared in September 2010 for the Small Business Administration (SBA). Modeling techniques have changed over time, as SBA presented several versions of the report over the past decade and a half. Over the years, the survey has assessed regulatory costs in the following broad categories:

  • Economic regulatory costs (for example, price-and-entry restrictions and transfer costs such as price supports that shift money from one pocket to another);
  • Workplace regulatory costs;
  • Environmental regulatory costs; and
  • Paperwork costs (for example, tax compliance).

The 2010 edition of the SBA report, prepared by economists Nicole V. Crain and W. Mark Crain, estimated regulatory compliance costs at $1.752 trillion for 2008. The Crain and Crain report’s primary purpose was to note the extent to which regulatory costs impose higher burdens on small firms, for which per-employee regulatory costs are higher.

OMB–in the same administration–has rejected the SBA report’s magnitudes over modeling employed based upon a World Bank study; however OMB’s own earlier reports were in the same ballpark, as was a 1997 GAO study. The SBA authors addressed criticisms in great detail here, here and here.

One gets the impression, in this administration of “years of action” and “pen” and “phone” that the real aim of our federal government is to discredit the very concept of measuring costs. They want to regulate unbound, to do as they please.

Therefore, more recently, I decided to compile available estimates on the compliance and economic cost burden of the federal regulatory enterprise, using the OMB annual Report to Congress on costs and benefits, Government Accountability Office (GAO) and other federal data, and third-party estimates.

Newer developments–including the aftermath of recent major financial, health, and environmental policies–point to substantial regulatory costs not captured by any of SBA’s and even in OMB’s reports.

The result is the working paper, Tip of the Costberg: On the Invalidity of All Cost of Regulation Estimates and the Need to Compile Them Anyway, which assembles placeholders for compliance and economic regulatory impacts.

A plausible estimate for the cost of federal regulation is $1.863 trillion annually. The nearby chart “Annual Cost of Federal Regulation,” breaks down the “Costberg” regulatory estimate by categories but is not exhaustive by any means.

Recent regulatory interventions–including the various stimulus and bailout programs and regulatory costs associated with the recent health care and financial reform legislation, and the federalization of private life–will have dramatic economic impacts.

Other costs, like indirect costs, and effects of lost innovation or productivity, are extraordinarily difficult to assess (which works to the advantage of the regulator) and can produce underestimates of the overall regulatory burden.

Categories of additional regulatory costs noted but not estimated in Costberg include:

  • Loss of Liberty Costs
  • Economic Cost and Interference Omissions
  • The “Costs of Benefits”
  • Costs of Poor Regulatory Processes; Systemic Omissions; Guidance Documents; Executive Orders
  • Negative Health and Safety Impact Omissions
  • Job Costs of Regulations

Detail on these omissions and subcategories may be seen in the Tip of the Costberg chapter, “Unfathomed, Unmeasured Omissions.”

Red Tapeworm 2014 Series
Part 1: Guess Which Is the Largest Government on Earth?
Part 2: Tardy Bureaucrats Gone Wild