Rewards and Risks of a Federal Regulatory Budget (Part 5)

This week I began by making the case for a regulatory cost budget, but wanted to spend time exploring looming pitfalls and political traps that could derail it or easily make it not worth supporting, or even rendering it something to actively oppose.

Tuesday, I noted how, just as the federal government treats tax breaks as an “expenditure,” budgeting could inadvertently or deliberately lead to government expansion. Wednesday I addressed problems surrounding trading off “social” benefits with private costs. Yesterday I looked at a third pitfall, coping with a fundamental impossibility of “measuring” costs. Here’s the fourth potential hazard for those attempting a regulatory budget.

Hazard 4: The Temptation to Include Benefits In a Regulatory Budget

As noted earlier with respect to the inherent utilitarianism of cost-benefit analysis, an ongoing threat to regulatory budgeting will be the ceaseless insistence of agencies and regulatory proponents that policymakers include benefits in the budget calculation, and to use those benefits to offset costs under a budget cap in an effort to create an agency‑determined “net cost” of a regulation.

Benefits, even more so than costs, do not lend themselves to measurement by a third party or external observer, and abuse will result from the reality that persons enjoying the benefits of regulations and persons paying for those benefits are not always the same people. Benefits cannot be assessed by outsiders who bear no relationship to or responsibility for maintaining the benefit in question. There are more flying unicorns than federal regulators who doubt the net benefit of most of their thousands of decrees, and agency creativity in conjuring “benefits” is boundless, recently inventing the “social cost of carbon,” a new “intractably speculative” social cost of methane “guesstimate”; “co-benefits” of regulations (without, unsurprisingly, concern for “co-costs”). There has long been dispute over linear risk models that assume harm directly proportional to dose in environmental and radiation exposures. 

Incorporating benefits defeats a regulatory budget’s purpose and renders it not merely useless but potentially tyrannical. If costs of a rule that purportedly benefits society in general can get routinely imposed on a few political losers, we create biases toward rule after rule, toward entrenched over-regulation. From the standpoint of societal tradeoffs, regulation is cheap relative to everything else in the choice set, and society is induced to “buy” too much; and of course the regulator buys all he wants since he faces no costs, and little discipline whatsoever.

The proper approach instead is for the elected Congress—on its terms, not those of unelected regulators—to set the cost budget constraint based on the potential benefits that an agency provides unilaterally and relative to other agencies, leaving it up to agencies to maximize benefits within that constraint.

Net-benefit approaches give agencies, special interests and even individuals incentives to falsely value a good/regulation since nothing personal is at stake. The ability to impose costs on others means they themselves face no opportunity costs when equivalent disciplinary regimes are not in place. As noted with respect to inappropriately expanding the scope of government, a regulatory budget becomes a complete failure if it condones agency schemes to carry out unlimited regulatory wealth transfers by embracing benefits. Scholarship on the special-interest, collusive origins of environmental regulations provide examples.

Even benefits of federal fiscal budgetary activities are difficult to compare, let alone regulations. How does one, for example, trade off benefits of federal outlays on infrastructure versus money spent on welfare? Such ambiguities would become greatly magnified in a regulatory budget regime that left benefit assessments up to agency caprice, because those who gain from regulation have incentives to force others to shoulder costs. If costs are subjective, benefits are slippery in the extreme, and if agencies offset costs of their regulations with self-proclaimed benefits, rarely if ever will any regulation fail the test.

Benefits are for the elected Congress to calculate, even if only implicitly. And further, benefits are for Congress to answer for.

Next time we’ll address the inevitable appeals by agencies to avoid budget cuts.


Also in this series:

Rewards and Risks of a Federal Regulatory Budget (Part 1)

Rewards and Risks of a Federal Regulatory Budget (Part 2) The Perverse Expansion of Government

Rewards and Risks of a Federal Regulatory Budget (Part 3) The Elevation of Utilitarianism Over Individual Rights

Rewards and Risks of a Federal Regulatory Budget (Part 4) The Impossibility of Measuring Costs