I expanded on this theme in two other related articles by outlining shortcomings in cost measurement and disclosure of certain rule varieties and process and oversight limitations in regulatory practice. Before elaborating on other un-reckoned costs of the administrative state (such as costs to liberty and constitutional governance, regulatory effects of spending programs, costs of market “socialism,” and costs of anti-benefits), I thought it would be useful to review a bit of current practice.
The Office of Management and Budget (OMB) began partial one-stop-shopping disclosure of discrete and aggregate regulatory costs in 1990s via outside estimates and some agency regulatory impact analyses (RIAs) prepared for economically significant and major rules. Costs were reckoned them in the hundreds of billions of dollars. Broad categories of aggregate cost disclosure in early editions of the OMB’s annual Report to Congress included:
- Economic Regulation (efficiency, transfers)
- Other Social
- Paperwork/Process/Information Collection
Economic literature, textbooks, journals, institutions, and careers have defended economic regulation, intervention, and administration for over a century. OMB defined economic regulation as that which “restricts the price or quantity of a product or service that firms produce and/or restrict whether firms can enter or exit specific industries.” But it is broader: alleged fine‑tuning of the macro economy, control of the money supply, direct government management, corporate breakups and merger conditions, and more are examples of such costs that go unmeasured.
In its modern-day incarnation, the OMB Report to Congress presents, instead, some department/agency-specific regulation: the departments of Labor, Transportation, Agriculture, Energy, Justice, Health & Human Services, Housing and Urban Development, Homeland Security, and the Environmental Protection Agency. The Office of Information and Regulatory Affairs (OIRA), within OMB, reviews significant regulations and totes up some of the “major” ones. Since the overarching categories of the early annual reports vanished, only a 10-year lookback exists for particular agencies and departments. Even on the basis of such limited information, regulation, the primary way government acts apart from spending, is alleged to have no net costs, only overall net benefits.
This current regulatory review and oversight procedure is rooted in Ronald Reagan’s 1981 Executive Order 12291 on “Federal Regulation,” with modification since such as Clinton’s E.O. 12866 on “Regulatory Planning and Review” (which largely still governs), and Trump’s E.O. 13771, “Reducing Regulation and Controlling Regulatory Costs. The cost-benefit analysis framework was detailed in OMB Circular A-4 on “Regulatory Analysis.” Agencies are asked to “provide estimates of their monetary values when they are significant” of the following effects:
- Private-sector compliance costs and savings
- Government administrative costs and savings
- Gains or losses in consumers’ or producers’ surpluses
- Discomfort or inconvenience costs and benefits
- Gains or losses of time in work, leisure and/or commuting/travel settings
An RIA-completion framework to clarify Circular A-4 (Regulatory Impact Analysis: A Primer) provides additional direction, as does an OMB “Agency Checklist.” This collection of guidance governing production of annualized and present-value monetization (and other quantification) of major rules’ benefits and costs takes for granted and reinforces administrative legitimacy and philosophy. Agencies are regarded as expert and objective.
Non-objectivity aside (among the costs we’ll get to in future installments), OMB’s primer instructs agencies that “The benefits and costs should be quantified and monetized to the extent possible, and presented in both physical units (e.g., number of illnesses avoided) and monetary terms.” Net benefits are to be “maximized,” but get broadly interpreted and can be “qualitative.” Here is the simple breakdown of how agencies have been instructed to isolate and document costs and benefits:
BENEFITS and COSTS
Annualized quantified, but unmonetized,
Annualized monetized transfers (budgetary and non-budgetary, “from whom to whom?”) appear separate, as do effects on lower-level governments, small businesses, wages and growth.
Opportunity costs are said to be captured in “willingness-to-pay,” but one cannot regard that narrow construction as indicative of much, particularly given the fundamental impossibilities of measurement with which the regulatory state will not grapple (doing so would inspire recognition that, as long as the administrative state is the legislative vehicle of choice, Congress must vote to approve unmeasurable complex or costly rules). Cost-benefit analysis can miss diminution of societal wealth as well. Nods toward “alternative regulatory approaches” and a healthy presumption against economic regulation are helpful but caveat-laden and limited. Circular A-4 emphasizes “market failure” (supposed market power and asymmetric information, for example) and other rationales (such as giving credence to “non-use” values) that enable agencies to easily validate intervention. Even with these gaps, some deem OMB’s “ex ante,” estimates unsound, and assert that “ex post” costs are likely lower, tempered by technology, time, and magical efficiencies driven by compulsion (often heard in the green energy space). In any event, benefits need merely “justify” rather than exceed costs. Cost-benefit analysis is seen by some observers as providing vital information, but, according to OMB, “should not necessarily determine the regulatory decision.” The implication: by all means, keep regulating.
Naturally some agencies perform better evaluations than others, but many lack thorough analysis. Despite the perception of pervasive cost-benefit analysis and routine pronouncements that regulatory benefits exceed costs, very little of the reviewed cost-benefit analysis called for in the RIA preparation framework takes place (see the periodically updated chart “Funnel of Gov: On the Depth of Regulatory Cost Review, 2001-Present”). Measured and reviewed “major,” “significant” or “economically significant” rules comprise a fraction of rules, and the subset with cost-benefit analysis is a far smaller proportion. Accordingly, the archive of audited assessments is surprisingly small (however un-reviewed cost analyses of purportedly non-“significant” rules may be found). When all is said and done, the requirement that agencies assess distributional effects of regulations becomes something of a figment.
Uncounted regulatory costs are not just industry or sector specific, but also societal. Agencies, operating within their own boxes, naturally emphasize individual rules rather than categories of mixed economy and socialist intervention. It is allegedly baked into the Constitution that it shall be difficult to pass law in America, but little is off-limits as regulators pursue “social goals.” The RIAs are written by the very agencies (or their hired contractors/consultants) that create and write most laws/rules in the first place. The Report to Congress notwithstanding, monetary benefit calculation almost never happens, while costs of regulatory accumulation, of the very existence as such of entire agencies and their agendas, and of the regulatory state as a whole, play no role in evaluation. These limitations must figure into our new taxonomy of the unknown, and be part of a deeper case for humility.
Apart from a relative handful of rules, the costs of most past and contemporary regulation and intervention—affecting most every industry and sector—are unknown. Whether railroading, housing, aviation, energy, electric power, or telecommunications, little is, or has, been officially tabulated. While attacks on specific regulatory assessments are plentiful, even the most rudimentary official placeholder for the whole is absent.
Most elemental for present purposes, Circular A-4 does not encompass burdens as classical liberalism and ordered laissez-faire would demand, particularly given links between economic and political liberty. And even if the guidance did so, we see that the fragment of rules with estimates would still leave most in darkness. We observe a mostly incomplete lattice, as noted in the final chapter of the working paper “Tip of the Costberg.” This uncontested inadequacy of the regulatory taxonomy and largely inspired the “Rule of Flaw/Costs of Coercion” undisclosed costs outline in the first place.
“Taxonomy” is surely an impoverished word for capturing transcendent unmeasured and unfathomed costs of government involvement in economic, social, and cultural endeavors, ignored economic calamity, drag, deprivation, health effects, independent agency costs, indirect costs, guidance documents and mandates on lower-level governments, and more. “Budget rules” or transfers spent on government programs get treated as non-regulatory even when they may govern large categories of what would otherwise be voluntary human endeavor. The very structure of the market and economy are heavily influenced by overarching policy and government steering, by categories of intervention such as antitrust, as opposed to discrete or specific rules and regulations, and as such never appear in RIAs. We have a century of untabulated antitrust regulation, monetary inflation’s erosion of value, an unaudited Federal Reserve, eighty years of inability to pass a Social Security “inheritance” to children (aggravating income inequality), and unacknowledged lethal effects of regulation. The administrative state insists that banks be central; wages minimum, communications networks “neutral”; it has laid the needed foundation for healthcare to be single payer, community college free, and income guaranteed minimum.
Like the fiscal state, the administrative state accentuates a conflict of visions over the size and scope of government and its role in the economy, over separation of powers and executive over-reach, and more deeply, over the fundamental relation of individual to the state. This underscores the irreconcilable differences in what classical liberals and Progressives might be willing to recognize as a cost of regulation in the first place. Indeed, if government runs, manages or funds a sector, there is no “regulatory cost” to measure for the committed administrator—yet the costs can be astronomical and cataclysmic to the classical liberal.
Judge Harvie Wilkinson summarized conventional observations on the strengths and weaknesses of the administrative state. As for strengths, he wrote: “To justify the Administrative State, proponents offer four virtues—or comparative advantages—of federal agencies: expertise, objectivity, experience, and consistency.” But to the extent these virtues are disadvantages or absent instead, they obscure administrative unsuitability and obstruction. Yet even Wilkinson called the administrative state “water over the dam” and “here to stay,” particularly given states’ embrace of it. Indeed, a “New Deal fundamentalism” deflects and discourages challenges to the administrative state’s authority. This complacency means that regulatory overload has little to fear from the Administrative Procedure Act (APA) and its public notice-and-comment process. Circular A-4 and regulatory oversight are preoccupied with utilitarian net benefits. Would-be reformers tend to reinforce that, playing in a sandbox on the Progressive left’s vast administrative state beach. That is not helpful. “A pruned weed is a healthy weed,” as CEI founder Fred L. Smith, Jr. likes to say.
Of many unfathomed costs of the administrative state, the most fundamental is the loss of a unique, precious, irreplaceable constitutional republic via the specifically warned against “accumulation of all powers, legislative, executive, and judiciary, in the same hands.” Bureaucracies are independent sources of sweeping power that have overcome separation of powers strictures and operate on a more arbitrary and unilateral basis. Such phenomena are left out of the likes of Circular A-4. The APA, unfortunately, is no shield against abandonment of the Constitution, rule of law, and the inalienable individual right to live under limited government. Rule of law requires more than “knowable” rules. The rule of law, as economist John Cochrane framed it, “ultimately is a set of restrictions to keep the state from using its awesome power of coercion to force your political support.” The replacement of the country’s constitutional foundation with an administrative state has perhaps irretrievably corroded that heritage over time, as exemplified by the “constitutional disobedience” strain in administrative law that underscores how profoundly unconcerned the academy is with protecting the Founders’ principles of limited government. Posterity, however, retains the right to preserve the constitutional republic of enumerated powers, and to reject the aberrant interpretation by which the necessary and proper clause has come to mean anything goes (exemplified most recently in the Green New Deal, and the downplaying of its radicalism by mainstream sources).
The Administrative Procedure Act oversight regime is inadequate to capturing most categories of government intervention and interference. We have to start anew when it comes to dealing with regulation, the least-disciplined part of the federal enterprise. My recent blog post “A Brief Outline of Undisclosed Costs of Regulation” takes some steps and will serve as a repository. Loss-of-liberty costs from classical liberal and individual rights perspectives not emphasized in executive orders and Circular A-4 are a part of the whole. These include:
- Costs of the Loss of Liberty
- Costs of Regulatory Takings and Property Value Destruction
- Costs of Abandoning Negative Rights for a Positive Rights Framework and Unequal Treatment of Citizens Under the Law
- Costs of Delegation of Lawmaking Power to the Executive and to Unelected Administrators
- Costs of Congress’s Routine Disregard of the Congressional Review Act
- Costs of Agency Self-Funding
- Costs of the Impossibility of Eliminating Agencies
- Costs of Paternalism and the Normalization of Dependency
- Costs of Imposing Regulation Based on Secret or Creatively Leveraged Data
- Costs of Abandoned Federalism
- Costs of Authoritarianism and Over-criminalization
- Costs of Loss of Anonymity in the Administrative Surveillance State
Capsules on each of them should be forthcoming.