How Entrepreneurs Can Speak Out About The Cost Of Regulation

When federal bureaucrats in Washington released the Report to Congress on the Benefits and Costs of Federal Regulations for fiscal year 2013, their hope was for the public to believe that regulations cost just $2-$2.5 billion while bestowing benefits of up to $67 billion.

The better takeaway is that a mere seven rules account for these costs. Another 11 rules were acknowledged to cost perhaps $3.2 billion annually, but no benefit estimate accompanied those.

So that’s eighteen 2013 regulations that the federal government tells us about. But there were actually 3,634 rules issued during the fiscal year, so there are gaps to say the least.

Stepping back a little, the White House Office of Management and Budget says that the costs of regulations for the past decade (October 1, 2003-Sept. 30, 2013) range between $38.2 billion to $46.1 billion. But this comprises only 113 rules, during a decade that delivered 37,560 rules.

The management mantra is that to control something, one must measure it. But the federal government gets away with economic and social controls by not measuring.

My own bottom-up reckoning pegs the federal “Costberg” at $1.882 trillion annually, while a new top-down model from the National Association of Manufacturers tallies $2.028 trillion annually. We may be understating things, since it’s been proposed that the regulatory drag is such that GDP should actually be many times higher than it is now.

The Washington debate over how to energize the economy usually converges on taxes, corporate tax rates and the like. Such reforms matter, but the entire 2013 corporate income tax was $288 billion, many times less than the regulatory burden.

Washington downplays impacts with talk of “net benefits” and arrogant assertions by “choice architects” who know better than us. Policymakers must address regulation and job impacts in the next Congress, but entrepreneurs and business people need to speak up loudly, too.

Businesses that never form in the first place because of regulation never get a chance to talk, of course — but we must start somewhere.

When the National Association of Automobile Dealers surveyed their members, it was eye-opening to see the regulation with which just one segment of our economy must cope: Obamacare and labor law for employees; Dodd-Frank in the financing office; the Environmental Protection Agency hovering in the body shop; the Federal Trade Commission monitoring advertising and marketing practices, and more.

In fact, NADA members contend with “over 60 regulatory burdens across the health, safety, environmental, consumer protection and financial spectrum that impact the economy by nearly $8 billion annually in compliance, lost revenues and lost consumer surplus.”

NADA’s estimates did not include state and local regs, nor “‘upstream’ product regulations, such as federal fuel economy mandates imposed on vehicle manufacturers.” Indeed, sweeping mandates like the Corporate Average Fuel Economy standards downsize vehicles and cost us our spare tires in addition to billions of dollars annually. (On the other hand, auto dealers do not note as a “cost” the franchising laws that prevent automakers and upstarts like Tesla from selling directly to customers.)

One interesting tool any business could use is the “Regulatory Cost Calculator” compiled by the Mercatus Center at George Mason University, which poses questions framed to get businessmen and entrepreneurs to systematically itemize how costs stack up from any given regulation. The calculator cycles through:

  • One-Time Costs: Buildings, land, capital equipment, vehicles, advertising, manuals, licensing/fees/registrations, travel, loss in obsoleted inventory, consulting/professional services needed, dollar cost of owner, manager and employee time to initiate compliance, and much more like power, utilities and fuel.
  • Monthly Recurring Costs: Similar to the categories of one-time costs, these capture now-permanent or near-permanent impacts of the new regulatory regime on business operations. Sometimes, savings may apply.
  • Effects on Investment: Through costs, uncertainties created and increased risk or liability, regulations impact business investment decisions, force the postponement of important projects, and cause firms to forego investments that otherwise would have occurred. Such costs represent “opportunity costs”: that which the business would have done otherwise.
  • Effects on Production: Related to investment, expenditures on regulation can induce redesign of production processes, and derail entire products and services.
  • Effects on Customers and Sales: Customers lose value when firms are forced to “discontinue, alter, or increase the prices of products or services.” Customer reactions are too often ignored as important components of regulatory costs.
  • Costs of Influencing the Regulation: Time, money and lawyers are involved in halting a regulation, or in influencing it. (Unfortunately, businesses sometimes seek regulation purposely, knowing their competitors cannot cope with higher costs.)

We measure taxes, spending and the deficit. The big job now is to get aggressive about exposing the costs of regulation on the one hand, and making policymakers accountable for them on the other. The Mercatus calculator can help any businessperson articulate impacts.

America’s entrepreneurs and job creators are outnumbered. I hope some can help me add to the Costberg – with the goal of subtracting from it.