The Cost Of Government Regulation

“You, there: stop complaining and start hiring!”

That is essentially the Obama administration’s message to businesses.  This is an administration that seems to believe that $1 million spent on pollution control will create more than 1.5 net jobs. Who comes up with such numbers?

One would be Cass Sunstein, head of the White House Office of Information and Regulatory Affairs (OIRA), who recently wrote in the Washington Post that there is no “tsunami” of regulations to worry about, no matter what the Chamber of Commerce says. All is fine and dandy because OMB says regulations cost no more than $62 billion annually.

Sunstein, who is in charge of keeping tabs on the costs of government regulations, also recently saw it fit to undermine his colleagues at the Small Business Administration, telling a Senate hearing that SBA’s oft-cited report finding of $1.7 trillion in regulatory costs is an “urban legend.”

He may be a lot smarter than the rest of us and have more legal citations than anyone else in the Milky Way, but if Sunstein seriously contends that regulations aren’t costly or shouldn’t be fretted over — or that only “net benefits” matter — we have a real problem.

Sunstein cites a progressive advocacy group’s critique of the SBA, titled “Setting the Record Straight,” which doesn’t attempt to find out what regulatory costs are, but just highlights the “conservativeness” of those who seek disclosure and accountability and to critique their efforts.

Sunstein also cites a Congressional Research Service report actually entitled “Analysis of an Estimate of the Total Costs of Federal Regulations,” which, rather than finally tabulating regulatory costs after all these years, simply shrugs and talk about how complex it all is and demeans the SBA effort.

In my view, the SBA report’s authors, Nicole and Mark Crain, concede a lot to potential critics, and such reports can and do benefit from genuine critique. The authors bend over backward to stress that they are not assessing benefits, given that the SBA’s legislative mandate is to address small-business impacts.

The country’s wealth creators need a real review of regulations, not comforting words from federal officials. Out of over 3,500 rules finalized in 2010, OIRA reviewed 66 — and of those only did benefit calculations for 20.

A simple perusal of the Federal Register shows over 430 rules costing over $65 billion so far this year alone, let alone the entire Crain universe of rules, which stops at 2008. As the Crains note, regulatory costs are often “indirect,” compared with direct taxation.

Significantly, they also note that the “totality” of rules under $99 million are not reviewed by OIRA. That is important because “major” rules — those estimated to cost $100 million or more — comprise likely less than 10% of the regulatory pipeline at any given time. Thus, a rule that is not considered “major” could still impose significant costs in real-world terms.

The Crains also note that they do not include in their assessment the indirect or ripple effects of regulatory mandates. They also do not directly review many categories of rules—including import restrictions, antitrust regulations, product safety and telecom—and rules issued by “independent agencies.” And no one has yet accounted for the impending regulatory tsunami (yes, I said it) that will be unleashed by the Dodd-Frank and Patient Protection and Affordable Care Act (Obamacare). Sarbanes-Oxley alone costs $1.4 trillion in lost market value.

In short, the Crains’ estimate of regulatory costs, while more accurate than Sunstein’s, may well prove to be on the low end. My own casual survey of literature on regulations, not using Crain or OMB numbers, already adds up to $1 trillion — and that doesn’t count the new health care law and the 3,500 pages of Dodd-Frank financial rules (with more on the way).

Agencies think within their squares and have conflicts of interest in assessing their own benefits. Regulators can ignore the opportunity costs and moral hazard they create. Even now they are in the process of distorting entire industry structures via limiting access to energy, antitrust regulatory abuse and “net neutrality” rules in telecommunications and government “stimulus” with regulatory strings attached.

This “official” attack on the SBA by the very administration under which the report appears is inconsistent with Obama’s Executive Order on “Improving Regulation and Regulatory Review,” his Wall Street Journal op-ed, and with the reality that we know very little about the regulatory state’s impacts. The real urban legend at hand is the idea that the Obama administration is working diligently to streamline federal regulation.