The long-standing presumption that national top-down regulation of the economy from Washington brings substantial net benefits dominates public policy.
But how much timely review of federal regulation occurs to assure anyone that regulations individually and on the whole do more good than bad, or that benefits exceed costs?
There is actually no way to make such a claim for even most rules standing on their own, let alone the overall regulatory enterprise that gets no assessment at all; rather, progressives and statists take great pains to deny the need to consider aggregate assessments, and attack the credentials of those who think otherwise.
One will rarely find progressives in similar fashion questioning the credentials of, say, Green New Deal proponents who would add regulation; but that is the nature of the clash between classical liberalism and socialism and its affect on law reviews, academic journals and “peer review,” so called.
The annual (in theory and in law, but not in practice) Report to Congress on the Benefits and Costs of Federal Regulations and Agency Compliance with the Unfunded Mandates Reform Act is where the federal government tells us what it reckons to be the range of costs and of benefits of the rules and regulations issued every year. (Find them archived here.)
This is pretty much the whole ball of wax for official measurement of the regulatory enterprise, and it is often delayed, and it often disappoints.
In keeping, the Trump administration Office of Management and Budget (OMB) only released the 2017 edition covering fiscal year 2016 Obama-era regulations on December 9th of … believe it or not … 2019.
And if that weren’t all, and as if to avoid detection, a frenzied spasm of catch-up brought forth a highly truncated Draft Report combining overdue fiscal years 2018, 2019 and through 2020 in one abbreviated volume the day before Christmas Eve.
There is a long history of un-self-conscious tardiness and incompleteness for this report, but this years-long delay is utterly unprecedented. I used to tally how late these reports were becoming, thinking that it meant something, and finally had to give up when they simply stopped altogether. The utter lack of concern reminded me of a Van Halen song.
I don’t *feel* tardy.
Van Halen, “Hot for Teacher,” 1984
Most disappointing, this amalgamated report lacked the mandatory aggregate regulatory cost estimate (in recent years treated as a ten-year look-back ignoring the entire 20th Century, after the OMB in 2002 yielded to progressives).
OMB’s last “complete” exposition pegged the cumulative benefits of a selection of 137 major regulations issued between 2006 and 2016 at between $287 billion and $911 billion; and the estimated range for the decade’s costs at $78 to $115 billion.
Who’s surprised that pre-Trump agencies self-reported big net benefits?
This all shows the gathering unworkability of the administrative state without internal mechanisms chartered to sunset and challenge every regulatory endeavor, rather than the opposite stance that exists across the entirety of the federal government.
The public did, however, get year-end status reports on Trump’s “one-in, two out” directive on agency regulations (Executive Oder 13,771), which if we are generous, the administration may have seen as a proxy for timely Reports.
Shortcomings in the aggregate report are not the making of Trump, however (his administration would not have issued most of the regulations involved in the first place); and the defects underscore the need for more executive actions in 2020 whether or not Trump wins reelection.
So with all those caveats let’s look a little deeper at the latest official disclosures of what proportion of rules present reviewed and audited, not just asserted, cost and benefit documentation. We require that sense of proportion, and here it is:
Less than a percent of federal rules boast reviewed cost-benefit analysis.
There have been over 9,000 rules and regulations, big and small, issued since Trump’s inauguration. The 2,964 rules finalized by federal departments, agencies and commissions in calendar year 2019 was the lowest count since record-keeping began in the 1970s (that “record-keeping” started only in the seventies, nearly 100 years after progressivism, makes my point above on unworkability).
And unlike prior administrations, a sizable portion of newly issued rules are purportedly deregulatory.
But take a look at my nearby chart (or link), The Funnel of Gov: On the Depth of Regulatory Cost Review, 2001-Present. The new three-in-one report (covering the years 2018-20) encompasses only 145 “major” (so-deemed) rules, a comparative pittance compared to the full 9,604 rules issued during the corresponding calendar years.
More tellingly in its frank admission, the OMB also asserts these major rules “represent approximately one-fourth” of the significant regulatory actions reviewed by OMB (p. 10). This is one of the concerns with the neglect of categories of regulation; once some aspect of life is “regulated” by the administrative state, a generation or so later new rules are no longer recognized as regulation at all, let alone major.
Given high rules counts but the small fraction reviewed, cost and benefit tallies are even more cartoonish in their disconnect from constitutional lawmaking and the realities of mass government intervention into economic and social policy in a $19 trillion economy.
A further look at the new White House aggregate report shows it admits to a total (present value) of costs and benefits of only a few billion each despite federal agency ubiquity in daily affairs:
- FY 2017, $5.9b to $9.5b in annual benefits; $2.2b to $3.2b in annual costs (2016$)
- FY 2018, $0.6b in annual benefits; $0.1b to $0.3b in annual costs (2017$)
- FY 2019, $0.2 to $3.7b in annual benefits; up to $0.6 billion in annual costs (2018$)
How representative can that be? In its last ten-year lookback for long-ago FY2016, the OMB reported that federal agencies published 36,255 final rules in the Federal Register; and that it reviewed (only) 2,670 of these final rules under Executive Order 12866. Of these, OMB-reviewed rules, 609 were considered major
As the nearby chart, “The Funnel of Gov” further shows, of the hundreds of executive agency major rules issued since 2001 (among tens of thousands of non-major rules issued), just a relative handful get mere OMB-reviewed cost analysis, let alone cost-and-benefit analysis.
Overall, of the few hundred major rules that get reviewed by the Office of Management and Budget (OMB), only about 38 percent sport quantitative cost estimates.
When we look beyond the officially self-designated “major” rules, the proportion of all rules with any reviewed cost analysis averages only around 0.53 percent, as the chart shows.
Benefit assertions, which the federal government declares justify the modern regulatory apparatus, are common yet fare even worse. Alleged “state of the art techniques” for evaluating regulations today are less apparent than a lack of benefit calculations altogether. That misguided regulatory pursuits can undermine well-being is important to consider when benefits are rarely quantified in the first place.
The deep problem here is that enormous costs simply never find their way into regulatory analyses or public disclosure. “Regulation” is too narrow a word to capture the effects of wholesale government intervention into human lives from health care to education to retirement, let alone economic intervention.
So, plenty gets omitted. Regulators themselves decide what counts as major (it’s complicated). As OMB says up front, “As has been the practice for many years, all estimates presented … are agency estimates of benefits and costs, or minor modifications of agency information performed by OMB” (p. 8).
The OMB claims that its report “does not purport to demonstrate all costs or benefits from federal regulation; instead, the report summarizes the anticipated costs and benefits that the Regulatory Impact Analyses (RIAs) of individual final rules reported for those rules.” The administration acknowledges what it calls an “ often-overlooked detail”; that “the totals listed … include only the benefits and costs for the minority of rules for which both those categories of impacts were estimated” (p. 11).
But on the other hand, regulators reference a 2004 claim (footnote 24, p. 10) that the “major” rules reviewed account for the bulk of regulatory costs.
So which is it? Earlier OMB reports had been more forthcoming about indirect and unfathomed costs.
For example, OMB does not review independent agency rules at all, like those of the Federal Communications Commission or financial regulatory bodies. Entire categories of oversight or intervention (antitrust; perpetual, no-escape federal control of commons like spectrum, airspace or commercial space operations) get no scrutiny. And the Unfunded Mandates Reform Act portion of the annual Report to Congress is heavily boilerplate because the Act exempts almost everything from critical analysis and repeal.
On it goes; we noted the costs of distortions caused by federal spending are not counted, nor are the deadweight effects of the budget rules. In all three fiscal years, we are told, over half are “transfer” rules (rules affecting government spending programs), implying they are inconsequential or tangential.
But it is not proper to subscribe to “transfer rules are not regulatory” tradition when the federal government has taken over the bulk of retirement and senior health care. Pell grants alter private college financing. Federal medical programs have altered the medical markets, to such extent now that single payer is contemplated. Transfer and budget programs, unless related to defense or justice, are inherently interventionist and regulatory in nature. Washington’s expansion of middle-class dependency on the federal government is about as fundamental as social regulation gets.
On the plus side, a largely overlooked 2019 report from the Council of Economic Advisers on The Economic Effects of Federal Deregulation pointed to hundreds of billions in direct and indirect annual savings from changes not just in rules removed but in approaches to regulation as such. This implies far greater costs than the annual Report to Congress has ever addressed.
It is helpful that, despite its otherwise conceding to agency estimates, a big chunk of the new aggregate cost-benefit report is devoted to a healthy suspicion of today’s cost-benefit analysis state of the art.
It is important to emphasize that the estimates used here have limitations. Insufficient empirical information and data is a continuing challenge to agencies when assessing the likely effects of regulation. In some cases, the quantification of various effects may be speculative and may not be complete. For example, the value of particular categories of benefits (such as protection of homeland security or personal privacy) may be sizable but quantification can present significant challenges.White House Office of Managment and Budget, Office of Information and Regulatory Affairs, 2018, 2019 and 2020 Draft Report to Congress on the Benefits and Costs of Federal Regulations and Agency Compliance with the Unfunded Mandates Reform Act
This borders on a healthy confession regarding sources of benefits. What, exactly, protects privacy and dignity? Raise your hand if you really think governments do that.
There is also a healthy recognition the perils of the distributional abuses of the net-benefit pursuit (p. 8, Draft Report to Congress). Regulations transfer wealth, and benefits and costs do not accrue equally to all. If aggregate cost estimates are lacking, such dedicated distributional analysis is likely ignored altogether. Compulsory transfer utilitarianism is not a part of traditional American principles, yet agencies engage in it in their net-benefit pursuits.
The net-benefit pursuit implies costs do not matter as long as “benefits” exceed them. By analogy, federal spending presumably creates benefits, too; but unlike regulation, no one argues that the taxes individuals pay are offset by the benefits those taxes provide, and therefore claim Americans pay zero taxes on the whole.
That is, no one (yet; but simply give progressives time after they work out kinks with their New Monetary Theory brethren ) posits a net tax benefit implying overall taxation is costless; that aggregate measurement and disclosure are irrelevant; and that we can increase tax collection ad infinitum as long as benefits are deemed supreme by those imposing the tax.
The fundamental problem with the regulatory Report to Congress regime as currently configured is that net-benefit analysis is oxygen for an ever-expanding conflagration of more-government. Creative regulators can alternate between maximizing net benefits (as in OMB’s 18-year-old “Circular A-4” guidance on regulatory analysis), or claiming benefits “justify” costs as specified in E.O. 12866, and largely get their way.
Cost‑benefit analysis is conveniently mute on superior benefits that may have accrued if an agency’s “regulatory budget” allocation belonged instead to another agency; so there exists no genuine net benefit pursuit adopting a wider perspective than that of agencies in isolation.
Granted, disclosure is important whether transfers are regulatory or fiscal, but it is established by now that if societal benefits did exceed costs, there isn’t anybody who would know it.
Still further, costs of “regulatory dark matter” like agency memoranda, guidance documents, bulletins, circulars, and manuals do not appear in OMB’s annual reports and attempts to tally them have failed. A new compendium is due at the end of February thanks to Executive Order 13,891 that should be interesting to watch.
So: two glaring shortfalls of these “annual” reports to Congress on regulation is the bias and inclination to declare net-benefits of the entire regulatory enterprise on the basis of such a small handful of rules; and the absence of a broader perspective like that the CEA report adopted.
The public sector is unconcerned with conveying true costs for endeavors that are rooted in compulsion. Today’s technocratic cost-benefit approach, even under Trump’s regulatory liberalization regime, ignores when command and control undermines actual elevation of safety and health features as forms of wealth.
As it stands, nothing in any official government reports reveal if regulations do more good than bad. Far too much is left out, even though OMB has had decades to practice.
And they are even late at telling you what they don’t know. The best next steps would be some new executive orders addressing these matters of disclosure and accountability when new reports appear — on time.