They sure do. Real fiscal debt levels and unreckoned-with entitlements present obligations beyond even today’s record corona-bolstered $26 trillion debt and $4 trillion deficit.
The nonchalance with which these circumstances are treated extends even to President Donald Trump, who reportedly proclaimed “Who the hell cares about the budget” at a January 2020 fundraiser, having asked staff to wait to look at budget cuts later on.
With peacetime deficits and debts ignored even at times of low interest rates, the rescue-by-deficit spending we see during Covid could be unavailable for tomorrow’s crisis, whatever that turns out to be. That’s one reason stimulus by deregulation should be pursued.
Speaking of regulation, the even-less-disciplined regulatory enterprise presents greater ambiguities than spending does. Trump has been unique in pursuing rollbacks, but should one expect these untracked government interventions to behave better and be less costly than the systematically disclosed ones over long time horizons?
Not enough review of federal regulation happens to assure its does more good than bad, and no assessment at all is made for burdens of the administrative enterprise as a whole.The sole official reckoning citizens get regarding the scale and scope of regulatory costs is the Office of Management and Budget’s (OMB) annual (in law but not in practice) survey of a subset of regulatory costs and benefits called theReport to Congress on the Benefits and Costs of Federal Regulations and Agency Compliance with the Unfunded Mandates Reform Act.
These reckonings feature a limited lookback (current fiscal year and most recent 10 years) at the numbers of significant rules from executive agencies with partial quantification of costs and benefits of a handful. Not just the oughts but the entire 20th Century get ignored.
The OMB’s 2017 reportcovering fiscal year 2016 Obama-era rules and regulations was the most recent relatively complete edition, but it arrived nearly four years overdue in December 2019. There is a long history of tardiness and incompleteness, but this years-long delay was something unprecedented.
A frenzy of catch-up brought forth a truncated Draft Report combining fiscal years 2018, 2019 and 2020 in one abbreviated volume the day before Christmas Eve 2019, along with helpful electronic supplemental tables, but without the 10-year lookback narrative. Separately, the public also got year-end status reports on Trump’s “one-in, two out” E.O. 13,771 directive on agency regulations, which so far, presents good news.
The OMB’s 2016 survey reported that federal agencies published 36,255 final rules in the Federal Register over 10 years (2006 to 2016), and that it reviewed (only) 2,670 of these final rules as stipulated under Executive Order 12866, of which 609 were considered major. OMB claimed high net benefits of the regulatory apparatus, pegging the cumulative benefits of a selection of 137 of the 609 major regulations issued at between $287 billion and $911 billion. The estimated range for the decade’s costs was $78 to $115 billion (agencies typically assert costs are less than benefits). The 2019 White House composite report covering fiscal years 2017-19 depicted a handful of rules with total present values of costs and benefits of only a few billion dollars overall despite federal agency ubiquity in daily affairs.
Regulators themselves decide what counts as major. As OMB said up front (p. 8), “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.” The OMB asserts 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 (p. 11) 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.” While OMB references a 2004 claim that the “major” rules reviewed account for the bulk of regulatory costs (p. 10), other OMB reports had been more forthcoming about indirect and unfathomed costs. Those subject to regulation might have different opinions regarding what’s noteworthy.
In any event there had been over 9,000 rules and regulations, big and small, issued since Trump’s inauguration; but the amagalated three-year report sports only 27 rules with both benefits and costs quantified, and another 29 with costs alone quantified. The OMB asserts the major rules (including budget rules) it reviewed “represent approximately one-fourth” of the significant regulatory actions reviewed by OMB (p. 10). Overall, the 2018-2020 consolidated Report to Congress encompasses only 145 “major” (so-deemed) rules. Of the hundreds of executive agency major rules issued in the 21th Century since 2001 (among tens of thousands of non-major rules issued) about 38 percent have OMB-reviewed quantified cost analysis, and far fewer both cost and benefit analysis.
Looking beyond the officially self-designated “major” rules, the proportion of all rules with any reviewed cost analysis averages less than a percent, despite massive governmental intervention into economic and social policy in a $19 trillion economy. Benefit assertions, which the federal government declares justify the modern regulatory apparatus, are common; yet the actual tabulation of them fares worse,“state of the art techniques” for evaluation notwithstanding. The annual OMB cost-benefit breakdown omits independent agencies (apart from what they reported to the Government Accountability Office) and incorporates only those rules for which executive agencies have expressed both benefits and costs in quantitative and monetary terms—amounting to a couple dozen at best, when several thousand rules—and guidance documents not subject to notice and comment—appear each year. Meanwhile the Unfunded Mandates Reform Act portion of the annual Report to Congress is boilerplate since the Act exempts almost everything from critical analysis and repeal.
Transfer and budget programs, unless related to defense or justice, are inherently interventionist and regulatory in nature. Yet the costs of distortions caused by federal spending are not counted by agencies, nor are the deadweight effects of the budget rules, even when the federal government dominates, for example, 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 that single payer is contemplated. Washington’s expansion of middle-class dependency on the federal government is about as fundamental as social regulation gets. These factors are a few among a range of regulatory and administative state interventions that go unacknowledged. We have noted shortcomings in rule oversight and disclosure; this non-exhaustive list depicts other categories of fallout from government intervention that get little or no scrutiny:
Unmeasured Costs of the Loss of Liberty. This includes a lot: uncompensated takings; over-delgation by Congress to agencies; agency self-funding; paternalism and over-criminalization and loss of anonymity; abandoned federalism.
Unmeasured Costs of Spending Programs with Sweeping Regulatory Effect. This includes top-down national plans, agendas and legislative schemes, and treaties; distortions created by “ordinary” federal spending, subsidies and stimulus; deadweight effects of federal spending and of “budget” or “transfer” rules; and government spending to steer investment in science and technology
Unmeasured Costs of the Administrative State’s Derailment of Market Institutions. This includes the presumption of agency expertise; the market failure fallacy and disregard of government failure; interference with price, distribution, and access mechanisms; antitrust regulation and the institutionalization of raising competitors’ costs; the blurring and corporate and government roles with government sponsored enterprises and public/private partnerships; government steering by direct ownership or control of resources; the reluctance to enlarge of property rights institutions in favor of political path dependence and the barring of regulatory exit; the establishment and perpetuation of hyper-regulatory public utility, siloed-infrastructure models; anti-property approaches to environmental amenities and concerns; unwarranted permission-seeking and over-licensing; cronyism, and the centrality of rent-seeking and rent-extraction in a self-preserving permanent bureaucracy.
Costs of Lethality. This includes failure to see benefits as forms of wealth; the selective expression of benefits; and the precautionary principle and the derailment of normal evolutionary risk-management innovations.
The foregoing represent some general themes; some examples of these numerous kinds of costs not captured by the regulatory review process include: the presenceof the antitrust threat and the costs of the distortions it has inflicted for over a century culminating in the new runs at “big tech”; the phenomenon of common carriage and public-utility notions of networks seen in net neutrality and the bipartisan advocacy of social media content regulation; health care governance (spending on which is about 18 percent of the economy); the predominance of public-private partnerships rather than private free enterprise in larger-scale undertakings such as smart cities; restrictions on western lands with respect to resource use such as Trump’s new Great American Outdoors Act; the reluctance to move spectrum and other commons into the wealth-creating sector; central control of the money supply; a bailout stance toward financial entities and corporations reamplified during the pandemic that implies future bailouts; the permanent war economy; surveillance of private citizens; the detachment of nuclear power from institutions of market evolution and discipline over a half-century ago (via indemnification from liability as also occurred with homeland security technologies); the monopolization of airport security; and heavy federal influence in housing markets and financing (perhaps a third of the U.S. economy), something also expanded during the pandemic; and so on.
The public has a right to know about all these burdens, but how can a “tool” like cost-benefit analysis deal with all that? It cannot. Regulations transfer wealth, and benefits and costs do not accrue equally to all. There is a healthy recognition in the composite Draft Report to Congress of the perils of the distributional abuses of the net-benefit pursuit (p. 6), but no significant coming to terms with that issue, and this sampling above makes the futility of that obvious. Where aggregate cost estimates are lacking, one will find distributional analysis ignored altogether. Compulsory transfer utilitarianism is alien to traditional American principles, yet agencies engage in precisely that in their net-benefit pursuits, implying costs do not matter so long as benefits as the administrative state sees them exceed costs. 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. The fundamental problem with the Report to Congress regime 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 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 that adopts a perspective wider than that of agencies in isolation and in turn, no cost-benefit analysis in reality. Still further, costs of “regulatory dark matter” like agency memoranda, guidance documents, bulletins, circulars, and manuals do not appear in OMB’s annual assessments (an executive order needs to require this).
In contrast to OMB’s constrained approach, a 2019 report from the Council of Economic Advisers (CEA) on The Economic Effects of Federal Deregulation pointed to hundreds of billions in direct and indirect annual savings from changes not just in a set of rules removed but in approaches to regulation, to moving to less-regulated conditions as such. The CEA proclaimed that five to 10 years, the lighter-handed approach to regulation “will have raised real incomes by $3,100 per household per year” with 20 deregulatory actions “saving American consumers and businesses about $220 billion per year after they go into full effect. They will increase real (after-inflation) incomes by about 1.3 percent.”
The CEA approach implies far greater costs attributable to regulation than the annual Report to Congress has ever addressed, more reflective of the sweep of governmental action. CEA’s approach might recognize, for example, that regulation affects not only current jobs, but also the inclination for entrepreneurs to create them in the future. This intertemporal nature of regulation complicates cost assessment, since nations cannot “lose” jobs that have not been created.
The CEA’s assersions were blasted as “bad fiction” by the same sort of progressives whose cost-benefit regime is shown above to be fiction; and the Trump CEA received the requisite nonconformity-with-liberal-narrative fact checks. But if there is validity to the proposition that regulatory liberalization is capable of reducing costs by multi-billions of dollars by changes in emphasis and stress, it is also reasonable to presume prior increases or additions to regulation that have gone unmeasured in the compliance universe will have added billions of dollars beyond what are seen in the normal compliance measures. This might be what the “fiction” proclamations do not wish to acknowledge. Government steering without issuing rules at all is also regulation, and it is appropriate to address costs of progressive and socialist policies and the benefits of lifting them from the afflicted public.
This author maintains that regulatory costs are unknowable in an elemental sense, that they are not observable nor calculable—much as the economic calculations necessary to enable central economic planning are impossible. This is why regulatory or administrative state reform is not a suitable goal; instead, the restoration of Article I is, so that Congress remains accountable.As inherently “squirelly” as regulatory costs are, in the phrasing of American Enterprise Institute scholar Peter Wallison, disclosure is an imperative as long as the administrative state remains the means of governance. The solution to the unresolvable dilemma is for Congress to vote not just on costly and controversial rules but all of them; or, to legislate.
The ample shortcomings in administrative state disclosure benefit the bureaucratic, academic and legal studies infrastructure it has spawned over the last century. With unbridled government, there ample paths to trillions in regulatory costs just as federal spending occupies those heights.But apart from CEA, good luck locating official reckonings.The Small Business Administration (SBA) last published an assessment of the federal regulatory apparatus in 2010, pegging annual regulatory compliance costs at $1.75 trillion. The primary purpose of the discontinued and not replaced series was not an aggregate cost estimate but rather to examine regulatory burdens on small firms with their higher per-employee regulatory costs. Assessments around the turn of the 21st century from OMB, GAO, and SBA also found aggregate annual costs in the hundreds of billions of dollars, some in excess of $1 trillion in today’s dollars. While performing an aggregate estimate never was SBA’s job, it remains OMB’s neglected duty.
In a 2014 report, the National Association of Manufacturers modeled 2012 total annual regulatory costs in the economy of $2.028 trillion (in 2014 dollars). Still another report, by economists John W. Dawson of Appalachian State University and John J. Seater of North Carolina State University, pushes regulatory costs into orbit by counting the long-term reduction in economic growth caused by decades of cumulative opportunity costs imposed by economic regulation. Their report posits dozens of trillions of dollars in lost GDP annually. The authors contend that rules affecting growth rates compound, and that Americans are less than half as rich as they would otherwise be in the absence of much of the regulatory state. These reports and my own work drew their share of nonobjective detractors, particularly government consultants and liberal-slant academics who favor progressivism over the constitutional order.
The data underlying these studies (or any studies) were (inevitably) problematic as this author noted in my working paper Tip of the Costberg, the subtitle of which is On the Invalidity of All Cost of Regulation Estimates and the Need to Compile Them Anyway. Yet the federal bureaucracy, even with all the vast resources at its disposal, has done nothing to fulfill its duty to assess the aggregate effects of regulation and intervention in which it engages.
Others have set out to examine how regulations accumulate and spawn unintended effects and costs that ought not be ignored. A 2016 report, “The Cumulative Cost of Regulations” by the Mercatus Center at George Mason University, employs a microeconomic model investigating regulations’ effect on firms’ investment choices to attempt to determine “how much regulation distorts the investment decisions of firms and thus hampers long-run economic growth.” Using a 22-industry data set covering 1977 through 2012, the report concluded that had regulatory burdens remained constant since 1980, the 2012 U.S. economy would have been 25 percent larger. Put another way, the 2012 U.S. economy was $4 trillion smaller than it would have been in the absence of cumulative regulatory growth since 1980. This represents a loss in real income of approximately $13,000 per American.
Most of the regulatory enterprise is altogether unaccounted for, even unavailable to incorporate into studies or models. In the context of these existing and available sources and the federal government’s failure to issue new aggregate analysis apart from the CEA’s new effort,I employ an informal placeholder for across-the-board costs of federal regulation and intervention of $1.9 trillion annually in compliance costs, economic and GDP losses and social costs. This placeholder is based on a nonscientific, disclaimer-laden, fusion and amalgam of GDP losses and compliance costs derived from available official data and the other sources that exist. Even so, this assessment is more representative and inclusive than official estimates and more “conservative” in that burdens conceivably are considerably more as the Mercatus and Dawson and Seater approaches imply.
Enormous categories of cost like I listed above simply never find their way into regulatory analyses nor public disclosure. “Regulation,” in fact, is too narrow a word to capture the effects of wholesale government intervention into human lives from health care to education to retirement, to economic intervention. With the neglect of entire categories of intervention, once some aspect of life is “regulated” by the administrative state, a generation or so later new “budget” rules are no longer recognized as regulation at all, let alone major. Periodic flash-policy reaction to crises like corona compound this.
Some never tire of pointing out the accumulation of wealth by the top percenters in their alleged concern over income inequality, but the perpetuation of unnecessary regulation that also erases wealth accumulation and harms the most vulnerable garners little concern.
In terms of the disclosure duty, the debate has never been whether the government should perform its cost assessment, but whether it should be bottom up or top down. The answer is that both are needed, and an executive order reaffirming the longstanding obligation to assess aggregate costs is warranted.We need greater acknowledgement of what we do not know, of burdens that slip through not cracks but canyons. Unless Congress votes on rules, the bureaucracy must continue to be forced to assess regulatory costs from the standpoint of compliance, efficiency, loss of liberty and more even if such assessments can never be accurate.
Even with decades to practice, the public sector seems unconcerned with conveying true costs for endeavors that are rooted in compulsion. Executive orders and guidance to agencies governing cost assessment and regulatory analysis can be expanded and need to incorporate far more elements as explored above to avoid a regulatory “deficit” that apes the fiscal one.