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The Facts on Rising Red Tape: A Response to The Washington Post

Posted By James Gattuso On January 20, 2011 @ 10:00 am In Economics | Comments Disabled

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Do regulatory costs matter? Not quite, according to the January 14 “Fact Checker” column [2] on WashingtonPost.com.

The column, by Glenn Kessler, criticizes Heritage’s recent “Red Tape Rising” report [3], which documented the growing cost of federal regulation in fiscal 2010. Noting that the study has been prominently cited by Rep. Darrell Issa (R–CA), the new chairman of the House Oversight Committee, he awards Issa a metaphorical “Pinocchio” for using data from the report. (Issa was given a second Pinocchio for using a study commissioned by the Small Business Administration on the total cost of regulation.)

Kessler seems eager to call the Congressman a wooden-headed liar, but you’d think he would at least identify a misstatement or some kind of error in the Heritage report before leveling the charge. He does not, although Kessler does manage to misinterpret or misstate some facts himself.

His primary criticism isn’t that we had our facts wrong about the cost of regulation but that regulatory cost in and of itself is not relevant to policymaking. It’s enough to leave Geppetto himself scratching his head.

The approach we used in the Heritage study was direct. We took regulatory agencies’ own estimates of the costs of major new rules being imposed during the fiscal year and made them consistent as to inflation and discount rates. The result: a total reported cost for major new regulations. For fiscal 2010, that cost—from 43 separate major rules adopted—was some $28 billion, or $26.5 billion when the small amount of deregulation achieved is netted out.

(Kessler cites unnamed Administration officials who suggest that the largest component of this total—some $10 billion to meet new fuel economy standards—represented double-counting. Our figure, however, is consistent with the analysis by the National Highway Traffic Safety Administration, and we stand by it.)

Kessler contrasts the approach used in our study with that of the Office of Management and Budget (OMB), stating that OMB looks at costs over a 10-year period. It does, but OMB also reports annually on the cost of new regulations adopted that year. Rather than conflict with the OMB approach, our methodology was actually based on OMB’s. In fact, “Red Tape Rising’s” historical data on regulatory costs came directly from OMB. Our only addition was data for fiscal year 2010, which was obtained from reports by the various regulatory agencies.

The Fact Checker column does identify one difference between our methodology and OMB’s: OMB does not include rules from independent agencies such as the Federal Communications Commission or the Securities and Exchange Commission. This is hardly a flaw, though. Costs imposed by these agencies are as real to the average American as costs from other agencies, and they should not be ignored.

Kessler also argues that Obama cannot be held responsible for all of the rules adopted during the past year, suggesting that some were imposed by court order and others were begun under his predecessor. Well, no one said he was. Our methodology was not tailored to make Obama look bad. It’s the same methodology we used in reports issued during the Bush Administration. The primary purpose of our report is to quantify the cost of regulation, not to assess blame.

That said, it would hardly be unfair to assign the Obama Administration primary responsibility for the size of last year’s regulatory tsunami. Obama initiatives ranging from fuel economy standards to health care regulations vaulted regulatory costs to unprecedented levels. Conversely, instances of the Administration working to limit regulatory costs were virtually non-existent.

Rather than deny responsibility for increased regulation, the Administration has eagerly claimed credit for it, pointing out the benefits of new rules. And that leads to Kessler’s primary criticism about “Red Tape Rising”: It calculates costs rather than benefits. This, he says, “is like focusing … only on the calories in a meal and ignoring the nutritional content.” But regardless of nutritional value, it’s worthwhile to know how many calories you are taking in, or you will get awfully fat.

Moreover, Kessler seems to assume that if the benefits of a rule exceed its costs, the rule is automatically good and just policy. It isn’t. For starters, it’s extremely difficult to measure—much less predict—benefits. And as a result, regulators calculate benefits far less often than they calculate costs.

But even when benefits can be calculated with some reasonable pretense of accuracy, this does not negate the costs. For starters, the recipients of the benefit are usually not the same people who pay the costs. The costs do not disappear—they still have an impact on those who must pay.

More fundamentally, even if well-justified, any new mandate or restriction imposed by government increases the role of government in the economy and in our daily lives. It may be good for some people—it may even be necessary—but each new rule nevertheless incrementally reduces the ability of Americans to make decisions for themselves.

For these reasons, policymakers such as Issa are quite correct to keep an eye on the overall amount of regulation being imposed on Americans. And reporting that is the point of—not a flaw in—Heritage’s report.

Co-authored by Diane Katz [4].


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/01/20/the-facts-on-rising-red-tape-a-response-to-the-washington-post/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/WASHINGTON-POST.jpg

[2] January 14 “Fact Checker” column: http://voices.washingtonpost.com/fact-checker/2011/01/is_obama_bad_for_business.html

[3] “Red Tape Rising” report: http://www.heritage.org/research/reports/2010/10/red-tape-rising-obamas-torrent-of-new-regulation

[4] Diane Katz: http://www.heritage.org/about/staff/k/diane-katz

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