A Teachable Moment for the Obama Administration: Sunstein Should Address Wild Estimates on Regulatory Costs, Challenge Regulatory Critics on Misleading Study on the Cost of Regulation

by Sidney Shapiro

June 02, 2011

The Obama administration has been busy with its regulatory look-back, which required agencies to identify health, safety, and environmental standards to be reviewed in the coming months, with the possibility of eliminating or modifying them (in some cases, the specific proposal for modification or elimination was already made last week).   In explaining why the look-back is necessary, the administration sounds too much like the Chamber of Commerce or other anti-regulatory critics and not enough like candidate Obama, who once unapologetically asserted that “government should do that which we cannot do for ourselves.” Cass Sunstein, administrator of the Office of Information and Regulatory Affairs (OIRA), should adjust the tone when he testifies before a subpanel of the House Energy and Commerce Committee tomorrow. Instead of deploying another batch of anti-regulatory rhetoric, the administration should use more language that reminds the public of the value of regulation at the same time it defends its look-back process.

The administration apparently has felt compelled to be a rhetorical opponent of the very government it heads because of what it, or its pollsters, perceive about the national mood.   Yet, this point in time presents what we in the teaching profession like to call a “teachable moment.” Even if the administration thought politics dictated a look-back, it could have done it without taking up the industry rhetoric of rules that are "just plain dumb"—or acting as if the agencies could do a look-back without any effects on their resources for existing health and safety protection work.

One particular way the Obama administration has fallen short is its failure to criticize the claim by regulatory opponents that regulations have an annual cost of $1.75 trillion dollars.  

Regulatory opponents have cited this estimate time and time again. I wouldn’t be surprised to hear this number trotted out several times during tomorrow’s hearing. 

The problem is the methodology used to produce the $1.75 trillion estimate is unreliable for the reasons we pointed out in a CPR White Paper. An evaluation of the estimate by the non-partisan Congressional Research Service (CRS) has seconded and expanded upon the criticisms that we had made.

The $1.75 trillion dollar estimate has gained unwarranted credibility because it was issued by the Small Business Administration’s Office of Advocacy, which had contracted with Nicole V. Crain and W. Mark Crain to produce an estimate of the total regulatory costs in the economy and the effects on small business specifically. Yet, as I pointed out, and as CRS has confirmed, the peer review process at the SBA did not support the estimate.

Sunstein tread lightly on the issue when he testified at a Senate hearing in April. During the hearing, Sunstein was asked what he thought of the Crain and Crain report.  He said: “I haven’t studied that document with care.  Our own analysis of costs and benefits, annually and cumulatively, suggests that the number is too high.” (see (63:50 – 66:43 in the video archive). I understand that Sunstein has a busy and demanding job, but I am surprised that he has not bothered to determine whether a cost estimate used time and again to criticize the regulatory process was valid or not.   Sunstein made a positive point in defense of regulation: The OMB’s annual estimate of regulatory costs and benefits has consistently found that regulatory benefits exceed costs (and often by a lot), suggesting that regulation regularly produces net benefits, even though it might have substantial costs. (Though, we would prefer if he had defended regulation in terms of the lives it saves, workers it protects, or ecosystems it preserves, rather than resorting to the rhetoric of cost-benefit analysis.)

Even Professors Crain and Crain said that public policy determinations should not be based only on their cost estimates. In an email to the CRS (p. 26 of the CRS report), they stated their report was “not meant to be a decision-making tool for lawmakers or federal regulatory agencies to use in choosing the ‘right’ level of regulation.  In no place in any of the reports do we imply that our reports should be used for this purpose. (How could we recommend this use when we make no attempt to estimate the benefits?).”

The $1.75 Trillion figure is ubiquitous, particularly used by members of Congress seeking to denounce regulation in general and in support of the REINS Act and other troubling regulatory reform legislation.  If Sunstein is the Administration's point person on regulations, should he not address the issue in more detail?

Surely the administration would hesitate to criticize the Crain and Crain report, because the SBA, a component of the Executive Branch that it leads, sponsored it. A forthright criticism of the estimate, however, would go a long way toward bringing the administration's rhetoric on regulation back toward reality.  When regulatory opponents consistently and persistently use a misleading cost estimate for regulation to scare the American public, the administration should not sit on the sidelines and let the record go uncorrected.

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Sidney A. Shapiro holds the Fletcher Chair in Administrative Law at the Wake Forest University School of Law and is the Associate Dean for Research and Development. He is a member of the board of directors of the Center for Progressive Reform.

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