On the campaign trail, on the floor of Congress, and in the Oval Office, it’s common to hear huge estimates of the costs of regulation bandied about by opponents of safeguards. The source of one of the most striking is a report by two economists, working on commission for the Small Business Administration’s (SBA) anti-regulatory Office of Advocacy. The report by Nicole Crain and Mark Crain of Lafayette College concluded that regulation imposes $1.75 trillion in costs on the economy annually.
In fact, their study is riven with methodological errors, which accounts for why their estimate is orders of magnitude larger than the Office of Management and Budget’s 2016 estimate of between $62 billion and $73 billion. Among the flaws, Crain and Crain assumed that a given regulation imposed the same costs every year, even though implementation often involves first-year costs for purchasing equipment or reworking production methods, costs that don’t recur; while they used some OMB estimates for costs they always used the upper end of estimated ranges; they misused surveys of non-representative corporate exeuctives on their perceptions of regulations to calculate actual costs, confusing subjective, and biased, opinion with reality; and they refused to release their underlying data for scrutiny, even to the SBA Office of Advocacy that sponsored the research. But perhaps the most telling feature of their work is that they refused to consider the benefits of regulation, even though those benefits routinely exceed the costs of implementation, and even though most economists agree that ignoring regulatory benefits in these kinds of studies is conceptually indefensible. Read CPR’s report on the $1.75 Trillion Fiction.
Many opponents of regulation follow Crain and Crain’s lead in ignoring benefits. Years ago, the chorus from the right argued that costs should be weighed against benefits. When regulators began doing just that, the result showed that regulations are almost never adopted unless the monetized benefits exceed the costs, which is remarkable in itself given how biased against regulations that methodology is. Frustrated by getting their wish, opponents now simply ignore benefits. Note, for example, that President Trump’s various anti-regulatory orders and statements are focused solely on the costs of regulatory compliance and never on the benefits of those regulations. Indeed, the defining characteristic of Trump’s 2-for-1 executive order is that elevates considerations of regulatory costs as the primary focus in regulatory decision-making. Yes, smokestack scrubbers cost coal-fired power plants money to install. But they reduce air pollution, preventing illness, saving lives, preventing sick days, and more. Even after using theoretically problematic and practically flawed techniques to convert these kinds of hose benefits into dollars-and-cents terms, these benefits still vastly exceed the costs of implementation.
More than that, though, these regulatory benefits are important as matters of justice and accountability. That’s because they return the cost of pollution to the polluter, rather than allowing the polluter to impose them, without permission or compensation, on anyone who breathes the air. The practice of ignoring regulatory benefits necessarily obscures these critical features of our public safeguards.
Impact on the Economy
Another routine fib about regulation is that it’s bad for the economy. As noted, almost all regulations with a significant impact on the economy are subjected to excruciatingly detailed cost-benefit analysis before adoption. That process is heavily biased toward industry’s interests, meaning that the costs of implementing regulations are generally overstated, while the benefits of regulation are undercounted, and sometimes ignored. Nevertheless, regulations are rarely adopted unless the monetized benefits outweigh the costs. Significantly, that analysis includes the impact on employment. And, of course, complying with regulations is itself a job creator: Pollution scrubbers don’t attach themselves to power plant smokestacks, and catalytic converters and seatbelts don’t design and install themselves. It takes employees to do that work. Read more about cost-benefit analysis.
SBA's Adovcacy Office Loses Its Way
One persistent source of opposition to sensible safeguards comes from within the Small Business Administration (SBA) Office of Advocacy. Established to look out for the interests of small businesses in regulatory and other matters, the Office of Advocacy has morphed into an anti-regulatory beachhead within the federal government, working in concert with special interest lobbyists to delay, water down, and defeat public protections. Moreover, the Office of Advocacy often acts on behalf of businesses that no one could realistically describe as "small" — 1,000-employee chemical plants and 1,500-employee petroleum refineries, for example. Read CPR’s report on the SBA’s anti-regulatory agenda.