Thursday, December 13, 2012

Regulatory cliff? More like a continuing Ice Age...

While "fiscal cliff" talk continues to dominate discussions in DC and in punditry-land, there is another kind of a cliff to worry about. Some GOP lawmakers are now making noise about the delayed implementation of new rules--regulations--by bureaucracies like the EPA, delayed in order to give Obama some cover during the recent election season, that is now no longer needed. It is, in short, full steam ahead:
In recent weeks, the Environmental Protection Agency has proposed rules to update water quality guidelines for beaches and deal with runoff from logging roads. The National Highway Traffic Safety Administration, meanwhile, has proposed long-delayed regulations requiring auto makers to include event data recorders — better known as “black boxes” — in all new cars and light trucks beginning in 2014.  
The administration also has initiated several rules to implement its health care overhaul, including a new fee to cushion the cost of covering people with pre-existing conditions.
And that's just the tip of the iceberg.

Once upon a time, President Obama promised an overhaul of the countless regulations that afflict businesses and citizens, alike, in the United States. That job fell to Cass Sunstein, who was appointed Administrator of the White House Office of Information and Regulatory Affairs, a post he stepped away from in August of this year. The appointment wasn't well-received by some on both sides of the aisle--Sunstein has some anti-regulatory leanings and some wacky views about animal rights--but ultimately he was confirmed to the post.

In January of 2011, Obama signed Executive Order 13563, entitled "Improving Regulation and Regulatory Review." And he took to the op-ed pages of the Wall Street Journal to explain what he supposedly intended (and had already accomplished):
This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive...

Despite a lot of heated rhetoric, our efforts over the past two years to modernize our regulations have led to smarter—and in some cases tougher—rules to protect our health, safety and environment. Yet according to current estimates of their economic impact, the benefits of these regulations exceed" their costs by billions of dollars.
Half way through 2011, Sunstein's office released this report-- the "2011 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities"--trumpeting the above successes and actually quantifying the costs, savings, and benefits of these efforts. In it, Sunstein claims that "major rules" cost less than $62 billion annually, while providing at least $131 billion in benefits (maybe as much as $655 billion). That's a helluva trade-off.

It's also pure fantasy. Wayne Crews of the Competitive Enterprise Institute noted this in a 2011 article at Forbes. The $62 billion in costs Sunstein cites is from the OMB, limited to what it decides are "major rules," and fails to account for indirect costs. He notes that the SBA's report (by Nicole and Mark Crain) on regulatory costs--which finds over $1.7 trillion in the same--has yet to be seriously countered. Moreover, he finds that this estimate may not be high enough:
In short, the Crains’ estimate of regulatory costs, while more accurate than Sunstein’s, may well prove to be on the low end. My own casual survey of literature on regulations, not using Crain or OMB numbers, already adds up to $1 trillion — and that doesn’t count the new health care law and the 3,500 pages of Dodd-Frank financial rules (with more on the way).
The Crains' report was issued in September of 2010. Crew went on to make his "casual survey" more thorough and released his own report--"Ten Thousand Commandments An Annual Snapshot of the Federal Regulatory State 2011 Edition"--in late 2011 and has since released a 2012 version, as well. From the latter:
  • Estimated regulatory costs, while "off budget," are equivalent to over 48% the level of federal spending itself. 
  • The 2011 Federal Register finished at 81,247 pages, just shy of 2010’s all-time record-high 81,405 pages. 
  • Regulatory compliance costs dwarf corporate income taxes of $198 billion, and exceed individual income taxes and even pre-tax corporate profits. 
  • Agencies issued 3,807 final rules in 2011, a 6.5 percent increase over 3,573 in 2010.
That's $1.75 trillion in regulatory costs, little change from the 2011 report, but again this is because the Administration has been holding back on new rules and because ObamaCare is only now being fully "figured out." The new year will see a quick--and significant--uptick in total costs for these reasons, alone. We can only guess at what the new Congress will bring to the party. But regardless--as Crews vividly demonstrates--regulatory costs dwarf the cost of taxation.

All of these regulations are compiled and kept on the Federal Register mentioned by Crews, a kind of journal of activity for the Federal Government. It's worth looking at the size of this document across time. In 1936, it was a mere 2,620 pages long. Now, it's over 81,000.

But in the late sixties, it appeared to stagnate at around 20,000 pages. In 1971 it jumped to 25,000, then continued to spiral upward throughout the decade, reaching a then-record high of 73,258 in 1980. Why? Mostly because of the EPA, which began operations in 1971. And the costs to businesses throughout this decade are largely ignored when people look back to the economic stagnation of the Nixon and Carter years. Yet, the Reagan years--which saw a return to economic prosperity--are characterized by a drop in the length of the Federal Register, flattening out to around 50,000 pages by 1988 (and 1989, and 1990).

It's a powerful correlation and, I think, one that is provably causal as well. The simple mantra of "getting the government out of the way" propelled the U.S. economy forward through the end of the twentieth century. Under Clinton and Bush, the length of the Register began increasing once again, but not at previous rates, at least until 2008 when the financial crisis led to TARP and other government endeavors, which had a corresponding impact on the Register and on total regulations.

Under Obama? Well, 2009 saw a huge drop in Register pages, but as defenders of the President are quick to point out, 2009 still bares Bush's signature. Which brings us to 2010 and 2011. The various actions of a fully Democrat-controlled Federal Government led to a record length of 82,405 pages in 2010, while Tea-Party induced gridlock in Washington basically held the line--at 81,247--for 2011. For 2012, a small drop looks likely (the current pace suggests a total in the mid to high 70,000 pages range), but again this is because of the tabling of new rules by the Administration. Likely, 2013 will see new record highs in pages, proposed rules, and final rules.

The question now becomes one of costs, real costs not the watered down fantasies of the OMB. And that question points to the other fantasy in this discussion: the idea that the Obama Administration has been actively trimming the fat, when it comes to regulations and regulatory costs. Both--especially the latter--are on the rise, Sunstein, after resigning his post in August, is back at Harvard after a job well done, or not done at all, depending on one's point of view.

Cheers, all.

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