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Regulation and Compliance > Federal Regulation

The Sense Behind the Noise on Regulation

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Very quietly, the Trump administration recently issued a draft of its annual report on the costs and benefits of federal regulations. It’s a responsible and highly professional document — and a corrective to the noisiest claims, from both the White House and its critics, on the whole topic of regulation.

The report is required by the Regulatory Right-to-Know Act, enacted in 2000. Since that time, Republican and Democratic administrations have cataloged the costs and benefits of federal regulations. In an era of sharp partisan divisions, there has been a high degree of continuity across administrations in terms of the basic aspiration to careful analysis, free from political interference.

This year’s report is especially interesting, because the Trump administration’s Office of Information and Regulatory Affairs is cataloging the work of its predecessors — above all, that of the Barack Obama administration. The report’s numbers suggest that the benefits of previous regulations far exceeded their costs.

In fiscal year 2016, for example, the anticipated costs of regulations range from $3.3 billion to $4.6 billion — but the anticipated benefits range from $13.6 billion to $27.3 billion. (The range accounts for uncertainty about the precise numbers.) That means that the net benefits are, at a minimum, a whopping $9 billion — $24 billion at a maximum.

The report also offers a 10-year accounting, with eight of those years coming under Obama. The estimated aggregate costs are between $59 billion to $88 billion. The aggregate benefits are much higher than that: between $219 billion to $695 billion.

Not only are the net benefits high, but the numbers also show a degree of discipline on the cost side. A range of $5.9 billion to $8.8 billion per year is far from modest, and it would be great to reduce it, but in comparative terms, it’s not unmanageable. For comparison, the annual budget of the Department of Transportation has recently been in the vicinity of 10 times that amount.

At the same time, the report offers some important caveats. First, it emphasizes that for some rules, agencies failed to offer a complete accounting of costs and benefits — and that independent agencies, such as the Federal Reserve and the Securities and Exchange Commission, often fail to monetize benefits and costs at all.

That’s not good. The report rightly notes “that for the purposes of informing the public and obtaining a full accounting, it would be highly desirable to obtain better information on the benefits and costs of the rules issued by independent agencies.”

Second, the report observes that the current figures — for quantifying both benefits and costs — depend on assumptions that might turn out not to be true. It strikes just the right note when it states that the report was issued after a change in administration, and that its figures do “not imply an endorsement by the current Administration of all of the assumptions made and analyses conducted at the time these regulations were finalized.”

Third, the report draws attention to uncertainties. One example: It’s not easy to turn the protection of homeland security, or of personal privacy, into monetary equivalents.

Another example: Many of the reported benefits come from reducing a single air pollutant: particulate matter. But scientists disagree about the magnitude of those benefits. Some forms of particulate matter may have more serious adverse effects than others. If some forms are significantly less toxic than others, then the benefits of reductions will be lower than currently expected.

In accordance with tradition, the new cost-benefit report offers recommendations for reform. Importantly, the Trump administration embraces the commitment to cost-benefit analysis as “the primary analytical tool to inform specific regulatory choices.” Since that commitment was initially imposed by President Ronald Reagan, it’s not exactly a big surprise that a Republican successor would reaffirm it. Nonetheless, it’s excellent news.

At least as much as any of its predecessors, the report emphasizes the importance of deregulation, including the elimination of rules that are “outdated, unnecessary, or ineffective,” or that impose “costs that exceed benefits.” It also draws attention to the need to reassess past regulations, with clear emphasis on their actual (as opposed to merely anticipated) effects.

Here, as well, there is a bipartisan consensus. We need far more evidence on the concrete effects of existing regulations — whether they are imposing high costs, whether they can be streamlined, whether they are delivering big benefits.

There’s a lot of chest-thumping on regulation, both by those who act as if it’s the most serious problem facing the United States today, and by those who have never seen a health or safety regulation they don’t like. This week’s sober, fair-minded report is a reminder that everything turns on the numbers — and that political dogmas mask all of the serious questions.

Typewriter (Image: iStock)

Cass R. Sunstein is a Bloomberg View columnist. He is the editor of “Can It Happen Here? Authoritarianism in America” and a co-author of “Nudge: Improving Decisions About Health, Wealth and Happiness.”


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