By Rex Nutting | MarketWatch
WASHINGTON (MarketWatch) — The new Republican majority in Congress has declared a war on regulation, and is likely to block or slow dozens of new rules that would protect our health, our safety and our economy.
Republican candidates across the country promised voters that they would work to reverse what they see as an overreaching federal government that has throttled the economy with too many rules and regulations. The congressional leadership has vowed to overturn rules on health care, the environment and banking.
There are just two problems with the Republican approach:
1. It overstates the costs and burden of regulations.
2. It completely ignores any benefits of those regulations.
To hear them tell it, the U.S. economy is dead on the side of the road while everyone else zooms by. While it’s true that the U.S. economy is only growing modestly, it’s doing better than almost every other advanced economy in the world. In reality, lack of demand — not too many regulations — is our biggest immediate problem.
In some cases, regulation is the mother of invention.
The zealots of deregulation say they are protecting thousands of jobs, but forget that lack of effective regulation before the 2008 financial crisis killed millions of jobs. And lack of regulation literally kills hundreds of thousands of people.
American business isn’t the most regulated in the world. Far from it. U.S. employers face fewer restrictions on hiring and firing than any other major economy except New Zealand, according to the OECD.
And the World Bank reports that the United States ranked seventh in its global Doing Business index, ahead of our main competitors. The U.K. ranked eighth, Germany ranked 14th, Canada was 16th, Japan was 29th and China was 90th. Among all the countries with large populations, only Korea ranked higher. The index looks specifically at the burdens of regulation on small businesses.
The deregulation zealots are fond of quoting a fatally flawed study conducted by researchers at the Small Business Administration that put the annual cost of regulation at $2.1 trillion. But this study didn’t do a bottom-up accounting of the costs, but merely asked business owners to subjectively rate the burden of regulation.
No one’s yet come up with a completely believable cost estimate for regulations. The Office of Management and Budget is required to report on the costs and benefits of “major” new federal rules, but hasn’t even attempted to figure out what the costs of all the local, state and national regulations are.
In its latest and very limited report, the OMB estimated that the annual cost of major rules was $68 billion to $102 billion. That’s a far cry from the $2.1 trillion annual cost cited by conservatives.
The cost estimates reported by the OMB are routinely overstated anyway, mostly because of conservative assumptions about future technological innovations that will make compliance much cheaper than either businesses or bureaucrats think before the rule is written.
In some cases, regulation is the mother of invention.
This brings us to the second problem with the deregulation zealots: They never talk about the benefits of regulations, only the costs.
The OMB estimated that the annual benefits of the major federal rules it studied were between $262 billion and $1.04 trillion. The EPA has figured that the benefits of the Clean Air Act have exceeded costs of compliance by 25 to 1, and hundreds of thousands of premature deaths have been prevented.
The cost of complying with Dodd-Frank regulations is dwarfed by the $22 trillion cost of the 2008 financial crisis. If we can prevent the next crisis by regulating banks a little more tightly — or even make it a little less damaging — it’ll be worth it.
You’ll never hear about those benefits from incoming Senate Majority Leader Mitch McConnell, who said one of his top priorities will be “to do whatever I can to get the EPA reined in” to counter what he’s called the Obama administration’s “war on coal.”
McConnell would be able to do a lot to stymie the EPA: The Congress could cut off funds to write and enforce rules, and it could disapprove any new regulations under the Congressional Review Act (although President Barack Obama could veto a resolution of disapproval).
The EPA is now working on a rule that would force power plants to lower their emissions of carbon, a major cause of global warming. Such a rule would certainly reduce the amount of coal mined in Kentucky and elsewhere.
Although the carbon rules would reduce the number of coal miners, it would increase employment in other industries. The benefits of the carbon rule would be up to $93 billion a year vs. compliance costs of about $9 billion, the EPA says. It would prevent up to 6,600 premature deaths and about 150,000 asthma attacks a year. And that’s not even counting the benefits of reducing greenhouse gases and mitigating the trillions of dollars of damages caused by a warmer planet.
Sure, some regulations are outdated, or poorly designed and executed, or just plain stupid. We should eliminate or fix those rules. But we should also remember what happens when we don’t have enough of the right kind of regulation: Dirty air and water, food-borne illnesses, dangerous drugs, a global financial crisis, a major oil spill, a nuclear-plant meltdown.