The Administration

Arguing about the costs of regulation, but ignoring the benefits

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Last week, the Office of Management and Budget (OMB) published its Draft Report to Congress on the Costs and Benefits of Federal Regulations. (The report was eight months late, but that is a subject for another column.) Like nearly all of the annual reports since OMB was required to produce them in 1997, the report shows the benefits of regulation far exceed the costs under both Republican and Democratic administrations.

{mosads}In fiscal year 2014, the regulations in the OMB report produced total benefits that range from $9.8 billion to $22.8 billion and costs that range from $3.0 to $4.4 billion in 2010 dollars. A large share of the benefits come from regulations from the Environmental Protection Agency (EPA) and the Department of Energy’s (DOE) energy efficiency standards. Over the years, the lion’s share of benefits and costs of regulation have come from the EPA.

Reactions to the OMB reports have been relatively stable over the years, as well. Opponents of regulation generally assert that the costs have been underestimated. They point to the many regulations that are not included, a reasonable objection but an incomplete one: Those regulations that are not included also have benefits.

So, presumably, those who support regulations designed to protect public health, secure the financial system or defend the homeland are out there complaining about how OMB underestimates the benefits of regulations? Nope. These same groups largely oppose the very use of benefit-cost analysis and in doing so, they leave the argument that costs are underestimated unanswered. While some supporters of regulation have argued that this is a misplaced strategy, these groups have still largely failed to engage.

It’s a shame because there are important arguments worth having on the benefits of regulation. Some have contended that they are overestimated, particularly by the EPA and the DOE. Others have argued that, because many benefits are inherently unquantifiable, attempts to monetize the benefits will leave out a great deal.

Instead, debates over regulation too often focus just on one side of the equation. Costs are important, no doubt. But so are benefits. And every regulation, no matter what its supporters or opponents tell you, has costs and has benefits. Environmental regulations cost industry, their workers and their customers. These same regulations provide cleaner air for people to breathe. Regulations on homeland security lead to longer lines at the airport and losses in privacy. Presumably, they also make us safer. Financial regulations impede the working of the financial system. They also reduce the risk of a financial catastrophe.

Those regulations whose benefits and costs have been quantified have largely shown that the benefits are larger than the costs. The numbers behind these estimates are by no means perfect, but they are the best we have.

Few people realize that analysis shows that the benefits of regulations outweigh the costs, because debates about regulation (including the Republican debate on Wednesday night where numerous presidential candidates mentioned the cost of regulations) often focus only on the costs. Don’t forget the benefits.

Shapiro is an associate professor and director of the Public Policy Program at Rutgers University and a member of the Scholars Strategy Network.

Tags Department of Energy's DOE Environmental Protection Agency EPA Office of Management and Budget OMB Regulation

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