Are Regulations Crafted through Cost/Benefit Analysis or through Regulators’ Biases?

We are surrounded by regulations.  They can be reassuring and protective as readily as they can grate and expropriate.  Our experience with regulations depends on our social and political stance and on the balance of burden versus benefit inherent in the regulation.

Elected representatives seldom have the expertise needed to specify a technical matter such as the minimum “in-flight” separation between passenger jets needed for public safety, or even tradeoffs between jobs and lower prices for consumers.   For such matters, they rely on “experts” in the departments or independent agencies.  When Congress specifies the mission of each department or independent agency it grants authority to write regulations that can accomplish that mission. 

The Administration through its Office of Management and Budget (OMB) sets standards for how those rules are established.  The usual requirements are notice and opportunity for public comment and for any regulation with significant impact on the economy (i.e. more than $100 million/year), a formal analysis of that regulation’s cost and benefit (CB) to the public.  OMB’s Office of Information and Regulatory Affairs (OIRA) reviews the quality and compliance with standards for those regulations.  

Without CB analysis, public comment, and OIRA oversight, the public would be subjected to regulations that merely reflect the whim of the partisan appointees running departments and “independent” agencies (many of whom pretended to be exempt from CB analysis obligations).  Recent Presidents have appointed a scary list of political buddies to steer the departments and agencies.  The quality of their regulations and enforcement is horrible.

A competent CB analysis protects the public and helps pick rules that make the best sense.  CB analysis monetizes costs imposed on the public by a proposed regulation and monetizes benefits from that proposed regulation.  Regulators have found acceptable ways to monetize most concepts – even human lives and human suffering, frequent topics at the EPA and HHS.  A CB analysis should be performed for each reasonable variant of regulation so the regulator can pick the regulation version that presents the best benefit over cost profile.  After the regulation has been in place for some period, a retrospective CB analysis should be performed to validate that the regulation retains an acceptable benefit over cost profile for the public.

Unfortunately, cost benefit analysis has been performed inconsistently, poorly, and sometimes not at all.  The lackluster pattern persists in both Republican and Democrat administrations.  What makes this more alarming is the astounding volume of regulations headed our way due to recent Congressional actions.  

The Dodd Frank bill contains 259 rules “yet to be written” by the existing and new agencies, and another 188 rules Congress recommends.   The Affordable Care Act contains an avalanche of regulations and determinations that will choke the health care industry with reporting and paperwork burdens (e.g. it increases categories of injury and illness from the current 18,000 to 140,000).  Almost everything in these acts has substantial impact, and the regulations will be contested in court.  If consumers are to see benefits from these stacks of regulations, CB analysis must be built-in from the start.

Alan Daley is a retired businessman living in Colorado.  He follows public policy from the consumer’s perspective.

 

 

 

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