Just How Burdensome are Government Regulations?

During the fourth Republican debate in Milwaukee, several candidates assailed the burdensome nature of government regulations, arguing that the imposition of rules on industries and businesses reduces employment and leads to higher costs for consumers.

Ben Carson asserted that government regulations – which Carly Fiorina called a “regulatory thicket” and Marco Rubio said are increasing by “thousands and thousands of pages” – ultimately hurt the average person, since “every single regulation costs money” that is “shifted to the individual.”

To scale back these regulations, Fiorina argued that Congress should pass the REINS Act, a bill that the House passed in 2013 and again in 2015. The REINS Act stipulates that Congress would have the power to decide in an up-or-down vote whether to approve an executive regulation that is deemed a “major rule” – one that is predicted to have an economic impact of at least $100 million.

According to James Gattuso of the conservative Heritage Foundation, who testified in favor of the REINS Act in 2013, there have been 184 major rules enacted in the first six years of Obama’s presidency (compared to 76 within the first six years of the Bush administration). Gattuso argues that the cost of these newest regulations likely exceeds $80 billion, since the total cost of industry compliance sometimes goes unquantified, such as in the case of an EPA rule that accounted for the cost of necessary paperwork ($291 million), but not the cost of new equipment and installation (approximately $2 billion).

On the whole, some estimate that the total cost of compliance with all federal regulations approaches or exceeds $2 trillion, but some analysts contend that these estimates are based on flawed methodologies and peg the figure in the hundreds of billions of dollars. Others argue that focusing exclusively on compliance costs is misleading, as it ignores the economic benefits of regulations, including increased productivity and efficiency and other positive externalities.

Experts also disagree over the effect that government regulations have on employment. Gattuso is critical of the Bureau of Labor Statistics finding that only 0.3 percent of layoffs are the result of government regulation or intervention. In addition to critiquing the methodology behind the finding, he argues that this figure discounts the role that added regulations have in stifling job creation.

In his analysis of the EPA’s Clean Power Plan (CPP), which calls on states to reduce CO2 emissions, Nicolas Loris of the Heritage Foundation estimates that the regulations will lead to a peak employment shortfall of one million jobs by the year 2030. Yet Josh Bivens of the Economic Policy Institute finds evidence to the contrary. He argues that the CPP will yield a net job increase of 360,000 by 2020, which could fall to 15,000 jobs by 2030.

This wide disagreement reveals the complex and unpredictable nature of the effect of government regulations, which can simultaneously lead to job loss and job creation.

Take, for instance, the case of the EPA’s Cross-State Air Pollution Rule – aimed at reducing sulfur dioxide (SO2) and other fine particle emissions, which required some coal-fired power plants to install large “scrubbers” to remove SO2 from their exhaust.

On the whole, the regulations did lead to some job loss – the company AEP eventually closed two coal plants in Ohio, but such losses were compensated by increases elsewhere: the rule required some companies to hire hundreds, if not thousands of temporary workers to retrofit their facilities, as well as dozens of permanent workers to monitor the new equipment.

Yet experts point out that a narrow focus on net employment changes misses the point of regulatory policy.

“Whether a regulation is a good or bad idea is not a function of employment in the industry being regulated,” Roger Noll, a Stanford professor of economics told the Washington Post. “The right question is: On balance, does our society benefit?”

The issue as to whether society benefits from government regulation is at the heart of the debates around how to balance public safety and fairness with free market principles in the emergent “sharing economy.”

Across the country, state and city governments are grappling with whether and how to regulate the transportation network company Uber. Critics, especially the taxi industry, argue that Uber possesses an unfair competition advantage because of a lack of regulatory oversight. Uber has faced criticisms for a number of issues, including those related to insurance gaps for drivers, a lack of benefits for their quasi-employees“surge pricing,” consumer safety, and disability accommodation.

The taxi industry has lobbied aggressively to ensure that Uber drivers face the same regulations as taxi drivers, but Marco Rubio feels these efforts are bad for the economy and consumers.

“We should never allow government power and government regulations to be used to protect an establishment incumbent industry at the expense of an innovative competitor,” he said.

Uber is fighting regulatory efforts in numerous states. In Austin, Texas, it is running an ad campaign to defeat a bill that would charge $1 per ride to pay for fingerprint background checks.

The political battle between the taxi and ridesharing companies shows that in many cases, industries are often split regarding the wisdom or efficacy of government regulations.

For example, when the FDA released its proposed rules regarding the postage of calorie counts, reactions were mixed. Supermarkets, which sometimes create impromptu fresh meals with their goods, argued that compliance would be difficult and expensive, but the National Restaurant Association, which represents large restaurant chains, spoke in favor of the regulations, arguing that it is easier and less costly for a restaurant to comply with a single federal standard than with various differing state and local regulations.

As the above examples demonstrate, it is difficult to generalize about the effects of regulations on an industry as a whole, much less the entire economy. Researchers that estimate the cost of regulations are arguably driven to predetermined conclusions by their own ideological presuppositions or even – as the increase in “soft lobbying” indicates – by material interests.

Determining the accuracy of such estimates often requires the daunting task of scrutinizing the methodologies that generated them.

In many cases, some regulation is necessary to guarantee a basic floor of public and consumer safety, as well as to establish fairness between competitors in the marketplace. Yet such regulations are inevitably sanctioned by venal partisan politicians and drafted by well-intentioned yet fallible bureaucrats.

Given the growing distance – real or perceived – between citizens and their representatives, holding regulators accountable for crafting effective regulations might feel like an impossible task. Yet while leaving the job of regulating to unelected officials may seem anathema to democracy, one can also question the wisdom of handing this regulatory responsibility from nonpartisan experts to partisan representatives.

It is therefore up to voters to determine not just what kinds of regulations they want to see adopted or repealed, but also to determine – as in the case of the REINS Act – just how much influence lawmakers should have in regulating in the first place.

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