Debate Heats Up Over Regulation’s Costs to the Economy

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State and federal policymakers are scrutinizing regulations for the costs they may impose on the recovering economy.

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State and federal policymakers are considering the repeal of regulations perceived to place an undue burden on the economy.

Kansas recently created the “The Office of the Repealer,” which will identify unnecessary laws and regulations for repeal. Florida has frozen all new rulemaking until the Office of Fiscal Responsibility and Regulatory Reform examines current regulations. The Obama Administration has launched its own high-level review of “dumb” regulations at the federal level.

Supporters of deregulation argue that excessive regulations are slowing the economic recovery by increasing business costs, raising fuel prices, and moving jobs overseas.  Senator James Inhofe (R-OK) released a report finding that the Environmental Protection Agency (EPA)’s proposed regulations of commercial and industrial broilers would put 798,250 jobs “at risk.”

However, studies by the Office of Management and Budget (OMB) and EPA suggest that the benefits of regulation generally outweigh their costs. The OMB report finds that from 2001-2010, predictions of annual benefits from major rules ranged from $136 billion to $651 billion, while the predictions of their annual costs ranged from $44 billion to $62 billion. The EPA report finds that total benefits from the agency’s air pollution regulations between 1990 and 2010 were approximately $1.3 trillion, while compliance costs were only $53 billion.

Over the years, scholars have debated whether the analyses conducted by agencies over- or understate the true costs and benefits of regulation.  Some commentators have suggested that estimates of a proposed regulation’s costs may be systematically overestimated, if the regulation turns out to be cheaper to implement than originally anticipated.  One factor that may contribute to cost overestimation is technological innovation that occurs after a rule is issued. Of course, it is also possible that cost estimates made by an agency when proposing a new regulation will be underestimated.

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