by Wayne T. Brough, Ph.D.
from Citizens for a Sound Economy

Americans currently face a bill of more than $700 billion each year to comply with regulations churned out by Washington's alphabet soup of government agencies. Even though the growing regulatory burden affects virtually all aspects of the consumer's life, regulations receive far less scrutiny than taxes or government spending. In many ways, regulations are a hidden tax on consumers. When examining the potential to promote economic growth, Congress and the administration should not ignore the regulatory burden. Regulations should be examined in the light of day to ensure that the benefits of any regulation exceed its costs.

Since the 1970s, economists have been reshaping their views of economic regulation. Many previously regulated industries-airlines, trucking, railroads, and, to some extent energy and telecommunications-have undergone the transformation to competitive markets. The general view among economists has been that economic regulation has served consumers poorly and the potential welfare gains of deregulation can be significant. Indeed, one study found deregulation to provide $30 billion in consumer surplus in the transportation sector alone.

Recognizing the important impact that regulations can have on the economy, the White House has endorsed some form of regulatory review since the presidency of Richard Nixon. In the 1980s, President Reagan formalized the process by establishing the Office of Information and Regulatory Affairs within the Office of Management and Budget to oversee the regulatory output of federal agencies. For any economically significant rule, agencies were required to demonstrate that the costs of the regulation exceeded the benefits, and that the agency identified the least-cost method of achieving its regulatory objectives. When President Clinton took office, the process was modified, but not eliminated. During the Clinton years, the hands of the agencies were strengthened as they were given a larger role in determining what ultimately was reviewed by OIRA.

Distracted by foreign policy, the Bush White House has not weighed in fully on matters of regulatory review. President Bush has appointed John Graham, a professor who chaired the Harvard Center for Risk Analysis, to head OIRA. With Graham at the helm, OIRA has the opportunity to tackle some thorny questions of risk assessment, which is a critical component of health and safety regulation. The president should provide OIRA the opportunity to reinvigorate the regulatory review process.

Unlike economic regulation, where economists clearly demonstrated that the regulations protected small groups of producers at the expense of consumers and competitors, there is little consensus on the optimal levels of health and safety regulation. Evaluating such regulations requires more than benefit-cost analysis alone. Perceptions of risk oftentimes differ from the true hazards of a given activity and it can be difficult to define the optimal level of safety. Risk assessment provides an important complement to benefit-cost analysis for identifying hazards and the threats they pose to individuals. Risk assessment should become an integral part of the regulatory review process.

Risk assessment must be based on sound, scientific principles that provide regulators and the public useful information about the risks posed by particular hazards. A risk assessment process that utilizes the best available scientific knowledge while clearly explaining the underlying assumptions is an important addition to benefit-cost analysis that can be used to reduce the burden of excessive regulations that provide marginal reductions in negligible risks at very high prices.

Properly conducted, risk assessment promotes risk management, which allows agencies to identify the most serious risks to health and safety and choose their regulatory priorities accordingly. Health, safety, and environmental regulations have become the major source of the growth in regulation in recent years. While the costs of such regulations have risen substantially over the last 20 years, many have questioned whether there have been commensurate increases in benefits. In some instances, agencies may be pursuing trivial risks through more and more costly regulations.

The current White House faces its share of regulation; important economic issues such as telecommunications and energy regulation must be addressed, as do a wide array of health and environmental issues, including global warming, clean water regulations, and a host of private property issues, among others. Sound economics and sound science are critical to avoiding unnecessary regulatory burdens. Federal agencies must be held to the highest standards when evaluating regulations. Junk science can impose tremendous burdens on consumers and property owners, as can deliberate attempts to misrepresent data as in the recently reported case of bureaucrats falsifying data about the existence of cats in a national forest.

As the president seeks to nudge the economy back into action, the regulatory burden should not be overlooked. Costly regulations founded on poor science can be a significant burden on consumers and producers alike. In an economic slowdown, these are costs we can ill-afford and easily avoid.

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