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Press Release

    A Regulatory Budget?

    03/19/2002

    Budget season has started in Washington. President Bush has submitted his budget to Congress, kicking off the annual scramble for federal dollars across the federal government. Amidst this flurry of activity surrounding the federal budget, a hearing was held last week in the House of Representatives to examine an often overlooked, yet significant, cost of government—regulation.

    Rep. Doug Ose (R-Calif.), Chairman of the Subcommittee on Energy Policy, Natural Resources, and Regulatory Affairs convened a hearing to discuss a report on the costs of regulation. Each year, by law, the Office of Management and Budget is supposed to produce an estimate of the costs of federal regulations in conjunction with the federal budget. The report is late and Chairman Ose wanted to know why.

    The issue at hand is more significant than an unfinished government report. Each year, Americans pay a "hidden tax" of some $800 billion complying with federal regulations. In addition, federal information requests and paperwork impose a burden of roughly 7.8 billion hours on consumers and businesses at a cost close to $150 billion annually. The costs of excessive government regulations are significant. In fact, the regulatory burden is estimated to exceed total discretionary spending in 2002 by over $100 billion. Yet regulations receive little of the scrutiny that accompanies federal spending.

    At last week’s hearing on the costs of regulation, CSE’s Counselor, James C. Miller, III testified on the importance of accounting for the burden of regulation. Dr. Miller notes that regulation is a key method used by the government to gain command of economic resources (the others include taxes, borrowing, and printing money). Nonetheless, there is relatively little effort to evaluate the scope and degree of federal regulation. Dr. Miller proposes a greater degree of information and transparency in the process, which would allow a more knowledgeable and useful examination of the regulatory burden.

    Fortunately, others also are beginning to address the need for a better understanding of the regulatory burden. Just recently, Professors Mark Crain of George Mason University and Thomas Hopkins of the Rochester Institute of Technology completed a study for the U.S. Small Business Administration that attempts to quantify the costs of regulation. An update of an earlier report produced by Prof. Hopkins, the study demonstrates the magnitude of federal regulation. In 2000, Americans paid $843 billion to comply with federal regulations—more than $8,000 per household. The authors confirm that “subsequent regulatory developments and the availability of new data clarify and in some cases amplify the basic 1995 findings: regulatory burdens continue to climb, and to disadvantage small businesses.”

    While the debates over the budget tend to be highly publicized with hours of attendant congressional hearings, discussions of regulation typically occur far from the spotlight. With little fanfare, federal agencies craft regulations under far-reaching grants of authority from Congress. Rather than a lively public debate, most interaction between agencies and the public come in the form of written comments that those willing to read the daily Federal Register are invited to submit. For the most part, this attracts letters from trade associations and lawyers hired to monitor regulatory activities in Washington. Consumers, who typically are unfamiliar with the process and lack the resources to keep tabs on federal agencies, find it difficult to have any input in the regulatory process.

    Noticing this gap, others have stepped forward to provide an evaluation of regulations and their potential impacts on consumers and the economy. For example, the Regulatory Studies Program at the Mercatus Center seeks to expand public information and knowledge of the regulatory process. One of the projects of this center is to engage academics in the public comment process on regulation. As key regulations are identified, academic economists conduct an analysis of the costs and benefits that is then submitted to the agency during the public comment period. To date, the organization has examined regulations ranging from drinking water standards to energy efficiency standards for consumer appliances. Comments are maintained on the Regulatory Studies Program web site to provide scholars and others information about the costs of regulation.

    In addition, the Regulatory Studies Program has created Reg Radar, a web page offering the latest information on the regulatory front. New and proposed regulations are listed as are agency regulatory activities. Efforts such as this increase the transparency of the regulatory process, allowing greater input from the public as well as more informed deliberations at federal agencies.

    Other web sites tackle specific agencies, providing detailed analysis of the economic impacts of agency regulations. Given the complexity and scope of regulatory agencies, such specialization is required to evaluate regulatory activity. For example, FDAReview.Org has been established by Drs. Alexander Tabarrok and Daniel B. Klein, for the Independent Institute. This site examines the regulatory costs of the Food and Drug Administration, which regulates 25 cents out of every consumer dollar spent in the United States.

    All of these efforts provide important information about the costs of federal regulation. Earlier this week President Bush charged that the hidden costs of regulation are a drag on our economy, a statement that is amply borne out by academic studies. As noted by Dr. Miller, regulatory compliance costs will be 8.5 percent of GDP in 2002. Yet regulatory decision-making remains a mystery to most people. Efforts by Rep. Ose and others to generate more information about the regulatory burden are an important step toward creating a more rational approach to regulation. The budgetary process has a degree of transparency that allows a great deal of analysis concerning federal outlays. Yet it must be remembered that there are avenues available to government other than the federal budget. A more transparent regulatory process will provide policymakers and the public a more accurate assessment of the costs of regulation as well.