We’re facing ‘death by regulation’

Published 11:00 pm Wednesday, June 20, 2012

Some regulations make sense; others don’t. Measles, mumps, and rubella immunizations, for example, are fairly inexpensive inoculations and provide significant benefits to society. Federal laws requiring smoke detectors in homes, likewise, are sensible; the costs of detectors are quite low, and many lives per year are saved by detectors.

Other regulations make little sense from a cost-benefit perspective. Mayor Michael Bloomberg’s much-talked about regulation on large, sugary beverages in New York City comes to mind as a recent example. But, there are far more costly regulations than Bloomberg’s “big gulp” ban. For example, compliance with radiation emissions standards costs nuclear power plants more than $150 million per life-year saved; in plain English, these very costly regulations contribute basically nothing in the way of saving lives. Nuclear power is pretty safe already, and the incremental increase in safety—what economists call the marginal increase—just doesn’t have much of a pay-off relative to its cost. Mandating seat belts on school buses is another example; installation of the belts in all U.S. school buses would cost more than $50 million, and the technology would save less than one child per year. School buses are fairly safe for kids already, so the incremental increase in safety is mainly about the politics of helping parents feel good.

America’s regulatory landscape has more to do with politics and good feelings than with rational analyses of costs versus benefits. Thus, the motivation for most regulations is simple: regulate when it’s popular to regulate. Barack Obama, who says he does not want to be a “regulation president,” has allowed a rapid increase in the number of “economically significant” regulations (i.e., regulations that have an economic cost greater than $100 million) because he thinks being tough on businesses sells well politically.

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While there are some political benefits from Obama’s new regulations, there are plenty of costs to consider, too. The Patient Protection and Affordable Care Act—legislation that many call Obamacare—is a 2700 page document filled with new regulatory demands and vagaries. Dodd-Frank, which is an unfinished set of regulations being imposed on banks, has caused banks to hold onto capital and refrain from extending credit. And, the Obama Administration’s “green” energy agenda has blocked drilling offshore and promises new, stiffer EPA regulations on refineries if Obama is reelected.

Americans are heavily regulated; consumers pay higher prices because we are over-regulated, and business managers spend a disproportionate amount of time, energy, and money worrying about regulatory complexities. It’d be one thing if the new regulations were as sensible as those I described earlier, but few of them stand up to careful cost-benefit analysis; instead of providing overall benefits to society, they make a small group of people feel good. Though they make some people feel good, the regulations come at a tremendous monetary and human cost: by blocking drilling on federal lands, less new jobs are created; by regulating banks heavily, credit-worthy borrowers and small businesses are denied much-needed credit; by forcing insurance companies to cover additional clients and procedures, medical costs go up incrementally for all citizens.

There’s another cost of regulation we should never forget: inefficient regulations cost lives. By forcing people to use scarce resources to comply with inefficient regulations, regulators are wasting money that could have spent on sensible regulations. Economists have a name for this misallocation of regulation: “statistical suicide.” The suicide occurs whenever money is spent on an inefficient regulation when, in fact, it could have been used to help support more sensible regulation.

Programs that teach pregnant women about the costs of smoking while pregnant, for example, are viewed by experts as sensible and beneficial. Ideally, regulations would focus on encouraging programs like that, which saves lives at a low cost, and would be funded by reallocating money away from inefficient regulations. But, we are not in an ideal world: the current political environment is one in which costs and benefits are largely ignored by politicians with an ideological agenda. As the Obama administration continues to push its agenda, statistical suicide continues at an alarming rate.

Scott Beaulier is Executive Director of the Manuel H. Johnson Center for Political Economy at Troy University.