Government bureaucrats will never be able to make decisions like business owners make every day. They don’t have skin in the game. Decisions don’t cost them money, they aren’t risking their houses, they don’t exactly risk their jobs, and to the people who are actually affected, the bureaucrats are faceless.
But as long as there are government bureaucrats, they are going to make decisions that affect businesses of all structures and sizes. From a public policy perspective, should those decisions be made with more information or less? Should the faceless bureaucrat understand the effects of their decisions, or just ignore them?
Of course, the answer is more information is better than less, but since this is public policy, we have to keep asking these questions continuously and pushing government for more accountability. Right now, this question is being debated inside the Environmental Protection Agency around whether or not it should implement a cost-benefit analysis or CBA rule. The vast majority of the EPA’s oversight authority is derived through the Clean Air Act, which regulates a vast swath of manufacturers, businesses, and energy producers of all sizes. Presidents from both parties have issued executive orders calling for the use of CBA at the EPA, but their consistency of performing CBA has come into question by industry stakeholders. Therefore, EPA Administrator Andrew Wheeler is proposing to codify the rule and bring consistency and transparency to the process.
This is a no-brainer. The EPA should codify this rule now. EPA regulations account for a significant percentage of costs imposed by the federal government. In fact, EPA regulations account for almost 70% of the costs of all federal regulations. Some people are going to argue that those costs are fully justifiable considering the benefits, and others will, more sensibly, argue that at least some of the costs are justifiable while others aren’t.
However, what is important is that we all have the information and that when new regulations are being made, the people making decisions know as much as possible about potential effects. This is important not just to protect business owners but because in the end it is the customers who pay for these regulations. If an energy company or hospital incurs a new cost because of a newly codified rule, they don’t just decide to make less money. The companies that are burdened by increased regulations pass the costs on to their customers.
In fact, the U.S. Chamber of Commerce estimates that federal regulations cost the economy $1.9 trillion each year. To put that number into perspective, President Trump’s tax cut bill in 2017 (which was a very big deal) was only forecast to grow the economy by $1.8 trillion. Even worse, the price increases from regulations don’t only affect purchases of the wealthy. The costs incurred from these regulations affect transportation costs, consumer goods, and, most importantly, food. And, even in the business world, the costs of regulations fall disproportionately on small businesses, as they often face compliance costs that are 20% higher than the large corporations that they are competing against.
Unlike our progressive tax code, regulations are highly regressive. While a CBA rule won’t end the regressive nature of regulations, it will bring transparency to them. As currently written, a finalized rule would require the EPA to adopt best practices, conduct a systematic review of all evidence, provide better accountability to the public, and provide a more complete accounting of costs and benefits.
In a memo discussing the CBA, Wheeler said, “Benefits and costs have historically been treated differently depending on the media office and the underlying authority. This has resulted in various concepts of benefits, costs and other facts that may be considered. … The EPA’s technical analyses should follow sound economic and scientific principles and adhere to existing guidance and best practices for benefit-cost analysis.”
Understanding the full effects and consequences of new regulations has huge benefits. Hopefully, other agencies take note and codify similar rules. Government bureaucrats are faceless and unelected, but they are making regulatory decisions that affect us all. While the nature of government means that a bureaucrat’s relationship to the market is static, at least being forced to contemplate all of the evidence around proposed regulations is a step in the right decision. Business owners perform this type of analysis for almost everything they do. Such analyses yield information about the futures of their businesses. It is a low bar to ask that bureaucrats at the EPA at least have to do the research before making a decision that might bankrupt someone else’s business.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.
