May 15, 2015

May 15, 2015 | Commentary on Regulation, Economy

Regulating escalators and escalating regulation

What do restaurant menus, refrigerators, community banks and escalators have in common? All were subjected to yet more federal regulation last year.

No fewer than 184 "major" new rules have been imposed since the start of the Obama administration, costing Americans about $80 billion per year in additional regulatory costs. And many more regulations are on the way. Another 126 such rules are on the administration's agenda, such as directives to farmers for growing and harvesting fruits and vegetables; strict limits on credit access for service members; and another redesign of light bulbs.

A new Heritage Foundation study found that in 2014, red tape entangled virtually every aspect of American life. The largest single area was financial services, which has been inundated with hundreds of new regulations as a result of the 2010 Dodd-Frank law. The full effects of the act have yet to be felt, but its restrictions are already crippling community banks and increasing consumers' banking costs, while doing little to reduce the threat of bailouts.

Energy use was also a favorite target for regulators last year. New "efficiency" rules imposed on everything from ice cream coolers and cell phone adapters to the electric motors that power escalators.

Regulators say these rules will help consumers and businesses by lowering energy bills. But this "benefit" will likely be offset by higher product costs. Whether energy savings are worth the higher cost of a more efficient item is a decision that consumers and business owners can and should make for themselves. Taking away their choice is not a benefit; it is, in fact, a steep cost.

The U.S. Food and Drug Administration also devised costly new rules intended to control Americans for their own good. For example, the agency issued rules mandating that restaurants and even vending machine operators provide calorie counts for all the food they sell. Alas, as much as the bureaucrats wish they could "nudge" citizens to behave in prescribed ways, such measures rarely turn out as planned. In the case of nutrition labeling, a mountain of research has documented that nutrition labeling does not change eating patterns.

Altogether, Obama administration regulators imposed 27 new "major" new rules last year (defined as those that cost the economy at least $100 million annually). Against this were just two actions to decrease regulatory burdens - despite a widely touted "retrospective review" initiative that President Barack Obama claimed would take outdated rules off the books.

Minus these two lonely reductions, the cost of red tape rose by $7.6 billion last year, and a six-year increase of $80 billion. That's more than twice the cost imposed by President George W. Bush at the same point in his presidency. There was also $1.8 billion in reported one-time implementation costs for the 2014 rules, bringing the administration's six-year total for such costs to about $17 billion.

And that's only the costs reported by the regulators themselves. Almost half the time, the rule-makers failed to fully quantify the real impact of their dictates and prohibitions.

This represents a major dysfunction in the administrative process. Analyzing costs is necessary to identify the trade-offs inherent in rulemaking, and to determine the most efficient and effective course of action among various alternatives. It is also crucial information that allows the public to hold regulators accountable.

The Obama administration defends its regulatory record by touting the projected benefits of the rules. But benefit estimates - as calculated by the agencies - need to be considered with skepticism. While regulators have an incentive to minimize the costs of regulations, they also have an incentive to misconstrue the benefits.

Absent substantial reform, economic growth and individual freedom will continue to suffer. Immediate changes should include requiring every major regulation to obtain congressional approval before taking effect, and requiring legislation that would increase red tape to undergo an analysis of its likely impacts before being voted on.

Sunset deadlines also should be set in law for all major rules, and independent agencies should be subject - as are executive branch agencies - to the White House regulatory review process.

The need for reform of the regulatory system has never been greater. To prevent further harm to the economy, and to the individual liberties of Americans, Congress should take immediate steps to control the flood of red tape.

 - James L. Gattuso is Senior Research Fellow in Regulatory Policy.

 - Diane Katz is Research Fellow in Regulatory Policy in the Roe Institute.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

Diane Katz Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

Originally distributed by the Tribune Content Agency