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Not Worth the Paper It’s Printed On

The folly of OMB’s annual cost-benefit report.

Aug 19, 2013, Vol. 18, No. 46 • By IKE BRANNON and SAM BATKINS
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Rather than adjust its figure downward to reflect the state-of-the-art research (which EPA financed, incidentally), the agency responded to the widely heralded study by announcing that it would perform its own meta-analysis. A few months later the agency held a meeting to discuss its initial findings and invited nearly every economist who had published on the subject. While the research was not yet complete, EPA said it expected its VSL estimate would be three times higher than the Mrozek and Taylor figure—and almost precisely the figure EPA was already using. The pronouncement was met with mocking laughter from the audience, but EPA never budged. It didn’t have to.

Finally, the very practice of constructing a league table is a dubious exercise. There is no reason to aggregate the various costs and benefits for regulations—especially when the final number reflects only a small proportion of regulations, none of which had costs and benefits measured particularly well. With this much discretion, OMB can always declare that the combined benefits for its chosen set of regulations outweigh their aggregate costs for a given year. If, by some bureaucratic accident, OMB did not get this result, no one would insist that the government eliminate the new regulations. Critics would merely insist we reexamine the various regulations in the analysis.

And if there were one regulation with huge estimated benefits and low costs outweighing a number of smaller regulations that fail any cost-benefit test, we would still be dissatisfied with the government’s regulatory activities, even if the net aggregate benefits were high.

Fixing the annual report so that it produces something informative is straightforward, although it would take the agencies a bit of work, which would pay off in the long run for all involved. First, all agencies should be subject to cost-benefit analyses for their major regulations. The notion that independent agencies like the SEC, FCC, or the new Consumer Financial Protection Bureau should be above such accountability is absurd and should be fixed at once. The Administrative Conference of the United States, an independent agency in its own right, strongly recommends comprehensive analyses for all agencies.

Second, the agencies themselves should not be the ones determining whether a rule exceeds the $100 million threshold to merit a cost-benefit test, or whether it passes the test, for that matter. The solution to this is simple: OMB should use some of the agency budgets devoted to economic analysis to create an entity outside of their purview solely dedicated to doing cost-benefit analyses. In essence, the entity would do for regulations what CBO does when measuring the revenue impact of legislative proposals.

A relatively impartial government entity performing cost-benefit analyses would turn the annual report into something that allows the public to have a more complete picture of how well the government is doing at regulating the economy.

For an administration that likes to advertise itself as the most transparent in history, it’s a logical step to take.

Ike Brannon is president of Capital Policy Analytics, a consulting firm in Washington, D.C. Sam Batkins is director of regulatory studies at the American Action Forum.

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