Archive for the ‘regulatory costs’ Tag

We Don’t Know the Costs   Leave a comment

A necessary part of understanding the burden regulation puts on American society is knowing what it costs the government to implement the regulation and what it costs American society to comply with the regulation.

The actual cost of new regulations is probably considerably higher than the totals reported by the regulatory agencies, a portion that I detailed yesterday. I only listed “major” regulations because the Governmental Budget Office typically only performs cost-benefit analysis on “major” rules, although the costs non-major rules could be substantial. As it is, regulatory agencies failed to provide quantified costs for 10 of the 25 MAJOR regulations issued in FT 2012, so why would we trust any figures released for non-major regulations?

In fact, the quality of cost analyses by regulatory agencies is often substandard. A prime example is Dodd-Frank. Faulty cost-benefit analyses have caused the courts to invalidate many of the regulations issued by the Securities and Exchange Commission. For instance, the proxy access rule, adopted by the SEC in August 2010, would require publicly traded corporations and investment first to disseminate information about board nominations made by shareholders. Critics argue that this will make it difficult to retain executive talent while inviting special-interest groups to harass firms. The SEC claims the benefits justify the costs.

The U.S. Court of Appeals for the District of Columbia Circuit castigated the SEC’s cost analysis as “inconsistently and opportunistically framed” in a manner that constituted “statutory neglect,” adding that “[b]y ducking serious evaluation of the costs that could be imposed upon companies from use of the rule by shareholders representing special interests, particularly union and government pension funds, we think the Commission acted arbitrarily.”

Legal briefs are currently being submitted in another SEC case involving the “conflict minerals” rule, which requires firms to guarantee that its sources for four specific minerals are not fueling conflict in central Africa. The three business groups that filed suit allege that the commission failed to conduct a proper cost-benefit analysis and underestimated the costs of the regulation.

These are not isolated cases. One of the CFTC’s commissioners, Scott O’Malia, excoriated the CFTC last year for its shoddy analyses. In stating his opposition to a major Dodd–Frank regulation on swaps, O’Malia wrote: “I have reached a tipping point and can no longer tolerate the application of such weak standards to analyzing the costs and benefits of our rulemakings.”

Problems are not limited to financial regulators. A recent study by a business group of the EPA’s cost analyses for six major regulations identified systemic problems in agency methods; the EPA changed amortization scheduled for capital expenditures from 30 to 50 50 years, distorting the financial burden firms will experience to meet near-term compliance deadlines.

The EPA’s habit for ignoring the impacts on the supply chain when regulations create a surge in demand for emissions-control technologies and equipment, has “inevitably increased input prices and the compliance costs well above the EPA’s estimates, which are based on current prices in the pollution abatement industry.” The EPA’s penchant for regulation at any cost was laid bare in its analysis of the so-called Utility MACT rule:

“We may determine it is necessary to regulate…even if we are uncertain whether [the rule] will address the identified hazards.… We also may find it necessary to regulate…even if we conclude…that the imposition of the other requirements of the [Clean Air Act] will significantly reduce the identified hazard.”

In other words, regardless of the costs and in the absence of proof that it has improved air quality, the EPA will impose regulation as it sees fit.

Yeah, there’s no reason for us to be concerned! Pay no attention to the tentacle that just rubbed the bow of the ship. That’s nothing to be concerned about!

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