Red Tape Rising

The style of governance has changed since the 1960s. With some obvious exceptions -- Obama's tax-the-rich rhetoric and Obamacare's tax-the-rich reality to come -- bloat in government motivations mostly is managed not through tax increases but via mandates directed toward the private sector. In other words, regulation. And, because there is no free lunch, the costs of regulation are passed to the consumer in the form of higher prices for goods and services.

Today, over-regulation is strangling America--at over 35 percent of our economy, it costs nearly double the revenues from individual income taxes. And piling-on additional regulation as America struggles to revive from recession seems particularly perverse. Which made the EPA's late 2011 announcement of new, lower limits on mercury emissions from power plants all the more perplexing. Oh, EPA Administrator Lisa Jackson said the new standard would prevent 11,000 deaths. And the usual cheerleaders (Paul Krugman, Kevin Drum, Matthew Yglesias, Washington Post) were ecstatic. But the agency cooked the books.

Specifically, the EPA wound up estimating its new rule would save (net) between $27 and $80 billion (quite some range); the costs were only $10 billion. 77 Fed. Reg. 9304, 9306 (Feb. 16, 2012). Yet these supposed monetary benefits weren't calculated merely from reduced mercury levels, as the February 18th Economist explains:

In fact, reduced mercury explained none of the purported future reduction in deaths, heart attacks and asthma, and less than 0.01% of the monetary benefits. Instead, almost all the benefits came from concomitant reductions in a pollutant that was not the principal target of the rule: namely, fine particles.

The minutiae of how regulators calculate benefits may seem arcane, but matters a lot. When businesses complain that Mr Obama has burdened them with costly new rules, his advisers respond that those costs are more than justified by even higher benefits. His Office of Information and Regulatory Affairs (OIRA), which vets the red tape spewing out of the federal apparatus, reckons the "net benefit" of the rules passed in 2009-10 is greater than in the first two years of the administrations of either George Bush junior or Bill Clinton.

But those calculations have been criticised for resting on assumptions that yield higher benefits and lower costs. One of these assumptions is the generous use of ancillary benefits, or "co-benefits", such as reductions in fine particles as a result of a rule targeting mercury.

Mr Obama’s advisers note that co-benefits have long been included in regulatory cost-benefit analysis. The logic is sound. For instance, someone may cycle to work principally to save money on fuel, parking or bus fares, but also to get more exercise. Both sorts of benefit should be counted.

The controversy arises from the overwhelming role that co-benefits play in assessing Mr Obama’s rule-making. Fully two-thirds of the benefits of economically significant final rules reviewed by OIRA in 2010 were thanks to reductions in fine particles brought about by regulations that were actually aimed at something else, according to Susan Dudley of George Washington University, who served in OIRA under George Bush (see chart). That is double the share of co-benefits reported in Mr Bush’s last year in office in 2008.


source: Feb. 18th Economist at 77

If reducing fine particles is so beneficial, it would surely be more transparent and efficient to target them directly. As it happens, federal standards for fine-particle concentrations already exist. But the EPA routinely claims additional benefits from reducing those concentrations well below levels the current law considers safe. That is dubious: a lack of data makes it much harder to know the effects of such low concentrations.

Another criticism of the Obama administration’s approach is its heavy reliance on "private benefits". Economists typically justify regulation when private market participants, such as buyers and sellers of electricity, generate costs—such as pollution—that the rest of society has to bear. But fuel and energy-efficiency regulations are now being justified not by such social benefits, but by private benefits like reduced spending on fuel and electricity.

Private benefits have long been used in cost-benefit analysis but Ms Dudley’s data show that, like co-benefits, their importance has grown dramatically under Mr Obama. Ted Gayer of the Brookings Institution notes that private benefits such as reduced fuel consumption and shorter refuelling times account for 90% of the $388 billion in lifetime benefits claimed for last year’s new fuel-economy standards for cars and light trucks. They also account for 92% and 70% of the benefits of new energy-efficiency standards for washing machines and refrigerators respectively.

The values placed on such private benefits are highly suspect. If consumers were really better off with more efficient cars or appliances, they would buy them without a prod from government. The fact that they don’t means they put little value on money saved in the future, or simply prefer other features more.

In other words, the EPA was unable to quantify the benefits of reducing mercury emissions, but they did so anyway--by relying on factors that had nothing to do with air toxins at all.

Conclusion: In one sense, the new mercury rule is unsurprising. After all, for enviro zealots, zero is the only acceptable standard.

But beyond that, didn't Senator Obama critique President Bush for fuzzy math accounting? I know President Obama promised "an unprecedented level of openness [and] transparency [to] strengthen our democracy and promote efficiency and effectiveness in Government [and] promote[] accountability." Either way, the EPA's mercury rule fails.

Here's hoping the Court of Appeals agrees before progressive red tape turns a recession into a depression.