June 11, 2012

Letter to the House Committee on Oversight and Government Reform Regarding the Underperformance of Regulatory Analysis

Key materials
Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

The Honorable Darryl Issa
Chairman
Committee on Oversight and Government Reform
House of Representatives
U.S. Congress
2157 Rayburn House Office Bldg.
Washington, DC 20515

The Honorable Jim Jordan
Chairman
Subcommittee on Regulatory Affairs, Stimulus Oversight, and Government Spending
House of Representatives
U.S. Congress
2157 Rayburn House Office Bldg.
Washington, DC 20515 

Dear Chairman Issa and Chairman Jordan:

Your letter of May 16 to Mercatus Center General Director Tyler Cowen asks for examples of regulations “where it is believed a federal agency did not fully and effectively comply with the rulemaking process.” Economic analysis is a crucial component of the rulemaking process. A major portion of the Mercatus Center’s regulatory research evaluates the quality of the regulatory impact analysis that is supposed to inform agencies, the White House, and Congress when they make decisions about regulations and regulatory policy. As a result of our research, we have reached three main conclusions that may be of interest to the committee:

 1. The extent and quality of regulatory impact analysis is insufficient to justify claims that the total benefits of recent regulations significantly exceed their costs.

 2. The deficiencies are especially severe with respect to analysis of employment effects.

 3. The situation is not likely to improve soon. The quality of analysis for “midnight” regulations rushed into place at the end of a presidential term is especially substandard.

Benefits and Costs of Regulations

Administrations of both parties regularly cite aggregate benefit and cost information as an indicator that they have adopted high-quality regulations whose benefits exceed their costs. For example, the recent Office of Management and Budget (OMB) Draft Report on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local and Tribal Entities includes a graph that compares the net benefits of major rules adopted through the third year of the Clinton, Bush, and Obama administrations. The graph shows $14 billion in net benefits for the first three years of the Clinton administration, $3.4 billion for Bush, and $91.3 billion for Obama. 

For the past 15 years, the Office of Management and Budget has provided Congress with reports on the combined annual benefits and costs of federal agency regulatory programs. All have reported benefits exceeding costs, although it is impossible to tell whether that is actually true. OMB’s comparisons are inaccurate, for three reasons:

1. The figures are all drawn from agencies’ own projections of the benefits and costs of regulations. The problem is the analyses are often incomplete and poor quality.

2. There is a vast disparity between the total number of major rules and the number of major rules with monetized benefits and costs. Fewer than half of all major regulations in any given year have monetized benefits and costs.

3. Benefit projections often involve significant uncertainties that the agencies’ analyses fail to acknowledge.

Continue Reading