Cooking the Books on the Costs of Rules
by Ronald White, 9/10/2014
As part of the ongoing national effort by some in the business community and their allies in Congress to attack standards and safeguards, a report released today by the National Association of Manufacturers (NAM) provides a wildly exaggerated and unreliable estimate for the cost of federal rules in 2012. The report, prepared by economists W. Mark Crain and Nicole V. Crain, uses similar, fatally flawed methodology as the Crains’ discredited 2010 report on the cost of rules prepared for the Small Business Administration’s Office of Advocacy.
The Office of Advocacy report was widely panned in reviews by the Congressional Research Service (CRS), the Economic Policy Institute, and the Center for Progressive Reform, among others. It was based on critically flawed methodology that estimated the 2008 cost of rules at $1.75 trillion (in 2009 dollars). Then-Administrator of the Office of Information and Regulatory Affairs, Cass Sunstein, dismissed the 2010 report as “deeply flawed” and an “urban legend” in congressional testimony, and even the Office of Advocacy backtracked from supporting the report, noting on its website that “certain theoretical estimates of costs have been presented publicly as verifiable facts.”
As was the case with the 2010 Crain and Crain study, the current report uses high-end estimates of the cost of environmental regulations provided by federal agencies and incorporates estimates of rules that date back decades. As the CRS critique of the original study noted, “Although the agency estimates were typically presented as low-to-high ranges, Crain and Crain used only the highest cost estimates in their report. The Office of Management and Budget has said that estimates of the costs and benefits of regulations issued more than 10 years earlier are of 'questionable relevance.'"
Among other assumptions that distort the report results is the use of a 2014 NAM survey of manufacturers, which included estimates of their costs associated with “complying” with federal rules. Essentially, the report includes estimates of the costs to companies that were subject to federal agency enforcement for their failure to comply with rules that the vast majority of businesses meet. NAM’s own survey finds that almost 80 percent of businesses were not subject to any enforcement or compliance actions in the past year.
The report also incorporates estimates of the cost of purchasing equipment to comply with federal rules. However, there is no acknowledgment of the economic benefits to manufacturers of products such as environmental controls. For example, the Manufacturers of Emission Controls Association (MECA) estimated that in 2010, the economic activity that resulted from emission control technology for new cars and trucks in the U.S. totaled $12 billion. Additionally, MECA member companies provided 65,000 green jobs in the U.S. The Institute of Clean Air Companies (ICAC) forecasts that the overall U.S. market for air pollution control and monitoring technology is around $5 billion a year (2012 dollars) and is expected to increase to almost $6 billion by 2016.
Another fundamental, underlying flaw in both the new report and the 2010 study is the omission of any consideration of the tremendous benefits to the public that result from environmental, workplace, transportation, and financial protections. As a result, the reader is left with a one-sided and distorted picture regarding how the costs of federal rules compare to their benefits.
A recent Center for Effective Government study, The Benefits of Public Protections: Ten Rules That Save Lives and Protect the Environment, found that public health and safety, worker safety, and environmental benefits projected from just ten proposed or final rules issued by five federal agencies (the U.S. Environmental Protection Agency, Occupational Safety and Health Administration, National Highway Traffic Safety Administration, Food and Drug Administration, and Department of Agriculture’s Food Safety and Inspection Service) will save over 10,000 lives and prevent 300,000 cases of disease, illness, or injury each year. Even after considering their estimated costs, the net benefits from these ten rules will be between $46 billion to $122 billion per year. This represents just a small piece of the overall benefits that essential public protections provide to Americans.
This new industry report is another blatant attempt by the National Association of Manufacturers to recycle old and unproven complaints about the cost of federal rules based on a methodology designed to provide the desired outcome. Rather than providing a scholarly contribution to national discussions regarding the role of rules in our society, its only apparent purpose is to provide ammunition to those in Congress who wish to subvert our system of public protections to improve corporate bottom lines.