New Critique of Crain and Crain Study Rejects Claim about Costs of Public Safeguards
by Katie Greenhaw, 7/19/2011
An estimate of the cost of public protections often cited by regulatory opponents has been rejected by researchers from the Economic Policy Institute (EPI). The critique, Flaws Call for Rejecting Crain and Crain Model, concludes that because the $1.75 trillion cost estimate is heavily based on flawed methodology and flawed data, it "should not be used either as a valid measure of the costs of regulation or as a guide for policy."
The exceptionally high estimate comes from a study by Nicole Crain and Mark Crain contending that the annual cost of federal regulations in the U.S. increased to more than $1.75 trillion in 2008. The Crain and Crain study, released in September 2010, was developed for the Small Business Administration’s (SBA) Office of Advocacy and reviewed and edited by SBA officials. While regulatory critics in Congress and industry parade the figure as evidence linking regulations to the damaged economy, researchers and experts have scrutinized the Crain and Crain study.
John Irons and Andrew Green, authors of the EPI paper, found fundamental errors in the regression analysis used by Crain and Crain to determine 70 percent of the costs included in the final estimate. They also discovered a pattern of missing information in the initial data set used to assess the relationship between regulation and GDP in other countries. Irons and Green used more complete data to recalculate part of Crain and Crain’s analysis but ultimately concluded that even enhanced data could not make up for flaws in the study’s methodology.
Adding to numerous criticisms of the study, the EPI critique involves a specific examination of the economic model used in the study, from which Irons and Green identify both conceptual and empirical problems with Crain and Crain’s analysis. In addition to deficiencies in the data and underlying methodology, researchers have identified broad conceptual flaws that undermine the suitability of the study as a regulatory deterrent. For example, evaluations by the Center for Progressive Reform (CPR) and the Congressional Research Service (CRS) point out that the benefits of regulations were not considered in the study.
Crain and Crain’s regulatory cost estimates also differ from estimates submitted in annual reports to Congress by the Office of Management and Budget (OMB). Cass Sunstein, administrator of OMB’s Office of Information and Regulatory Affairs (OIRA), said in a June hearing that the Crain and Crain study is "deeply flawed and should not be relied on." Austan Goolsbee, the chairman of the Council of Economic Advisers, called the $1.75 trillion figure "utterly erroneous."