A particularly revealing story in The Washington Post this weekend reported on a sordid tale of regulatory failure that may have helped contribute to this spring and summer’s outbreak of outbreak of egg-borne salmonella that sickened more than 1,900 people and led to the largest recall of eggs in U.S. history. In an agonizing case of closing the chicken coop door after the tainted eggs had escaped, the FDA finally adopted a long-delayed regulation in July -- two months after the outbreak -- that might have helped prevent it. And this month Congress may give FDA new authority to regulate the safety of food in light of the salmonella case and other highly publicized outbreaks of food poisoning in the last few years.
Yet, under a proposal floated in an op-ed by Sen. Mark Warner (D-VA) in the same newspaper two days later, regulators would be forced to drop existing regulations in order to pass needed new regulations. So, for example, FDA might have to drop a regulation covering peanuts in order to promulgate additional regulations for eggs.
Senator Warner’s proposal would require federal agencies to identify and eliminate an existing regulation of similar estimated economic cost for each new regulation they want to add. The Chamber of Commerce touts it as an "interesting proposal" but it's not actually a new one. In fact, I testified before the Senate Committee on Government Operations in opposition to the "regulatory budget" idea in 1999, and the proposal dates back to at least the 1980s (see the American Enterprise Institute's Chris DeMuth, writing in 1980). Nothing that has occurred since makes this into a good idea. As we unfortunately know, it was a lack of regulation, not too much regulation, that was responsible for the collapse of the financial sector, the event that precipitated the economic recession from which we now suffer. And it has been too little regulation and enforcement that has led to the almost yearly outbreaks of food poisoning that have killed many and injured thousands more. See also: the West Virginia mine collapse, the BP oil spill, and runaway Toyotas.
Warner claims the cost of regulation has kept the U.S. business community from participating more fully in our nation's economic recovery. This is basically the same baseless argument that Ronald Reagan used to attack regulation.
The cost of regulation proves nothing. First of all, it ignores the benefits that regulation brings to the public. OMB recently estimated that over the last 10 years major federal regulations with quanitified and monetized costs and benefits produced an average annual benefit of between $128 and $616 billion—a staggering return on the average annual $43-$55 billion cost of these investments.
Second, it assumes that regulatory costs are a drag on the economy. The claim, of course, ignores the harm to the economy from the very crises that regulation is intended to avert, as the consequences of failing to regulate food safety or Wall Street unfortunately demonstrate. The argument also pretends that the money spent on regulation produces no economic benefit. Like any spending, the costs of regulation generate economic activity, because the money is spent on goods and services, thereby generating jobs. It is difficult to tally the ultimate economic impact of regulation, but existing studies refute the notion that regulation is a job-killer.
Finally, Senator Warner assumes that there are a lot of useless regulations lying around that can be eliminated to make room for new ones. But he passed up the chance to name even one in his op-ed, and kept similarly mum in a talk he gave on his proposal earlier this month at AEI. The presumption that we’ve got lots of useless regulations in place plays off of years of conservative rhetoric about how regulatory red tape is choking American business. But this idea divorced from reality. Before an agency can promulgate a regulation, it undergoes a vigorous process of vetting, which almost always includes judicial review. If Senator Warner really believes that FDA has some superfluous, economy-choking food safety regulations, he ought to identify them, and explain why they should be eliminated.
Government has legitimate regulatory goals that include protecting the American public from a variety of hazards, and doing it without imposing unreasonable costs on regulated entities. And the long history of regulation – airbags, unleaded gasoline, cleaner air and water, food safety protections, market safeguards and more – demonstrates that it saves lives, prevents serious injuries, and protects the economic livelihood of millions of Americans. Of course, government needs to be accountable and we must have systems that accomplish that. The regulatory budget scheme is not such a system. It makes deregulation the goal no matter how beneficial the next regulation will be.