Thanks to weak federal oversight, government agencies routinely overstate benefits, minimize costs and ignore potential alternatives when evaluating proposed regulations, according to a study released on Tuesday by the Mercatus Center.
The study reviews the history of the Council on Wage and Price Stability (CWPS), which operated with congressional authorization from 1974 to 1981 to evaluate rulemaking in all federal agencies. Although CWPS had no power to block or change proposed regulations, its public comments are credited with “raising the cost to regulators of ignoring the messages conveyed.” (RELATED: Report: White House to Release $34 Billion in New Regulations after Mid-Terms)
In 1981, President Reagan merged the CWPS into the Office of Information and Regulatory Affairs (OIRA), which continues to “manage the White House role in regulatory oversight, focusing on executive branch agencies but excluding the independent ones.” (RELATED: Feds List 141 New Regulations in Only 3 Days)
Over its seven-year history, “CWPS intervened in more than 300 regulatory proceedings at over 25 federal regulatory agencies,” all of which are included in a 1981 review evaluating the Council’s effectiveness.
In that review, CWPS officials claimed that regulators frequently ignored core principles when evaluating proposed regulations, neglecting to consider such basic questions as “whether a significant problem exists in the marketplace that deserves policymakers’ attention,” or whether potential alternatives existed and how “their probable costs, benefits, and risks…compared with those of the proposed action.”
Although OIRA is able to evaluate regulations before they are made public, earlier in the process than CWPS was able to, the authors claim that, “outcomes generally fall short of consistent adherence to key principles of benefit-cost analysis.”
The Mercatus study provides several examples of such behavior from the CWPS review, along with contemporary analogues demonstrating that the situation has not been substantially improved under OIRA. (RELATED: Poll: 47 Percent of Americans Say Too Much Government Regulation)
In 1978, for instance, the Department of Transportation (DOT) “proposed extensive changes to rules for commercial bus and truck driver hours,” but failed to “explore alternative, less burdensome solutions.” Revisiting the issue in 2010, the DOT proposed reducing the number of hours that truck drivers could remain on the road, even though its own analysis recognized that crash rates for both trucks and cars had consistently fallen year-by-year since the 1970’s.
Similarly, a 1976 proposal by the Securities and Exchange Commission (SEC) to prevent monopolistic pricing of investment information failed to consider that “market mechanisms, such as arbitrage, already acted to resolve the rare occurrences of different prices,” leading CWPS to conclude that “the SEC had not shown that there was a problem in need of a solution.”
When the SEC revived the proposal in 1999, the Mercatus Center submitted comments arguing that, “the Commission offers no cost-benefit analysis…, and there is strong reason to believe that the costs of the guidelines would exceed their benefits.”
The authors conclude that achieving adequate regulatory oversight demands “a return to ‘first-principles’ of benefit-cost analysis,” originally advanced by CWPS, which “are still very much in the forefront of regulatory debate today.”
To accomplish this, they advocate congressional support for “a more independent and economic-efficiency-driven review mechanism,” coupled with independent peer-review that is available to the public.
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