Is the shutdown really worse than business as usual?

Henry Miller Senior Fellow, Pacific Research Institute.
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With the “non-essential” functions of the federal government increasingly grinding to a halt, news outlets have incessantly covered the supposed consequences, ranging from tourists being turned away from national parks and memorials to cessation of food inspections by the FDA to the CDC’s flu vaccine distribution to the interruption of clinical trials by NIH.

As a physician and scientist, I join those who abhor letting politics compromise public health, but as a policy wonk, I am all too aware of the negative effects of much of the government’s usual policymaking, especially unwise and excessive regulation.

Most people don’t think a lot about government regulation. Sure, they know there are rules about zoning and licensing doctors and that somebody evaluates the safety of poultry and pharmaceuticals, but the scope and magnitude and the influence of regulation on our lives are truly staggering. The Food and Drug Administration, for example, regulates products that account for more than a trillion dollars annually – 25 cents of every consumer dollar – and the Environmental Protection Agency, in effect, controls the quality of the water in our rivers, lakes and streams and of the air in every breath we take.

But the reassurance that regulation provides has costs, direct and indirect, and those costs have profound impacts. Regulation that is wrongheaded and not cost-effective actually costs lives. Putting it another way, the lives saved or other benefits derived from government regulation must be large enough to offset the costs. Often, that isn’t the case.

The diversion of resources to comply with regulation – good, bad or indifferent — exerts an “income effect” that reflects the correlation between wealth and health. It is no coincidence that richer societies or segments of the population have lower mortality rates than poorer ones.  (This is demonstrable at the local level as well: California’s Marin County, just north of San Francisco, ranks number one in both health – as measured by a composite of a number of criteria – and per capita income.)

To deprive communities of wealth, therefore, is to enhance their health risks because wealthier individuals are able to purchase better healthcare, enjoy more nutritious diets, and lead generally less stressful lives. Conversely, the deprivation of income itself has adverse health effects — for example, an increased incidence of stress-related problems, including ulcers, hypertension, heart attacks, depression and suicides.

Although it is difficult to quantify precisely the relationship between mortality and the deprivation of income, academic studies suggest as a conservative estimate that approximately every $10 million of regulatory costs will induce one additional fatality through this indirect “income effect.” Because unnecessary deaths are the real costs of regulators’ “erring on the side of safety,” excessive regulation has been dubbed “statistical murder.”

Not surprisingly, the poorest and most vulnerable in society disproportionately bear the costs and impacts of excess regulation, while they enjoy relatively few benefits. In her study, “Regressive Effects of Regulation,” University of Utah economist Diana Thomas describes the harm that attends regulation that fails to consider the real-world impacts on consumers of increasing costs of goods and services and/or lowering wages:

[P]eople make private decisions determining their diets, how safe of a car to buy, whether to install smoke detectors, the type of neighborhood in which to live, and counseling for drug and alcohol problems. As regulatory agencies address smaller and smaller risks—thereby driving up the prices of many consumer goods and lowering wages of workers in regulated industries—they crowd out expenditures people would make in their private lives that address larger risks and perhaps cost less than government risk regulation. This crowding out phenomenon will affect the less well off before it affects the wealthy because lower-income consumers may face higher risks in some areas of their lives and might wish to spend less on risk reduction overall. In this sense, regulation of health and safety risks, particularly regulation of small risks that are expensive to mitigate, can have a regressive effect on household income.

In other words, Thomas concludes, not only do current trends in regulation make the less wealthy less safe, but “by focusing on the mitigation of low-probability risks with higher cost, regulation reflects the preferences of high-income households and effectively redistributes wealth from the poor to the middle class and the rich.”

The EPA is the prototype of agencies that spend more and more to address smaller and smaller risks. In one analysis by the Office of Management and Budget, of the 30 least cost-effective regulations throughout the government, the EPA had imposed no fewer than 17. For example, the agency’s restrictions on the disposal of land that contains certain wastes prevent 0.59 cancer cases per year – about three cases every five years – and avoid $20 million in property damage, at an annual cost of $194 to $219 million. (Using the figure above of $10 million per death, that translates to about 20 fatalities per year.)

Another example is the imposition of overly stringent ambient air standards under the Clean Air Act. Clean air is desirable, but an EPA rule finalized in February 2012 that created new emissions standards for coal- and oil-fired electric utilities was ill-conceived. According to an analysis by Diane Katz and James Gattuso of the Heritage Foundation, “The benefits are highly questionable, with the vast majority being unrelated to the emissions targeted by the regulation. The costs, however, are certain: an estimated $9.6 billion annually. The regulations will produce a significant loss of electricity generating capacity, which [will] undermine energy reliability and raise energy costs across the entire economy.” $9.6 billion translates into almost a thousand deaths per year.

A recent analysis from the Competitive Enterprise Institute estimated that the annual cost of compliance with EPA regulations alone is more than a third of a trillion dollars. That’s over 30,000 fatalities per year, using the $10 million figure.

The EPA is relentlessly anti-science, anti-technology and anti-industry. Agency officials routinely ignore that regulation has costs, direct and indirect, and that enlightened regulation should always strive to limit the intrusiveness of oversight to the level that is necessary and sufficient. The EPA is, of course, not alone in imposing non-cost-effective regulation. USDA’s regulation of field trials and commercialization of genetically engineered plants is a colossal waste of federal resources and source of unnecessary private-sector compliance costs – and therefore, a killer.

In order to perform a field trial with a “regulated article” under the Plant Protection Act – which USDA has defined in a way that captures essentially every plant crafted with modern techniques of genetic engineering — a researcher must apply to the department’s Animal and Plant Health Inspection Service and submit extensive paperwork before, during and after the field trial. After conducting field trials for a number of years at many sites, the developer then submits a vast amount of data and requests “deregulation” by USDA, which is equivalent to approval for unconditional release. These requirements apply only to the most precisely and predictably crafted new plant varieties.

USDA’s discriminatory treatment of genetically engineered plants makes no sense. Plants have long been selected by nature or treated by plant breeders with x-rays, gamma radiation, or mutagenic chemicals to randomly damage the plant’s DNA to create mutations — that is, new genetic variants with enhanced resistance or tolerance to external threats to their survival and productivity, such as insects, disease organisms, herbicides and environmental stresses. And for decades, using older techniques, genes have been moved from one species or one genus to another, crossing what were once thought of as “natural breeding barriers.”

Similar things should be regulated similarly, and the degree of oversight should be proportionate to the perceived risk of the genetically engineered plant, which is a function of certain characteristics of the host plant (weediness, toxicity, ability to outcross, etc.) and the introduced gene. It is not the source or the method used to introduce a gene but its function that’s important. But for decades, plants made with the newest, most precise techniques have been subjected to the most regulation, independent of risk. Regulation has made these genetically engineered plants extraordinarily expensive to develop and test. The regulatory compliance costs associated with an insect-resistant or an herbicide-resistant genetically engineered variety of corn, for example are in the tens of millions of dollars. And that does not include the resources spent on products that are never approved or the costs to growers, shippers, and processors associated with segregation, traceability, and special labeling.

Consumers derive no benefits at all from USDA’s hugely expensive, dilatory regulation of genetic engineering.

Via unwise policies and flawed decision-making, federal regulatory agencies have exacted huge costs and in the process damaged the nation’s competitiveness, ability to innovate, and capacity to create wealth.

Shouldn’t the ongoing “statistical murder” of Americans by unnecessary or non-cost-effective regulation receive as much attention as the closing of a national park?

Henry Miller, a physician and molecular biologist, is the Robert Wesson Fellow in Scientific Philosophy and Public Policy at Stanford University’s Hoover Institution.  He was at the NIH and FDA from 1977 to 1994.