Putting Regulations to the Test

Originally published in the Boston Globe

June 2, 2011
Edward Glaeser (Glimp Professor of Economics, Harvard University)

Bad politics are filled with hoopla and hyper-charged rhetoric, while good government is often dull, so anyone can be forgiven for missing Executive Order 13563 — one of this year’s few governmental bright spots. The order instituted retrospective cost-benefit analysis of federal regulations, and Massachusetts needs to follow its lead. The federal government should encourage states down the cost-benefit path by providing technical expertise, with something akin to a Congressional Budget Office for state policies.
An executive order by Ronald Reagan required that "regulatory objectives shall be chosen to maximize the net benefits to society" and that "among alternative approaches to any given regulatory objective, the alternative involving the least net cost to society shall be chosen." Perhaps Reagan was just trying to stymie new regulations, but his order helpfully enshrined federal cost-benefit analysis. Today, my sometime co-author Cass Sunstein administers the Office of Information and Regulatory Affairs, which turns the clear light of quantitative analysis on federal regulations.
Reagan’s order had two glaring omissions. The president doesn’t control the legislature, so Congress can pass whatever rules it likes unimpeded by rigorous analysis. Moreover, Reagan’s order only applied cost-benefit analysis to new rules. Pre-1981 rules were left alone, and there was no process for post-implementation evaluation of post-1981 regulations. Any well-run business regularly evaluates past decisions in the light of new experience, but the executive office that regulates the regulators only evaluated new regulations.
President Obama changed that in January by giving each agency 120 days to produce a plan to "periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency’s regulatory program more effective or less burdensome in achieving the regulatory objectives."
According to Sunstein, over 30 review plans have been produced by a variety of agencies. He notes that $67 million will be saved if we adopt an Environmental Protection Agency proposal to reduce the requirement for "air pollution vapor recovery systems at local gas stations, on the ground that modern vehicles already have effective air pollution control technologies." Last week, the Occupational Safety and Health Administration announced a new rule reducing reporting requirements, supposedly saving employers over $43 million. The poster child of regulatory reform is that milk will no longer be "defined as an ‘oil’ " and hence "subject to costly rules designed to prevent oil spills." Over 10 years, this will allegedly save dairy farmers $1.4 billion.
None of these changes will rev up the American economy or eliminate the national debt, but the adage (misattributed to Senator Everett Dirksen) still rings true: "A billion here, a billion there, pretty soon you are talking about real money."
But while the federal government is moving forward on cost-benefit analysis, states have been slow to embrace rigorous analysis. State Senator Stephen Brewer’s bill requiring a cost analysis of casino gambling seemed bold, but every major initiative or regulatory change needs independent quantitative analysis.
Over centuries, Massachusetts has acquired a dense maze of regulations, and many of them, like those that limit entertainment and eating options in Boston, are ripe for reevaluation.
States spend billions and enact regulations with huge impacts, yet few of these policies face hard analysis.
In some cases, independent evaluation just requires resources that are beyond the scope of local governments. In other cases, disinterested analysis is the last thing that interested parties want to hear.
The federal government could improve the quality of state and local governments for a tiny fraction of what’s been spent to bolster state finances. The federal government could set up an independent evaluation office that could crunch the numbers for local governments. If Washington was feeling really draconian, it could require states and localities to use the office to be eligible to issue tax-exempt debt.
Soaring rhetoric and partisan invective may be exciting, but America really needs its policy wonks to rally for the boring essentials of good government like cost-benefit analysis.