Obama Rulemaker Says $25 Billion Cost Outweighed by Benefits

Feb 13, 2012
Copyright 2012 Bloomberg.
Mark Drajem and Elizabeth Dwoskin
 

Feb. 9 (Bloomberg) -- Regulations approved by President Barack Obama over the first 32 months of his term cost businesses an estimated $25 billion, more than double the total of each of his two predecessors, according to White House data.

Obama signed off on fewer total regulations, however, than Republican President George W. Bush during the same period of his tenure, the data shows.

The administration said the benefits of its regulations outweigh the costs by $116 billion so far, according to the figures from an unreleased White House report provided to Bloomberg. Judging regulations by cost alone doesn’t take into account the economic benefits of healthier children, safer roads or fewer industrial accidents.

“Every new emphasis has to make sure the benefit justifies the cost,” Cass Sunstein, the head of the Office of Information and Regulatory Affairs at the White House, said in an interview. “Part of my job is making sure that whatever is done in the regulatory area is consistent with the fundamental goals of economic growth and job creation.”

Obama’s regulatory policy has been a focal point of criticism from business groups and Republicans, who say that a spate of rules meant to clean up the environment, health care and financial firms is crippling the economy.

‘Job-Killing Regulations

Republican presidential front-runner Mitt Romney says that, if elected, he will put an end to “job-killing regulations.” The Republican-led House of Representatives last year voted to stall or block at least a dozen regulations proposed by the Environmental Protection Agency.

Representative Darrell Issa, a California Republican and head of the House Oversight and Government Reform Committee, said in a statement that “an early estimated cost of $25 billion is a sign of an even more expensive job-killing tsunami that will create more uncertainty for small businesses and put Americans out of work.”

Bill Kovacs, vice president of the U.S. Chamber of Commerce in Washington, said the administration is “producing a record number of economically significant regulations, and that’s causing unemployment.” The result is “projects not getting built and the economy not getting going,” Kovacs said in an interview.

Balanced Approach

Sunstein says the administration is taking a balanced approach. It nixed the most expensive rule: an EPA proposal to curb smog, which would have cost as much as $90 billion.

Obama also ordered a review of old regulations a year ago, and he cited it as a success in his State of the Union address last month. That process will save $10 billion in its first five years, according to the budget office.

The administration’s most expensive rules last year included energy conservation standards for refrigerators, requirements that cargo on passenger aircraft be screened and limits on ozone pollution from coal power plants that crosses state lines.

Sunstein is set to send the full report on the costs and benefits of regulations to Congress in the coming weeks.

In the fiscal year ended in September, the cost of new regulations was about $9.7 billion, a decrease from 2010, according to the president’s Office of Management and Budget.

The estimated and cumulative cost of Obama’s regulations through the fiscal year ended Sept. 30 ranged from $17 billion to $34 billion, according to the budget office. The estimated midpoint of the rules is $25 billion.

Clinton, Bush

That compares with as much as $9.7 billion in regulations issued by Clinton and $6.7 billion by Bush over the first 32 months of their terms, according to the White House.

An annualized average of the cost of Obama’s rules is $9.4 billion in 2011 dollars.

That is far below the $20.9 billion one-year high under Republican President George H.W. Bush. In the last year of his term, President Ronald Reagan imposed $16 billion in regulations in today’s dollars. Bloomberg converted all of the regulation totals to 2011 dollars using the U.S. Bureau of Labor Statistics’ online calculator.

Regulations also have benefits, and the administration said those total $116 billion. That compares with $18 billion in regulatory benefits during the first 32 months of Clinton’s term, and $4.3 billion for Bush, the White House report said.

Missed Work Days

Those benefits are calculated by tallying up a combination of avoided health costs and missed days of work, and also estimates of what citizens are willing to pay to avoid premature death or illness.

Avoiding a heart attack, for example, is measured as the combination of $127 multiplied by the estimated work days missed, plus $85,000 for medical treatment.

The EPA values saving a life to be worth more than $8 million, based on academic surveys from 1976 to 1981 that have been adjusted to reflect inflation and population growth.

“These are real benefits to real people,” Gina McCarthy, the assistant administrator of the EPA, told the House Energy and Commerce Committee yesterday.

Critics say those benefits are very different than the tangible, immediate costs to industry of buying new equipment or closing plants.

“The concept of a willingness to pay for improved health or longevity is not illegitimate,” Susan Dudley, Sunstein’s predecessor and director of the Regulatory Studies Center at George Washington University, said in an interview. “But these benefits are highly uncertain and are not likely to translate to economic growth.”

Loss, Gain

Richard Morgenstern, the EPA’s director of policy analysis in the Reagan and Clinton administrations and now a researcher with Resources for the Future in Washington, found that for every job lost because of regulatory costs, at least one more was gained.

Because of EPA regulations from 1984 to 1994, four industries shed 14,000 jobs, he said. As those industries spent money to comply with the laws, they hired workers to clean and retrofit equipment and developed new manufacturing methods. Morgenstern estimates that in the end, spending and innovation put 29,000 people to work.

“The job creation and the job destruction roughly cancel each other out,” he said.

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