Cost-Benefit Test in Federal Regulation Is Flawed

Article excerpt

But for taxes, business' most vociferous complaint against government is that it regulates too much.

It costs business plenty, and provides benefits that mainly flow to other people, except insofar as employers are citizens, too, and so have some interest in clean water, clean air, control of toxic elements and the like.

Now a Republican majority and chastened Democrats are resolved to rationalize and reduce those costs.

True, rules that can be proven to be arbitrary and capricious can already be overturned in the courts. But the burden today is on the challenger, not the rule-making agency.

What's more, litigation focuses mainly on whether there have been defects in the rule-making process, not whether the basic objectives of the rules themselves are flawed.

Reform's chosen method: require the costs of regulations to be justified by their supposed benefits.

This is the approach not only of Republicans, but of Democrats, as well. The difference between them lies mainly in how many rules to subject to such a standard and how easy to make it for the regulated to challenge the regulator.

President Bill Clinton agrees with the basic thrust of reform, having issued an executive order two years ago requiring many rules to be judged by the cost-benefit standard.

The idea of first calculating and then relating costs to benefits seems unimpeachable. After all, it's what almost everyone does everyday in making the most routine decisions.

Yet it also happens to be extremely difficult to do - so difficult, in fact, that to seriously try may do great violence to the attempt to write any meaningful regulations at all.

First, the calculation of costs is but an estimate. True, businesses can point to specific expenses to comply with rules requiring it to scrub, filter or contain the discharges of the manufacturing process.

But those costs do not remain constant. Experience with the cleanup process leads to efficiencies; increasing demand for cleanup technology leads to falling costs, and new technology is often cheaper.

So what may be unreasonably expensive to clean up today may be less so tomorrow. Yet once a rule is not written, one can hardly expect business to announce it has found a cheaper way to do what it hasn't even been asked to do.

Nor do the regulatory agencies have the time, personnel and knowledge to monitor the falling costs of such technology.

So a one-time calculation of costs, though likely to be inaccurate over time, becomes the basis for a permanent decision. …