Academic journal article Fordham Urban Law Journal

The Unbearable Lightness of Regulatory Costs

Academic journal article Fordham Urban Law Journal

The Unbearable Lightness of Regulatory Costs

Article excerpt

Will unbearable regulatory costs ruin the United States economy? This specter haunts officials in Washington, just as fears of communism once did. Once again, the prevailing rhetoric suggests that an implacable enemy of free enterprise puts our prosperity at risk. Like anti-communism in its heyday, anti-command-and-control-ism serves to narrow debate, promoting the unregulated laissez-faire economy as the sole acceptable goal and standard for public policy. Fears of the purported costs of regulation have been used to justify a sweeping reorganization of regulatory practice, in which the Office of Management and Budget (OMB) is empowered to, and often enough does, reject regulations from other agencies on the basis of intricate, conjectural economic calculations.

This Article argues for a different perspective: what is remarkable about regulatory costs is not their heavy economic burden, but rather their lightness. Part I identifies two general reasons to doubt that there is a significant trade-off between prosperity and regulation: first, regulatory costs are frequently too small to matter; and second, even when the costs are larger, reducing them would not always improve economic outcomes.

The next three parts examine evidence on the size and impact of regulatory costs. Part II presents cost estimates for a particularly ambitious and demanding environmental regulation, REACH--the European Union's new chemicals policy. Part III discusses academic research on the "pollution haven" hypothesis, i.e. the assertion that firms move to developing countries in search of looser environmental regulations. Part IV reviews the literature on ex ante overestimation of regulatory costs, including the recent claims by OMB that costs are more often underestimated (and/or benefits overestimated) in advance.

Turning to the economic context, Part V explains why macroeconomic constraints may eliminate any anticipated economic gains from deregulation. Part VI introduces a further economic argument against welfare gains from deregulation, based on the surprising evidence that unemployment decreases mortality. Part VII briefly concludes.

I. TWO ARGUMENTS AGAINST THE TRADE-OFF

In theory, it would be possible to spend so much on environmental protection that basic economic needs could not be met. At a sufficiently high level of regulatory expenditures, protecting nature and cleaning up the air and water could absorb enough of society's resources to compete with the provision of more fundamental goods, such as food and shelter. From this, it is a short leap to the conclusion that the clash between economy and environment actually is an urgent problem, requiring detailed analysis of regulations to prevent worsening the terms of the trade-off. But the latter statement only follows logically if environmental policy is in fact consuming substantial resources, which are transferable to other, more basic needs. That is, the assumed urgency of the trade-off rests on the implicit assumptions that the costs of environmental protection are both large and fungible. Either of these assumptions could fail in practice; the costs of environmental protection could be nonexistent, or too small to matter, or the reduction of regulatory costs might not produce the desired economic benefits.

Environmental protection with little or no costs

Costless environmental improvement is frequently assumed to be impossible by definition. The hidden premise underlying this form of the trade-off argument is that the market economy is already performing as well as possible; that is, it has reached a Pareto optimum. (1) From this perspective, any new expenditure on environmental protection necessarily represents a loss, because it diverts resources away from the things that consumers, in their wisdom, have chosen for themselves. (2)

Reverence for market outcomes is at odds with the beliefs of many environmental practitioners who assume that environmental improvements can bring economic benefits as well. …

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