The busi­ness lobby’s all-cost, no-ben­e­fit hypocrisy on reg­u­la­tion

The Washington Post Sunday - - BUSINESS - pearl­stein@wash­

Like all pres­i­dents since Ronald Rea­gan, Don­ald Trump came into of­fice promis­ing to re­duce un­nec­es­sary reg­u­la­tion, or­der­ing roll­backs of en­vi­ron­men­tal and fi­nan­cial reg­u­la­tion and di­rect­ing all ex­ec­u­tive agen­cies to throw out two rules for ev­ery one new one they pro­pose.

Back in Rea­gan’s time, the big de­bate was over his ex­ec­u­tive or­der re­quir­ing the gov­ern­ment to per­form cost-ben­e­fit analy­ses for ev­ery fed­eral reg­u­la­tion. The busi­ness com­mu­nity had long com­plained that gov­ern­ment of­fi­cials fo­cused only on the ben­e­fits of reg­u­la­tion, while ig­nor­ing the costs to busi­nesses and the econ­omy as a whole. Lib­eral in­ter­est groups — unions, con­sumer ad­vo­cates and en­vi­ron­men­tal­ists — went ba­nanas. How can any­one put a mon­e­tary value on the hu­man life that is saved be­cause of en­vi­ron­men­tal reg­u­la­tion, they asked, or the limb that is not cut off be­cause of work­place safety rules, or the peace of mind that comes from know­ing that your life sav­ings are safe from

pre­da­tions of Wall Street sharks? Any es­ti­mates of the ben­e­fits of reg­u­la­tion, they ar­gued, were too squishy and too sub­jec­tive — and down­right im­moral.

What the in­ter­est groups were ar­gu­ing, in ef­fect, was that there was no limit to what so­ci­ety should spend to save a life or a species from ex­tinc­tion, which is why they lost that ar­gu­ment. And ever since, pres­i­dents have re­quired ex­ec­u­tive branch agen­cies to do cost-ben­e­fit analy­ses on pro­posed reg­u­la­tions.

Iron­i­cally, to­day it is the busi­ness lobby and its GOP cheer­lead­ers who are the skep­tics. They are only too happy to tote up ev­ery con­ceiv­able cost for those “crush­ing,” “job-killing” reg­u­la­tions, but re­sist tot­ing up the ben­e­fits be­cause — like the lib­er­als of old — they view such es­ti­mates as too squishy and sub­jec­tive.

As part of its as­sault on cli­mate change reg­u­la­tion, for ex­am­ple, the en­ergy in­dus­try has con­jured up fright­en­ing es­ti­mates of lost jobs and higher en­ergy prices. But nowhere will you find any es­ti­mate of the eco­nomic ben­e­fit that would be re­al­ized by pre­vent­ing ris­ing tides from in­un­dat­ing New Or­leans; Mi­ami; Man­hat­tan; Charleston, S.C.; Jack­sonville, Fla.; and Galve­ston, Tex., or the lost crop pro­duc­tion from more drought and flood­ing, or the in­creased cost of air con­di­tion­ing to deal with year af­ter year of record heat. The in­dus­try line, par­roted by Repub­li­can politi­cians, is that the sci­ence on it is un­set­tled and comes from bi­ased or un­re­li­able sources. For that rea­son, the only cred­i­ble es­ti­mate of the ben­e­fit of cli­mate change reg­u­la­tion is zero.

To quan­tify the ben­e­fits of its cli­mate-change reg­u­la­tions, the Obama ad­min­is­tra­tion came up with a con­cept it called the “so­cial cost of car­bon” — the cost to so­ci­ety of putting a ton of car­bon into the at­mos­phere or the ben­e­fit from pre­vent­ing it — which it es­ti­mated at $36 per ton. By their na­ture, how­ever, such long-range cal­cu­la­tions are sen­si­tive to as­sump­tions that are made about things such as the cost of money over time or the speed at which the planet is warm­ing. But rather than of­fer a dif­fer­ent es­ti­mate of ben­e­fits based on dif­fer­ent as­sump­tions, the busi­ness lobby has fo­cused on dis­cred­it­ing the gov­ern­ment and back­ing Repub­li­can pro­pos­als to pro­hibit reg­u­la­tors from ever cal­cu­lat­ing the so­cial cost of car­bon again.

Wall Street has adopted a ver­sion of the “all cost-no ben­e­fit” ap­proach in lob­by­ing for re­lief from the Dodd-Frank fi­nan­cial leg­is­la­tion. De­spite mounds of ev­i­dence that cap­i­tal is plen­ti­ful and cheap, the in­dus­try ar­gues it could be even cheaper and more plen­ti­ful with­out most of the new rules and re­stric­tions. But, of course, that was pre­cisely the point of the law — to en­sure that we didn’t re­turn to the days when cap­i­tal was so cheap and easy that loans were made to in­di­vid­u­als peo­ple and busi­nesses who shouldn’t have got­ten them.

It was al­ways un­der­stood by those who wrote Dodd-Frank that the re­sult would be slightly higher in­ter­est rates and slightly re­duced avail­abil­ity of cap­i­tal. The judg­ment was that these costs would be more than off­set by the ben­e­fit of re­duc­ing the risk in the fi­nan­cial sys­tem and avoid­ing an­other fi­nan­cial cri­sis like the ones that have reg­u­larly be­set the econ­omy over the past 30 years. Each one wiped out tril­lions of dol­lars in house­hold and cor­po­rate wealth and trig­gered painful, job-killing and in­com­ere­duc­ing re­ces­sions.

Wall Street, not sur­pris­ingly, is not too keen to cal­cu­late the cost of fi­nan­cial crises it has in­flicted on the econ­omy, and thus the eco­nomic ben­e­fit of avoid­ing the next one. In­stead, the strat­egy has been to chal­lenge each of the dozens of Dodd-Frank reg­u­la­tions in­di­vid­u­ally, ar­gu­ing that no rule could sub­stan­tially re­duce the prob­a­bil­ity or sever­ity of the next fi­nan­cial cri­sis.

Wall Street’s view seems to be that although it is not op­posed to the idea of Dod­dthe Frank, it wants to re­peal or roll back vir­tu­ally all of its ma­jor pro­vi­sions.

The phar­ma­ceu­ti­cal in­dus­try also has an in­ter­est­ing his­tory with cost-ben­e­fit anal­y­sis. As part of its health-care ini­tia­tive, the Obama ad­min­is­tra­tion wanted to in­vest big money into what is known as “out­comes re­search” — us­ing mil­lions of com­put­er­ized med­i­cal records to de­ter­mine what are the most ef­fec­tive treat­ments for var­i­ous con­di­tions and ill­nesses. A study by the re­spected In­sti­tute of Medicine had found that half the treat­ments re­ceived by pa­tients was done with­out clear, sci­en­tific ev­i­dence that it worked. But the drug in­dus­try, fear­ing what the re­search might show about its most ex­pen­sive and prof­itable drugs, used its mus­cle to en­sure that the re­search would be lim­ited to med­i­cal ef­fec­tive­ness only, with no con­sid­er­a­tion of cost. In other words, no cost-ben­e­fit anal­y­sis al­lowed.

Here’s the dirty lit­tle se­cret about cost-ben­e­fit anal­y­sis: It re­ally is squishy and it of­ten re­lies on sub­jec­tive as­sump­tions, whether it is done by reg­u­la­tors who want to find huge ben­e­fits from reg­u­la­tions or in­dus­try ex­ec­u­tives who want to find none. That said, it is still an ex­er­cise worth do­ing — not be­cause of the pre­cise an­swers it gen­er­ates but be­cause of the fact-based dis­ci­pline it im­poses on think­ing about whether and how to reg­u­late.

Now, how­ever, the busi­ness lobby and its Repub­li­can al­lies have de­cided even that dis­ci­pline is more than the pub­lic de­serves. It re­minds me of the age-old ad­vice given to trial lawyers on how to win a case in court:

“If you have the law, ham­mer the law. If you have the facts, ham­mer the facts. If you have nei­ther the law nor the facts, ham­mer the ta­ble.”

When it comes to rolling back reg­u­la­tion, the busi­ness lobby has de­cided it can only win by ham­mer­ing the ta­ble. And the tragedy of it is that, for the mo­ment at least, it seems to be work­ing.


Steven Pearl­stein

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