Risk and Regulation

Here are the things that are standing in the way of small businesses hiring more employees in order of priority: economic uncertainty, uncertainty over what Washington is going to do next, lack of sales, requirements of the healthcare bill, too much regulation. In fact, 29 percent of small business owners listed economic uncertainty as the number one obstacle to more hiring, 22 percent listed lack of sales, and just 8 percent said it was too much regulation. So why is the Obama Administration focusing on regulatory reform as a way to help small business owners?

The White House just launched “Advise the Advisor,” where people can submit rules that should be eliminated, streamlined, or made more effective. This is in addition to the Presidential directive earlier in the year that required all executive agencies to review all their regulations in order to streamline them. In theory, this sounds like a good idea--who wants to fill out more paperwork? In reality, though, this just provides more fodder for the much debunked right-wing talking point on “job killing regulations.” How many entries do you think it will get that advocate for eliminating environmental rules?

We’ve highlighted before that the benefits of federal regulation far outweigh the costs. As Jack Temple pointed out, the benefits of regulation has outweighed their cost every single year over the past decade. The estimated annual benefits of all federal regulations between 2001 and 2001 range from $141 to $700 billion, while the costs fall are somewhere between $43.3 and $67.3 billion. In fact, regulatory delays cause far more economic and health consequences. Delays in food regulations result in nearly 10 million Americans poisoned every year. Delays in reducing soot in air pollution caused up to 1.4 million additional asthma attacks among children and over 2 million missed work or school days due to pollution-caused ailments.

There are series problems with the cost-benefits analysis used to judge whether a regulation is worthwhile or not. The While House’s regulatory czar, Cass Sunstein, has pushed cost-benefit analysis for many years even though there are deep problems with what is counted as a “cost” and what is counted as a “benefit.” For one, it forces agencies to justify compliance costs against monetized harms- there is literally a cost figure for the price of one human life. That works well when it’s all on a balance sheet, but what if that one human life is you or someone you know? It also caters to the lowest common denominator. As Sunstein himself has written,

Why should people be forced to pay an amount for regulation that exceeds their willingness to pay? People are making their own judgments about how much to spend to avoid various risks—and those judgments should be respected.

That means that people should be able to determine how much money they are willing to spend to avoid risks. But, who gets to decide the cost of air pollution, for instance, someone with asthma or someone without? Cost-benefit analysis fails to take into consideration why regulations exist: to protect our citizens. Strong food safety regulations make the food we eat safe. Comprehensive environmental regulations ensure that we can breath our air and have clean drinking water. Health and safety regulations make our workplaces safe for workers.

Regulations are currently under heavy attack from the GOP, which introduced HR 4078 to suspend all government regulation until the unemployment level falls. This idea is absurd, as my colleague Ben Peck point out here. It also perfectly highlights why small businesses rank Washington as the second reason they aren’t hiring—bills like this get hearings and attention and things that would actually create economic stability, like a massive investment program, never see the light of day.