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Cost Of Federal Regulations

May 2, 2012

Yesterday, John Hinderaker wrote about regulatory costs.

Everyone knows the economy is lousy, and has been for the last several years. But our liberal friends ask us what, exactly, the Republicans will do to make it better. The answer is complex, of course, and includes several long-term issues. But I always say that there are two obvious areas of low-hanging fruit: energy policy and regulation. A new administration could give our economy a quick and substantial boost by encouraging, rather than blocking, the development of America’s vast energy resources, and by stopping the promulgation of endless regulations that burden business and, by imposing needless costs, make us all poorer. The Obama administration has been destroying wealth through irrational regulation at an unprecedented, and accelerating rate, as depicted in these charts from an earlier post:

He then presents the following chart showing an estimated cost of federal regulations at a whopping $1.75 Trillion – a startling 12% of GDP!

Is it possible that almost $1 out of every $8 dollars in the entire economy goes towards complying with federal regulations? Of course not, and it should be obvious to all that this number is greatly exaggerated. If only there were a more credible report that also included economic benefits of regulations, so we could have a complete picture – something that Hinderaker and the report he is citing fail to even attempt.

Fortunately, this report exists. It is the 2012 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local and Tribal Entities from the Office of Management and Budget.

The estimated annual benefits of major Federal regulations reviewed by OMB from October 1, 2000, to September 30, 2010, for which agencies estimated and monetized both benefits and costs, are in the aggregate between $132 billion and $655 billion, while the estimated annual costs are in the aggregate between $44 billion and $62 billion.

According to the OMB report, not only is Hinderaker’s number way off ($1.75T compared to $62B) but the economic benefits of regulations actually outweigh their costs! Who knew? Certainly not John Hinderaker. But when you’re trying to blame Obama for a recession that started before he took office (and after six years of GOP rule), you have to be pretty creative!

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