Three myths about federal regulation help prevent much of the public, and many experts, from realizing how many regulations serve to promote special interests.
Years ago, George Stigler hypothesized that regulations pretend to protect the general population from industry misbehavior, but are in fact written by those industries. The relevance of his capture theory for the 21st century was confirmed when the White House recently admitted, referring to the federal Department of Transportation, that “DOT and [its secretary] can’t not support what the industry wants.”
Three myths about federal regulation help prevent much of the public, and many of the experts, from realizing how many regulations serve to promote special interests.
The first myth is that regulation is primarily an exercise in environmental protection. The critics of deregulation invariably proclaim that “Trump is trying to kill you” with dirty air and water. President Obama’s Office of Management and Budget perennially reported that the majority of costs and benefits of regulations were environmental.
In fact, only 14 percent of all the economically-significant federal rules issued by executive agencies between 2000 and 2017 came from the two environmental agencies (the Environmental Protection Agency and the Department of the Interior). More common are non-environmental regulations protecting special interests (and sometimes harming the environment in the process) such as trial lawyers, large health insurance companies, online advertisers, car companies, labor unions, and manufacturers of generic drugs.
Non-environmental rules have also been dominant in the deregulatory activity over the past three years, as Patrick McLaughlin and I show in a recent research paper.
The second myth is that regulations originate with nonpartisan “technocrats” who capably balance costs and benefits. Despite executive orders and Office of Management and Budget guidance requiring cost-benefit analyses of new regulations, the typical justifications and cost assessments of non-environmental regulations border on the absurd–that is, if any quantitative assessment was provided in the first place.
Take the 2016 prohibition of short-term health insurance plans (lasting between 6 to 12 months). There was no cost assessment for that rule because the rule was designated as not economically significant, but this designation is not supposed to be used unless there is no material adverse effect on any sector of the economy.
How could regulators deny any material adverse effect from a prohibition of a product that 2 million people would be purchasing (as estimated by the nonpartisan Congressional Budget Office)? The White House Council of Economic Advisers later estimated that the annual cost of this regulation was $13 billion, which is 130 times the monetary threshold for economic significance.
The third myth, reinforced by the other two, is that the main burden of regulation is paperwork. The truth should be obvious today from this year’s state stay-at-home orders, which take little paper or time to read but have ruined businesses, interrupted student learning, and have cost the average household thousands of dollars (yes, I know that there would still be an economic depression even without stay-at-home orders, which is why I did not write “tens of thousands”). These are lost opportunities, not clerical costs.
Indeed, the surprise has been that any deregulation could occur with special interests so close at hand. President Trump’s strategy has been to bulk-process deregulation—effectively, multilateral disarmament in the battle for special-interest favors. He did this with historic use of the Congressional Review Act during the short regulatory time window that came at the beginning of his term. Then he implemented a regulatory budget that required agencies to reduce regulatory costs faster than they created them. Most recently, he used the war against Covid-19 to launch a third offensive against the regulatory state by requiring many regulations to be suspended during the pandemic and never brought back without sufficient justification.
Multilateral disarmament does not work for those special interests who overwhelmingly profit from their favorite regulation. Regulatory favors for car companies, the maritime industry, and others will thereby survive even after the latest wave of deregulation.