Representative Upton's anti-regulatory rant: when the evidence isn't there, misrepresent, distort, or ignore it
Posted June 29, 2011
In a short opinion piece published yesterday in the Washington Times, Representative Fred Upton (R-MI), Chair of the House Energy and Commerce Committee, reported that his Committee found piles of evidence showing that the “vast web of costly, duplicative, and often ineffective federal regulations” was the “major culprit” behind America’s diminishing ability to climb quickly out of recessions.
But he failed to substantiate this claim. First, he incorrectly claimed that a study by the McKinsey Global Institute (MGI), a subdivision of one of the most prestigious global consulting firms (McKinsey and Company, Inc.), agreed with his thesis. Second, beyond the McKinsey (mis)representation, he provided no data to support his anti-regulatory tirade. To the contrary, he ignored analysis by the Office of Management and Budget (OMB) finding that, in the aggregate, major federal regulations have yielded net benefits. He also ignored the vast body of literature finding increased employment and economic output resulting from environmental regulation, which he singles out as an example of his diagnosis.
Misrepresenting the McKinsey report
The McKinsey report did not conclude that regulatory impediments were the “major culprit” behind America’s economic woes. This can be readily discerned from their web page summary. The findings (emphasis added) point to deep structural problems in the economy, with existing regulation not effectively solving them:
- Recoveries are increasingly becoming "jobless" due to firm restructuring, skill and geographic mismatches between workers and jobs, and sharp decline in new start-ups.
- The US needs to create 21 million new jobs by 2020 to regain full employment – and only achieves this in our most optimistic job growth scenario.
- The US workforce will continue to grow until 2020, but under current trends, many workers will not have the right skills for the available jobs. Technology is changing the nature of work: jobs are being disaggregated into tasks, work is becoming virtual, and firms are relying on flexible labor (temporary, contract workers). These trends offer new opportunities for creating jobs in the United States, a trend that some companies do not fully appreciate.
- Progress on four dimensions will be essential for reviving the US job creation machine: develop the US workforces' skill to better match what employers are looking for; expand US workers' share of global economic growth by attracting foreign investment and spurring exports; revive the nation's spark by supporting emerging industries, ensuring more of them scale up in the United States, and reviving new business start-ups; and speed up regulatory decision-making that blocks business expansion and new investment.
Upton discusses only the last clause of the last sentence of this summary, leaving out all the rest, and downplays McKinsey’s vision for proactive government regulation: “The current pattern of jobless recoveries has evolved over decades…[R]eversing this trend…will require major efforts in education, regulation, and even diplomacy.” (p. 59-60). Along these lines, the report offers many new regulations, based in part on what has worked in other countries.
The problems McKinsey identifies that Upton quotes are shared by both the left and the right, and really should come as no surprise. Probably not many of us would disagree that accelerating the speed of decision-making, eliminating redundancy, and improving interagency and intergovernmental cooperation, would improve government’s role in promoting economic growth. (Parenthetically, let’s also not forget about contravening evidence to Upton’s argument, such as the lack of regulation that led to the financial meltdown and the Deep Water Horizon oil spill).
Contrary to Upton’s claims and distortions, the data show that in general the benefits of regulation exceed the costs.
According to a report just released by the Office of Management and Budget (OMB), the overall benefits of regulation exceed costs:
“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.”
Net gains are particularly strong under the Clean Air Act, currently under assault by some legislators in Congress. Benefits from regulations issued by the Office of Air were estimated to be between $77 to $535 billion, compared to $19 to $24 billion in costs (click here for a summary of EPA’s cost benefit analysis, and here for a description of the rigorous peer review it underwent). The fact that this assessment comes from OMB should not be overlooked: it is a tough critic of EPA regulations.
The data also shows that environmental protection is a net job creator and increases economic output.
As I’ve documented extensively in previous blogs (e.g. click here and here), because it is more labor-intensive than the rest of the economy, cleaning up the environment on average generates net increases in jobs. It also increases economic output by improving the health and productivity of the workforce: reduced pollution leads to fewer lost work, school, and restricted activity days, fewer fatalities, fewer hospital visits and other medical expenses, and avoided expenditures on remedial education, such as those needed to address diminished IQ levels caused by pollution.
Research tells us that overall regulation is a net gain to society, and this is especially true with environmental protection, where benefits exceed costs by the largest margin, and the public is protected from dangerous pollution. Sure, regulation is not perfect, but that’s really beside the point. Rather than using regulation as a scapegoat for America’s economic problems, Upton should accept the facts, not distort, misrepresent, or ignore them. His tactics may appease the special interests that contribute to his campaigns, but they do a disservice to his constituents and the country.