Matthew Sanders: Six things you should know about the costs of federal regulation

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  • Lagomorph Salt Lake City, UT
    Feb. 2, 2013 9:48 a.m.

    Sanders fails to provide an objective standard to determine when regulation becomes burdensome. Here's the economic theory he omitted. I'll use a pollution example, but the concepts apply generally.

    Activities are regulated when they impose social costs not borne by the user.

    Pollution cleanup (regulation) is said to have decreasing marginal benefits. You gain a lot from the first percent of pollution cleanup, but the difference in benefit between 98% and 99% clean may not be much. Pollution cleanup has increasing marginal costs. It's easy and cheap to clean up the first 50% of pollution, the low hanging fruit, but it can be very expensive to get that last bit. If you graph the benefits of pollution control versus level of cleanup, it will be steep at first and level off. If you graph the costs, it will start shallow and get steeper. A graph of the the marginal costs and benefits (the derivative, for you calculus fans) will resemble an "X".

    The theoretical ideal is the level of cleanup where MC=MB. Any less, you're getting shortchanged, more you're paying too much. A regulation is burdensome if it is above the MC=MB intersection point.

  • UtahBlueDevil Durham, NC
    Feb. 1, 2013 9:37 p.m.

    The thing I love the best is while the rest of America is still staggering out of recession, Corporate America is doing just fine. Today, the stock market stall just a whisper away from its all time high - more doubling investors money in the shortest time ever on record. Corporate America is doing just fine.

    Its people that are still struggling. And all the neocons are concerned with is not employment, but allowing corporations to do yet even more, unregulated, unwatched, and unaccountable for their actions. They care more for corporate profits than they do getting practitioners of bad medicine out of the hospital, as witnessed by their myopic view that all we need to do to fix medical cost is tort reform - not the actual cost of delivering medical care.

    Its a one size fits all answer - less government, less oversight, less protection for average people. I am not a wild eyed liberal - I am actually rather fiscally conservative. But the carte blanche that is being offered here reminds us of why we have child labor laws, OSHA, and the EPA sprang into existence.

    If corporations could self regulate, we wouldn't need them. But as we have seen....

  • Lagomorph Salt Lake City, UT
    Feb. 1, 2013 1:53 p.m.

    The DesNews published this same piece online under a different title, but has since removed it. Unfortunately, some cogent comments there have been lost.

    The column fails to consider the costs of the problems that regulations are trying to fix. Sure, air pollution controls are expensive and maybe even "burdensome," but so are medical bills from emphysema and funeral costs. An insulation installer advertised that "you pay for insulation whether you have it or not." Same applies to regulation. A certain amount of regulation is necessary. No human endeavor runs perfectly without oversight. Mitt Romney acknowledged as much in the second presidential debate. The only question is how much is excessive. It seems that many conservative commentators tend to dismiss this distinction and lump all regulation together an economic drain.

    If you are not fond of regulation, the policy alternative is to rely on the tort system. This may work where there is a direct link between a cause and a harm, like sickness from E. coli tainted produce, but is more problematic if there is a less direct relationship (illness from air pollution from multiple sources). Ultimately, it just shifts costs from the executive branch to the judicial.

  • Fitness Freak Salt Lake City, UT
    Feb. 1, 2013 11:48 a.m.

    Not to be a "downer" BUT - what most of the posters here arent making any reference to is the massive amounts of money (bankers especially, have almost unlimited funds)special interests pay into both political parties with the hope of avoiding any scrutiny whatsoever.

    The Supreme court has let corporations know that the possibilities are endless.

    Find me someone NOT beholden to any special interest group besides consumers and I'll vote for him/her!

  • UtahBlueDevil Durham, NC
    Jan. 31, 2013 9:19 p.m.

    Well, the one thing we do know is the cost of deregulation was about 450 billion in TARP funds to get the banks back on their feet. Had AIG or GM gone upside down, the conservative numbers between 1 and 3 trillion. And we haven't even weighed in the cost of the hit the economy took over the last 5 years.

    So you can play the numbers a lot of different ways. We have an idea of what regulation cost... and we pretty much have an idea of what deregulation cost. Finding the magic balance is the trillion dollar quest.

  • Tyler D Meridian, ID
    Jan. 31, 2013 3:51 p.m.

    @Twin Light

    Thanks… and your last two sentences were outstanding!

    @azreader1 – “the size of the regulatory behemoth (60,000 pages?!) defies any one person or even motivated group to figure out what is working and what is not.”

    Couple things – first, 60,000 pages tells us nothing. Who’s to say, given the size and complexity of our economy, that the optimal number is 10,000 or 100,000 or a million? No doubt we could do a better job at getting closer to the optimal number. I would be all for either sunset provisions or perhaps an auditing agency (which could easily be funded by its positive impact on the economy) who’s sole purpose would be to perform cost/benefit analysis and provide reports to congress.

    “Others obviously disagree, including those who supported federalizing a large percentage of the economy during President Obama's tenure.”

    Perhaps, but let’s be careful to not paint with such a broad brush. Plenty of conservatives (at least those who haven’t bought into the cartoon caricature worlds found in an Ayn Rand novel) understand that unregulated capitalism would be incredibly destructive in a whole host of ways.

  • Twin Lights Louisville, KY
    Jan. 31, 2013 12:15 p.m.

    Tyler D and Eric Samuelson,

    Well said. We live in a complex economy.

    Certainly we should constantly review regulation to toss what is not working. How many of those regulations affect just food and drugs. I don't think most of us want those to be unregulated (or even very lightly regulated).

    As to banking and other financial regulations? We do not need to look far for examples of why they are critical to the stability of our economy.

    Again, this is not to say everything we've got is good or necessary. A strong concept of review and toss is important.

    But it is also important we aren't tossing the baby with the bathwater.

    Look at the several problems in China over the past few years (poisonous additives in milk, shoddy school construction in earthquake zones, etc. etc.). We have a similar past. The regulations we have are our collective response to those problems and are, effectively, our written version of "lessons learned".

    We need to be careful that we do not put ourselves in line for another costly (and potentially deadly) round of "education".

  • azreader1 tucson, AZ
    Jan. 31, 2013 10:41 a.m.

    Eric Samuelsen,

    It is laudable to think that identifying and tackling specific regulations is the answer to this problem. Unfortunately, the size of the regulatory behemoth (60,000 pages?!) defies any one person or even motivated group to figure out what is working and what is not. And what works in the eyes of some doesn't work in the eyes of others. Judging from the comments above, there will never be agreement about what the scope and nature of government oversight should be.

    I continue to be one who believes that the enormous and unchecked size of the federal bureaucracy is the single most pernicious threat to the vitality of our nation's economy. Others obviously disagree, including those who supported federalizing a large percentage of the economy during President Obama's tenure.

  • Eric Samuelsen Provo, UT
    Jan. 31, 2013 9:54 a.m.

    Look, instead of coming out against 'regulations', why not point to specific regulations that aren't working? I could think of some, and I'm a Democrat.

  • Hutterite American Fork, UT
    Jan. 31, 2013 9:08 a.m.

    The cost of regulation is high. The cost of insufficient regulation is much higher. Look what happens when banks get happy about giving mortgages to people with no hope to pay.

  • Tyler D Meridian, ID
    Jan. 31, 2013 6:45 a.m.

    Those are all good points and certainly we should be vigilant in understanding not only the cost of regulations but to what extent they are needed and whether or not they are still useful (or have become obsolete as the economy and technology changes).

    But we need to be equally aware of the benefits of well-designed regulations, and those are typically much harder to quantify. No economic system is perfect and some are terrible (i.e., communism) and unregulated capitalism (which creates externalities, business cycles, adverse selection, etc…) is no exception.

    There’s a strong argument to be made that while government played a role in the meltdown of 2008 (by promoting home ownership in ways that did not make economic sense), the push for widespread deregulation which began in the 80’s and gathered steam in the 90’s, played a central role.

    Proper rules-of-the-road are necessary for our economy to flourish, and we should be careful not to forget the lessons of the past or we’re bound to repeat them.

  • JoeBlow Far East USA, SC
    Jan. 31, 2013 4:46 a.m.

    I love business. I love profit. Both are great things. They are the engine for this country.

    But, I also love fairness and treating others with respect.

    Businesses maximize profit. Not always at the expense of ethical behavior, but it is not uncommon.
    We see this daily on the front page of newspapers. And years later, they plead guilty and the corporation pays a hefty fine.

    Who gets hurt when huge fines are levied? Mostly the stockholder. Those who "perpetrated" the dastardly deed have typically no consequences.

    Here is my idea to reduce regulations and unlawful corporate behavior.

    Any time there is an INTENTIONAL corporate misdeed of magnitude, someone goes to jail. Who? The highest level employee who knew of the wrongdoing and said nothing.

    Want to cover your rear? Just tell you boss.

    Shifting the penalty to the PERSON rather than the stockholder will make PEOPLE much more accountable for their actions.

    Think that corporations are people? Fine. Treat them like people.

    Stop letting PEOPLE do illegal things and then hide behind the protections of the corporation.

  • Maudine SLC, UT
    Jan. 31, 2013 12:20 a.m.

    The other questions that must be asked are what need/problem/concern is being addressed by the regulations and what is the cost of not having these regulations? If businesses behaved properly, they would not need oversight.