Experts Debunk WSJ's Favorite Report On Cost Of Federal Regulations

››› ››› DENISE ROBBINS

For three years running, The Wall Street Journal editorial board has championed an annual report by the Competitive Enterprise Institute (CEI) claiming that federal regulations are a "hidden tax" that cost Americans almost two trillion dollars every year and nearly $15,000 per household. But The Washington Post Fact Checker has described the CEI report as "unbalanced" and "misleading" because it has serious methodological problems and completely ignores the economic benefits of regulations, and policy and economic experts who spoke to Media Matters agree that the report is heavily biased and hugely flawed.

Misleading Competitive Enterprise Institute Report Regularly Appears On Wall Street Journal Editorial Page

WSJ Editorial Board Touted CEI's Bogus Report Each Of The Past Three Years. The Wall Street Journal editorial board has promoted the Competitive Enterprise Institute's report about the cost of federal regulations for each of the past three years. This year, the Journal cited CEI to claim that the annual cost of federal regulations is nearly $1.9 trillion, which "works out to a staggering $14,976 per household per year":

Americans send $1.4 trillion to Washington each year in individual income taxes. But they are forced to spend even more to pay for another Beltway obligation that never shows up on tax forms. The annual cost imposed by federal rules and regulations now stands at nearly $1.9 trillion. That's according to the latest "Ten Thousand Commandments" report to be released Tuesday by the Competitive Enterprise Institute.

"If it were a country, U.S. regulation would be the world's tenth-largest economy," writes Wayne Crews, the author of this annual accounting of federal red tape. The burden of U.S. bureaucracy works out to a staggering $14,976 per household per year.

In 2013 and 2014, the Journal similarly cited CEI's annual regulation cost estimates of nearly two trillion dollars in total and nearly $15,000 per household. In all three editorials, the Journal compared the cost of federal regulations to the GDP of Canada. [The Wall Street Journal, 5/11/15; 4/16/14; 5/19/13]

Previous Report Was Debunked By Washington Post Fact Checker

Most Recent Report Mimics 2014 Edition Which Admitted Method Of Calculating Costs Was "Not Scientific." The 2014 edition of CEI's report stated that their method for calculating each household's regulatory costs is "not scientific," and that they use a "back-of-the-envelope way of reflecting on the magnitude of regulatory costs." In each of the reports, CEI used the same methodology and claimed that regulations represent a "hidden tax" on American families. [CEI.org, 2015; CEI.org, 2014; CEI.org, 2013]

CEI Methodology Was Debunked By The Washington Post's Fact Checker Blog, Which Called It "Misleading." In January 2015, The Washington Post's Fact Checker blog criticized congressmen for citing the 2014 edition of the CEI report, noting that the report "has serious methodological problems" and that it is "unbalanced" because it only looks at the costs of regulations while ignoring the benefits. The Fact Checker called the total regulation cost cited by CEI "an idiosyncratic guesstimate," and concluded that citing CEI's estimate of each household's share of regulatory costs constitutes "a misleading statement worthy of at least Two Pinocchios." [The Washington Post, 1/14/15]

Experts Similarly Criticized "Hugely Flawed" 2015 Report

Public Citizen President Robert Weissman: CEI Report Is A "Terribly Inaccurate And Unrealistic Guess." Robert Weissman, president of the consumer rights advocacy group Public Citizen, criticized the CEI report's figure for regulatory costs as "a terribly inaccurate and unrealistic guess." Weissman pointed out that the report counts economic costs that have "nothing to do with regulations" to reach its total tally -- including transfer payments related to Medicare benefits and tax compliance costs -- and that much of it relies on a report from the Small Business Administration (SBA) that was "discredited by all independent observers and received so much criticism that it was eventually disavowed by the SBA itself." Weissman also stated that the CEI report's failure to compare the benefits of regulations to their costs "is akin to grocery shoppers deciding to buy no groceries simply because groceries cost money." [Public Citizen, 5/13/15]

Economist "Skip" Laitner: CEI's Methodology Is "Hugely Flawed." John "Skip" Laitner, a former senior economist for the EPA and American Council for an Energy-Efficient Economy (ACEEE) who is now head of Economic and Human Dimensions Research Associates, called the CEI report "hugely flawed" in an email to Media Matters. Laitner criticized the report for leaving out economic benefits "that catalyze a more productive economy" and for making the "inappropriate assumption that every one regulation carries the same economic penalty per dollar of cost, whether it promotes greater car and food safety or whether it is merely an improved reporting requirement":

The higher cost is largely the result of two things. First, the inclusion of many more regulations; and second, the alleged weakening of the U.S. economy as a result of those regulatory costs. The methodology is hugely flawed in two ways. First, it ignores the total benefits that catalyze a more productive economy; and secondly, it appears to make an inappropriate assumption that every one regulation carries the same economic penalty per dollar of cost, whether it promotes greater car and food safety or whether it is merely an improved reporting requirement. [Email to Media Matters, 5/13/15; Energystresstest.com, accessed 5/18/15]

Center for Progressive Reform Policy Analyst James Goodwin: "Policymakers And The Media Would Do Well To Ignore This Report." James Goodwin, a policy analyst at the Center for Progressive Reform, authored a blog post detailing the CEI report's flaws, including that it is "based on several inflated regulatory cost estimates" and uses "a lot of double counting." Goodwin concluded that the CEI report "isn't scholarship," and that "[p]olicymakers and the media would do well to ignore this report." From his statement:

Policymakers and the media would do well to ignore this report.

The report's findings appear to be based on several inflated regulatory cost estimates, lined up and added together to produce exactly what the author likely intended: a huge number. Some of the numbers come from estimates produced by regulatory agencies themselves, which several retrospective studies have shown to be systematically inflated. Others come from individual reports assembled by the author. To the extent that the CEI report is based on several different sources that relied on a variety of different methodologies, there is a large possibility that simply adding them up will result in a lot of double counting, further inflating the CEI report's conclusion. The author of the CEI report, however, appears to make no effort to address this problem either. [Center for Progressive Reform, 5/13/15]

Goodwin previously said in an email to Media Matters that CEI's history of framing regulations as a "tax" while hiding benefits is "obviously calculated to incite anger." [Media Matters, 5/20/13]

NYU's Michael Livermore: CEI Report Is More "An Opinion Piece Than It Is An Analysis." In a phone call with Media Matters, Michael Livermore, senior adviser at New York University's Institute for Policy Integrity, said that the CEI report is "doesn't even attempt to be a scientific analysis." Livermore explained that "a huge chunk of the estimates that [study author Clyde Wayne Crews Jr.] is coming up with" are from a 2001 report by the U.S. Office of Management and Budget (OMB), which Livermore said was discontinued because "the methodology was thought to be so unreliable." According to Livermore, CEI "takes that number and updates it to current dollars." Livermore explained the report's flaws further:

The old, outdated OMB report is a huge percentage of the total that [Crews, Jr.] actually finds ... and then he adds to that an estimate of what paperwork requirements are, and he multiplies that by an hourly figure, and then he uses the annual OMB reports that come out.

[...]

This idea that we're going to look at all regulations collectively, including regulations that have been on the books for decades, and think about their ongoing costs without thinking about their benefits is very silly.

It's not clear that he's actually telling us anything about what the benefits would be about rolling back those rules. It's just not very informative of regulatory policy.

[...]

Part of the problem with an analysis like this is it doesn't tell us anything about the system. He doesn't identify a single rule that should be rolled back. Literally not a single example. His analysis can't provide that information, because it's only looking at costs, not benefits. I'm just not sure what the goal of an analysis like this is, frankly.

[...]

It's more in the nature of an opinion piece than it is an analysis that's new. I wouldn't make any bets about this being even a roughly accurate approximation of what costs are and I'm not even sure that it's telling us anything meaningful. [Phone call with Media Matters, 5/14/15]

What CEI Left Out: Benefits Of Regulations Far Outweigh Costs

OMB: Benefits Of Federal Rules Outweigh Costs. While Livermore noted that the 2001 OMB report was flawed and discontinued, more recent OMB reports show that year after year the economic benefits of the government's major rules far outweigh their economic costs:

OMB report

[Office of Management and Budget, 2014]

NYU Institute For Public Integrity: Cost Of No Regulation Is "Steeper Than The Cost Of Regulating." In a Huffington Post piece co-authored with Richard Revesz, the director of NYU's Institute for Policy Integrity, Livermore detailed some of the ways that regulations provide immense benefits, concluding that, when "compared to the price of weak regulation," regulations are "often bargains that avoid more serious monetary and social expenses":

In November 2010, EPA and the National Highway Transportation and Safety Administration issued a joint rulemaking to regulate pollution from large pickups and vans, vocational vehicles, combination tractors, and heavy-duty engines. These proposed standards are estimated to cost about $7.7 billion, yet they will generate almost 7 times as many benefits ($49 billion).

[...]

When we tally all of the costs of pollution, it is often the case that the price [of] regulation is far less than the social cost of unchecked emissions.

[...]

In these cases, as in so many others, economics shows that stronger protections can be justified -- that the hidden costs of dirty air or unsafe prisons impose a price that is steeper than the cost of regulating.

Strong protections do cost businesses and taxpayers money, but when compared to the price of weak regulation, it turns out that they can be more than worthwhile. After giving them a closer look, regulations that might seem unaffordable are often bargains that avoid more serious monetary and social expenses. [Huffington Post, 2/23/11]

CEI Report Serves The Interests Of Fossil Fuel Companies That Would Benefit From Reduced Regulations

Wash. Post: Competitive Enterprise Institute Has Received Funding From "Fossil Fuel Firms." Although CEI largely does not disclose its donors, The Washington Post reported that it does disclose who sponsors its annual fundraising dinners. The Post noted that in 2013 the sponsors included three conservative foundations connected to the oil billionaire Koch brothers, along with Murray Energy, Marathon Petroleum, Devon Energy, Phillips 66, and the American Coalition for Clean Coal Electricity, writing that fossil fuel firms "rank as generous donors":

Lawson Bader, CEI's new president, said the list shows his group has "a pretty diverse group of supporters." The fact that fossil fuel firms -- and a number of rail companies that transport coal and oil -- rank as generous donors makes sense, Bader said, because CEI has "been working on energy and environmental issues longer than other" Washington groups.

The Post also reported in 2006 that CEI "lobb[ies] against government regulations of all kinds," and noted further industry funding from groups such as ExxonMobil, the American Petroleum Institute, and Arch Coal -- companies that would benefit financially from reduced regulations. [The Washington Post6/20/13The Washington Post, 5/23/06]

Posted In
Environment & Science, Energy, Government
Network/Outlet
Competitive Enterprise Institute
Show/Publication
The Wall Street Journal
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