WASHINGTON (Reuters) – Republican lawmakers voiced optimism on Wednesday that they could work with President Barack Obama to cut spending and boost trade, even as they unveiled a plan targeting key White House spending goals.
Having voted to repeal health care legislation, House Republicans have now taken aim at government regulations, describing efforts to protect people and the environment as “job-killing.” This claim conveniently papers over the fact that it was the lack of regulation of Wall Street that tanked the economy and caused the current downturn. But nonetheless, seeking rhetorical points to boost their anti-regulations campaign, House Republicans are trumpeting a recent report, done for the Small Business Administration’s Office of Advocacy. The report, authored by Nicole Crain and Mark Crain, claims that regulation cost the U.S. economy $1.75 trillion dollars in 2008. Upon examination, it turns out that the estimate is the result of secret calculations, an unreliable methodology and a presentation calculated to mislead.
Crain and Crain’s $1.75 trillion estimate is far larger than the estimate generated by the Office of Management and Budget (OMB)—the official estimate of the aggregate costs and benefits of federal regulations prepared annually for Congress. The 2009 OMB report, based on data from federal agencies under the Bush and Clinton Administrations, found that in the ten years ending in 2008 annual regulatory costs ranged from $62 billion to $73 billion (converted from 2001 into 2009 dollars). Crain and Crain attribute this massive difference to the fact that their report considers many more rules than do the annual OMB reports, including rules with estimated costs less than $100 million, rules that were put on the books more than 10 years ago, and rules issued by independent regulatory agencies.
A new report today by the Center for Progressive Reform, “Setting the Record Straight: The Crain and Crain Report on Regulatory Costs,” shows that much more is at work than that. In areas where the OMB and Crain and Crain calculations overlap, Crain and Crain use the same cost data as OMB, but, unlike OMB, which presents regulatory costs as a range, Crain and Crain always adopt the upper end of the range for inclusion in their calculations. More significant, Crain and Crain’s calculations for the regulations not covered by OMB’s report appear to be based largely on a decidedly unusual data source for economists – public opinion polling, the results of which Crain and Crain massage into a massive, but unsupported estimate of the costs of “economic” regulations. Because Crain and Crain have refused to make their underlying data or calculations public – apparently even withholding them from the Small Business Administration office that contracted for the study — it is difficult to know precisely how they arrived at the result that economic regulation has a cost of $1.2 trillion dollars, comprising more than 70 percent of the total costs in their report.
Nevertheless, their calculations inspire great skepticism. For one thing, as noted, their numbers are based on the results of public opinion polling, specifically a poll concerning the business climate of countries that has been collected in a World Bank report. The authors of the World Bank report warn that its results should not be used for exactly the type of extrapolations made by Crain and Crain, because their underlying data are too crude.
But the bigger issue, and it’s a real howler, is that the Crain and Crain report completely ignores the other side of the ledger – the economic benefits of regulation. According to that OMB report from 2009, in 2008 the total benefits of regulation ranged from $153 billion to $806 billion, as compared to total regulatory costs of $62 billion to $73 billion (all figures were converted from 2001 to 2009 dollars.) And CPR has in the past demonstrated that OMB reports underestimate benefits and overestimate costs.
That means that regulations are an economic plus for the economy. And if you think about it for a second, that makes a lot of sense. Regulations generally don’t get approved today if the projected economic benefits don’t exceed the projected costs. Mind you, I’m no fan of the cost-benefit analysis that OMB applies. It’s slanted in favor of industry, accepting industry cost projections at face value, even though industry has every reason to furnish worst-case numbers. Neither does OMB’s methodology account well for items that defy monetization – the value of keeping people healthy rather than simply treating their pollution-caused illnesses, or the value of a great view from the top of a mountain that hasn’t been shorn clean by mountaintop mining. But even allowing for those shortcomings, all of which accrue to the anti-regulation side of the ledger, almost all regulations have greater economic benefit than cost.
But neither the Small Business Administration’s Office of Advocacy nor the economists they hired to conduct their study, Crain and Crain, show the slightest interest in those inconvenient facts. Neither for that matter, do the anti-regulatory forces gathering on Capitol Hill.
That determined bit of ignorance might have interested one of the nation’s greatest boosters of deregulation, Ronald Reagan, whose 100th birthday the nation marked this weekend. He liked to say that “facts are stubborn things.” And the fact is that regulation is a net plus for the economy that helps protect Americans from a variety of environmental, health, safety, workplace, economic and other hazards. The opponents of regulation would love nothing more than to re-litigate all the battles they’ve lost over the years on health, safety, the environment, worker safety, economic safeguards, and more, with the simple goal of rolling back progress on multiple fronts with one swoop. They’re free to try, but at the very least, they owe the American public an honest accounting.
The SBA’s report isn’t it. So in addition to the CPR report today describing the failings of the SBA study, I’ve also sent a letter to the SBA and to its Office of Advocacy calling on them to withdraw SBA’s sponsorship of the fatally flawed Crain and Crain report.
Crossposted with www.TheGreenGrok.com.
The new chair of the House Committee on Energy and Commerce waxes fondly about the Gipper. Oh boy.
February 6th would have been President Reagan’s 100th birthday. Fred Upton (R-MI) used the occasion to reflect on the lessons we can learn from the energy policies of the president affectionately known as the Gipper. Legend has it that Reagan acquired that nickname for his 1940 portrayal of George “win just one for the Gipper” Gipp, the famed Notre Dame football player from the Upper Peninsula. Another bit of the Reagan legend — a bit that the good representative from Michigan’s sixth district and chair of the House Energy and Commerce Committee is touting — is that the 40th president’s energy policies were a huge success. Let’s take a look.
In Upton’s view, many of our energy problems would be solved if we would just adopt the policies of the Reagan administration. The Michigan congressman wrote recently in the Detroit News:
“Reagan inherited all the energy policy mistakes of the 1970s — a decade in which every energy challenge was met with ill-advised federal programs and mandates. … Just one week after his inauguration in January 1981, Reagan issued an Executive Order sweeping away this market interference. Lamenting that ‘restrictive price controls have held U.S. oil production below its potential,’ Reagan said that eliminating them ‘is a positive first step towards a balanced energy program.’ Within a few years, domestic oil production went up — and prices went down. Affordable energy helped usher in a quarter century of phenomenal economic growth.”
Contrasting his praise of Reagan’s energy vision with complaints about Obama’s policies — which the Michigan congressman describes as being “straight out of the 70’s playbook” with its “digs at oil producers” — Upton advises the administration to “remove the obstacles to domestic oil production and put an end to EPA’s global warming regulatory overreach.” In passing, Upton trashes the government’s attempts to jump-start alternative and renewable energy sources, noting that “Reagan never assumed that central planning would replace the … free marketplace.”
Recalling Reagan’s great rejoinder to the accusation during the presidential debates of getting something factually wrong, I say to you, Congressman Upton: “There you go again.”
Let’s look at the facts. The chart below illustrates the trends in U.S. oil consumption and production since the 1970s (the difference in the two is the amount of oil imported). It is true, as Upton claims, that U.S. production increased modestly during the first Reagan administration. This period saw a huge drop in consumption as well.
Source: U.S. Energy Information Administration (from data here and here).
|Trends in U.S. oil consumption (red area) and production (blue) between 1970 and 2009. The difference in the two is the amount of oil imported. Note the slight upward trend in production and downward trend in consumption in the late ’70s and early ’80s. But by the beginning of Reagan’s second term, those trends had reversed.|
The problem is that these trends began well before Reagan took office. How can Mr. Upton look at these data and infer that Reagan administration policies caused the modest uptick in domestic oil production?
Could it be that he is really a closet physicist and is invoking a strange-particle-mediated quantum-entanglement time-warp wormhole to allow policies invoked in 1981 (when he took office) to affect oil production in the 1970s? Not.
If we reject the wormhole thing, what can possibly explain the uptick in production (and downward trend in consumption) that began in the 1970s? I think it’s pretty obvious and I suspect most economists would agree with me. Both were almost certainly in response to the huge oil shock the country experienced. Skyrocketing prices stimulated more production and encouraged consumers to use less.
If you’re not convinced, take a look at what happened in the mid-80s as prices declined. Right in the middle of the Reagan presidency (and its supposedly enlightened free-market policies), U.S .production began to decline, while consumption (and oil imports, by the way) climbed. This trend, which began in the Reagan years, has continued more or less unabated (until the recession of 2008/09).
In 1973 President Nixon launched Project Independence with the goal of making the United States energy independent by 1980. Instead of meeting that goal, he and every president since (with the possible exception of Jimmy Carter*) has presided over an energy policy that has placed us ever more dependent on foreign oil and — because oil is a fungible, global commodity — ever more dependent on one of the most unstable and anti-American regions of the world. During the early years of the Reagan administration things were moving in the other direction, but the policies the administration adopted either failed to prevent them from reversing, at best, or caused them to reverse, at worst.
When it comes to energy, many would agree we’re in a pickle — and a pickle we would like to get out of. How to do this? We can and will, no doubt, have a healthy debate about that. And while some would have it otherwise, climate change must be part of that debate. But the one thing we don’t want is to allow nostalgia for the Gipper to seduce us into following policies that help set in motion the forces that got us to where we now find ourselves.
* Jimmy Carter is the only president in this time period to leave office with growing domestic production as well as declining consumption. This is a fact, and there is no claim intended that Carter’s policies did or did not cause these trends.
Fiscal matters have taken center stage in Washington and important deadlines are approaching. Although President Obama will release his much-anticipated fiscal year 2012 budget proposal next Monday, Congress will be focused on more immediate budget and deficit concerns in the coming weeks. Government operations for the current fiscal year 2011 are only funded through March 4. The national debt is expected to hit its limit between early April and the end of May.
My friends at DCTipwire forecast that Congress will raise the debt limit, when and by how much remain open questions. The battle over a government shutdown and debt default is escalating as Democrats and Republicans are intertwining the two in a game of chicken over their respective fiscal positions. Republicans are pushing for immediate cuts, the more conservative among them are looking to rollback spending to fiscal year 2008 levels, or $100 billion less than current spending. With unemployment still at a 9 handle, congressional Democrats are arguing that cutting too much too fast would choke off the economic recovery. While the drama will begin to intensify later this week, expect things to come to a head in March. And the end game and ultimate compromise — and associated negotiations process — will be very telling about the new power dynamics in Washington.
Senate Republicans continue internal negotiations on what legislative initiatives they will seek to tie to raising the nation’s debt limit. A debt limit vote could come as early as March, although the nation is not projected to reach the current debt limit until April or the end of May.
Some Senate Republicans will seek to tie one of several balanced budget amendment proposals to the debt limit increase, although other senators have advocated for spending cuts or other fiscal proposals they deem to have a more realistic chance of passage, since passage of any of the balanced budget proposals would require 67 Senate votes. In 1995, the Senate came within one vote of passing a balanced budget amendment, but in 1995, Republicans held six more Senate seats than they do now (53 vs. 47) and had actively and specifically campaigned on the proposal only months before. Per DCTripwire, Republicans would need to convince 20 Democratic Senators to vote with them — almost half the Democratic Caucus.
Tea Party Power
An internal Republican divide has further complicated their Party’s negotiating position. Some Republicans are unlikely to vote for increasing the nation’s debt limit no matter what victory Republicans might secure in exchange. A number of Republicans have argued that increasing the nation’s debt limit is unnecessary because Treasury receipts are more than enough to cover current debt payments; to meet the nation’s debt obligations without increasing the debt limit, deep spending cuts in other budget items would become necessary–an outcome many fiscal hawks support and have been unable to accomplish through other legislative means. In an ominous sign, legislation has been filed in both the House and Senate to prioritize debt payments to creditors over other Federal spending should the debt limit not be increased before it is reached.
In the House, budget negotiations have also exposed a rift within the Republican Caucus between those proposing steep budget cuts for FY11 and those who advocate a starting position closer to where the Senate is likely to end up.
One practical difficulty confronting House Republican Leaders who a few months ago spoke of freezing FY11 discretionary spending at FY08 levels is that the fiscal year will be almost half over by the time any spending cuts would be put into place. This means cuts which would ordinarily be averaged over a year’s time frame will appear twice as steep to agencies having only around half that time in which to absorb them.
In order to try and shield fiscal conservatives from this difficulty, House Republican leaders will attempt a two-track approach where conservatives will be able to offer spending cut amendments to a bill making more moderate cuts. House leaders are also deviating from the typical procedure whereby the House Rules Committee determines which amendments may be offered to a bill and instead will use an “open” amendment process–meaning that Members of both parties will have free reign to attempt to advance budget savings ideas.
Young Guns Not So Fast
Some leading Republicans are also recalibrating their promises in the context of the shortened fiscal year. House Budget Committee Chairman Paul Ryan (R-WI) is floating the idea of cutting spending in the base House Republican budget proposal by around $32B instead of the $100B Republicans promised in their “Pledge to America” released shortly before the 2010 elections, arguing that the $32B in savings is almost twice as large as it appears given the shorter time frame in which cuts to Federal agencies would occur. Other Republicans though are pushing back against the idea of prorating FY11 spending reductions, including Rep. Jim Jordan (R-OH), Chairman of the Republican Study Committee and lead sponsor of the recently-released “Spending Reduction Act,” which would cut $2.5 Trillion from Federal budgets over a 10-year time frame. Jordan has powerful voices in his camp, including House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises Chairman, Scott Garrett (R-NJ), who as an ally of House Speaker Boehner, recently secured a term-limits waiver to continue in the informal leadership of the Budget Committee which Ryan chairs.
The base Republican proposal will come in $32B under the current Federal budget, based on the continuing resolution funding the government until early March. House Republicans have attempted to make this cut sound more significant by comparing it to President Obama’s FY11 budget request. Compared to the President’s request, the base Republican plan would save $74B ($58B in non-security discretionary spending and $16B in security-related discretionary spending), although it is unclear that the President would have secured his full funding request in this legislative environment. Conservative lawmakers hope to use the House’s open amendment process to tack another $42B in non-security discretionary spending to the base House bill. Complicating enactment of further savings is the distinct possibility that lawmakers will extend the current continuing resolution, forcing Federal agencies to absorb any cuts in an even shorter time period than anticipated. Democratic leaders in both chambers have already blasted the Republican savings proposals, but the large number of Senate Democratic Caucus Members (23) up for re-election in 2012 swing states, may provide Republicans needed votes to enact savings compared to the continuing resolution.
While House Republicans continue to decide how to implement their pledge to freeze discretionary spending at FY08 levels, President Obama endorsed a five-year FY10 discretionary spending freeze. In the Senate, Senate Budget Committee Ranking Member Sessions (R-AL) has intimated his belief that any cuts lower than FY09 levels will not be enacted into law (discretionary spending was about $75B higher in FY2009, not including stimulus and other “emergency” spending). By some estimates, a freeze of discretionary spending at FY08 levels going forward would represent a 20% cut from FY10 levels, when adjusted for inflation. This, however, is not completely unprecedented; in President Clinton’s second term, a similar spending freeze amounted to real dollar cuts of approximately the same magnitude — but over a four-year period. The current baseline Republican House budget proposal would instead shave an estimated prorated 9% in discretionary spending from Federal agency budgets compared to the current spending levels.
BOTTOM LINE: Fiscal hawks will attempt to secure additional cuts during the budget amendment process which House Leaders hope to begin during the second week in February — coinciding with the release of the Obama Administration’s FY12 proposed budget. From there, the Senate will have to work quickly — and reach an agreement acceptable to the House. More likely, Congress will have to extend the current continuing resolution funding the government that expires March 4. If spending cuts requisite to satisfy House Republicans do not emerge from the Senate — where Democrats control the budget process — the negotiations on any debt limit increase will become more complex as Republicans hope to use that vote for further fiscal reforms.