Regulation benefits and Obama’s new math

Big Journalism’s observation that the Washington Post’s “Fact Checker” column rewrote an column to make it much kinder to the Obama administration has been getting some attention. The column looked at the administration’s defense of its reams of new regulations, originally finding it quite bogus (“three Pinocchios”). Then the column was rewritten to remove the most cutting observations and downgrades it to the lowest rating (“one Pinocchios”). (Via Instapundit.)

Among the facts that were deleted in the rewrite is this one: When comparing the number of pages of regulations between the Bush and Obama administration, “that number doesn’t clarify whose rules have a larger negative impact.”

Obviously, the number of pages of rules gives only a very rough estimate of their impact. (Moreover, other deleted facts called into question whether even the page count comparison was accurate.) The cost-benefit analysis is much more telling.

As it happens, the Economist had an article (subscription required) last month about the questionable calculations that the Obama administration has been making to improve its cost-benefit justification. It turns out that when the administration quotes the benefits of its regulation, almost none of the claimed benefit is the direct result of the regulation:

IN DECEMBER Barack Obama trumpeted a new standard for mercury emissions from power plants. The rule, he boasted, would prevent thousands of premature deaths, heart attacks and asthma cases. The Environmental Protection Agency (EPA) reckoned these benefits were worth up to $90 billion a year, far above their $10 billion-a-year cost. Mr Obama took a swipe at past administrations for not implementing this “common-sense, cost-effective standard”.

A casual listener would have assumed that all these benefits came from reduced mercury. In fact, reduced mercury explained none of the purported future reduction in deaths, heart attacks and asthma, and less than 0.01% of the monetary benefits.

Less than one-hundredth of one percent of the claimed monetary benefits, and no health benefits at all!

So how does the administration get from zero to $90 billion? In two ways. The first is “co-benefits”: the incidental benefit that happens to take place as a secondary effect of the regulation:

Instead, almost all the benefits came from concomitant reductions in a pollutant that was not the principal target of the rule: namely, fine particles.

So the entire benefit of the mercury reduction rules comes from the incidental reduction of an entirely different pollutant that might also take place when the rules went into effect. Clearly:

If reducing fine particles is so beneficial, it would surely be more transparent and efficient to target them directly.

The Economist goes on to note that the administration’s calculation of the benefit of reducing fine particles is completely speculative.

The second way that the administration conjures regulatory benefits out of thin air is “private benefits”:

Economists typically justify regulation when private market participants . . . generate costs—such as pollution—that the rest of society has to bear. But fuel and energy-efficiency regulations are now being justified not by such social benefits, but by private benefits like reduced spending on fuel and electricity. Private benefits have long been used in cost-benefit analysis but Ms Dudley’s data show that, like co-benefits, their importance has grown dramatically under Mr Obama.

They are helping us by making us spend our own money more wisely than we otherwise would. (Thanks guys!) As the Economist observes:

The values placed on such private benefits are highly suspect. If consumers were really better off with more efficient cars or appliances, they would buy them without a prod from government. The fact that they don’t means they put little value on money saved in the future, or simply prefer other features more.

In short, the entire benefit of Obama’s regulations are either dubious secondary benefits or unwanted private benefits.

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