Opinion: A think tank shows how not to measure the cost of regulations

The American Action Forum, which describes itself as a “center-right” think tank, issued a report Tuesday estimating that regulations issued by the Obama administration “will increase consumer prices by more than $11,000.” That number is likely to raise your blood pressure -- that’s the point of the report, after all -- until you consider what you’re getting for your money.

Oh, wait -- there’s nothing in the report about that. In fact, it doesn’t even acknowledge that regulations might have some benefit, whether it be lower fuel or energy bills, less toxic air or a lower risk of violent death.

And that’s the problem with much of the debate over the regulatory burdens government imposes on the public. Critics are right to complain that advocates of expansive federal regulatory efforts, such as the 2010 Affordable Care Act and the federal clean air and water laws, are blithe about the costs imposed. But the real question isn’t whether there are costs, it’s what the net cost is -- the difference between the costs and the benefits.

And you can’t answer that question if you set the benefits’ value arbitrarily at zero.

The American Action Forum’s report looks at the 36 “economically significant” regulations for which the government had quantified the cost. More than half of the cost it found -- $6,000 -- stems from the estimated increase in the price of a $100,000 “combination tractor” because of emissions and fuel economy rules issued by federal agencies in 2011. Setting aside for the moment that combination tractors aren’t exactly a commuting vehicle, the report doesn’t even attempt to estimate the life-cycle fuel savings that the higher fuel-economy standards would achieve.

When you think about it, higher fuel-economy standards simply front-load some of the cost of driving a vehicle. For those who drive a lot, the savings over time offset the increase in the selling price (provided there is no reduction in crashworthiness, which is arguably an issue). Commercial trucks would seem to fall into that category.

But when the agencies published the rule, they did more than just estimate the increase in the price of vehicles using the heavy-duty engines that were its focus. They also estimated the savings in terms of fuel use and public health. The fuel savings alone were expected to be almost five times the rules’ cost by 2020, and the health and other public benefits four times the cost.

We can argue about the methodology used in these estimates, and it’s certainly safe to assume that regulatory agencies underplay the costs and overplay the benefits. Yet there’s no defending the American Action Forum’s approach, which was to accept the agencies’ cost estimates but ignore the benefit calculations.

The American Action Forum’s one-sided research led it to report, without skepticism, that the healthcare law added only about $88 per year to the cost of an insurance policy. But then, it looked at only two of the law’s manifold requirements: that insurance plans cover preventive services with no out-of-pocket costs, and that insurers ignore an applicant’s pre-existing conditions when setting rates. Are those two features worth a little less than $90 a year? If you’re young and blessed with good health, maybe not. But for the typical insurance buyer, $7.50 a month seems a small price to pay for those things. And because the price of those mandatory features is set by a competitive insurance market, in theory they’re worth exactly what people are paying for them.

Again, proponents of government intervention devote too little attention to the cost of the fixes they impose, as if their good intentions made such considerations irrelevant. So groups such as the American Action Forum can improve the policy debate by shining a spotlight on those expenses. But it’s hard to take them seriously when they present the cost of regulations as if that’s the end of the story.