December 1, 2011

What The GOP Thinks We Can Do Without

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Texas Gov. Rick Perry, in announcing his candidacy for the GOP presidential nomination, closed with a catch-phrase that seems to have caught the essence of the anti-big government, deregulation ideology.

“I’ll promise you this, he said. “I’ll work every day to make Washington, D.C., as inconsequential in your life as I can.’”

The following day, former Minnesota Gov. Tim Pawlenty dropped out of the race after campaigning throughout Iowa with the tagline “Get the government off my back!”

As the campaign moves into its final weeks before the Jan. 3 precinct caucuses – the first official test of the candidates’ viability – all of the contenders have fought to appear the strongest deregulation advocate with mixed results.

Deregulation itself produces consequences, experts say, and, according to the polls, advocating that position doesn’t guarantee electoral success.

Perry advocates eliminating three departments, and he’s falling in the polls. U.S. Rep. Ron Paul urges eliminating five agencies and former Speaker of the House Newt Gingrich recommends dissolving the Environmental Protection Agency, and both have been rising in the polls in Iowa.

Deregulation has been a mainstay of the Republican platform since President Reagan said that the nine most terrifying words in the English language are:  “I’m with the government, and I’m here to help.”

But in this campaign season, the Republican platforms have moved farther right toward outright libertarianism, including suggestions such as the unraveling of all 2008 and 2009 post-crisis financial regulations, re-evaluation of labor standards and elimination of the EPA.

Former Massachusetts Gov. Mitt Romney, although having scant following among Tea Party supporters, proposes the most specific and comprehensive plan for de-regulation of the GOP candidates in his official economic platform, “Believe In America:  Mitt Romney’s Plan For Jobs and Economic Growth.”

A starting point of his argument is a chart showing how the economy is burdened by $1.75 trillion in government regulations. That figure was developed in September 2010 by consultants Nicole V. Crain and W. Mark Crain the Office of Advocacy within the Small Business Administration (SBA), an independent federal agency that advocates for free enterprise and small business concerns.

The Office of Management and Budget disputed the $1.75 trillion figure, saying it totaled the highest estimates from various categories of regulation. It said that many costs are double-counted and that judging the cost of regulations more than 10 years old is a questionable exercise. Many of the regulations cited are 20 to 30 years old. For instance, certain business regulations become less of a burden as they eventually become accepted industry practice.

Crain and Crain, authors of the study that Romney cites as a basis for his economic proposals, said in a 2011 email to the Congressional Research Service, the independent research arm of the U.S. Congress, that their report was “not meant to be a decision-making tool for lawmakers or federal regulatory agencies to use in choosing the ‘right’ level of regulation.”

“Taking for a moment that it [the Crain study] is true, to ignore the benefits of regulations is one-sided,” said University of Iowa economics professor John Solow.

John Solow

The Crain report states in the first pages:   “This report does not address the benefits of regulation, an important challenge that that would be a logical next step toward achieving a rational regulatory system.”

In 2008, during the administration of former Republican President George W. Bush, the Office of Management and Budget presented such a cost-benefit analysis to Congress that found government regulation as a positive factor in economic growth.

Forty major rules from the EPA are given a high-end annual cost estimate of $40.8 billion. The low estimate of the annual benefits of EPA regulations are added up to $87 billion. The Department of Health and Human Services has an expected benefit of $20.5 billion at a cost of $4.3 billion.

The only two regulating agencies that aren’t shown to be clearly in the black are the Department of Homeland Security and the Department of Agriculture.

Solow suggests that there is a valuable debate that should be had regarding regulations, but he said extremism is not very helpful.

The Weight of Dust

“The question is do we have more or less,” Solow said. “Pharmaceuticals have to be safe, and that’s very expensive, but that doesn’t tell you much.”

He said thalidomide is good example of the need for regulations. It was a drug developed to treat morning sickness that resulted in thousands of reported cases of severe birth defects such as babies being born with flippers as well as fatal conditions. Cases were reported in Japan, Britain and several other countries during the ‘50s and ‘60s. Solow credits America’s FDA procedures with largely protecting the United States from this tragedy.

A frequent argument for why regulations are unneeded is that the power of the free market will drive choice.

“The difference is people have a choice,” Solow said. “We can’t individualize for air quality.”

Jerald Schnoor

Romney, with other GOP candidates, has promised to repeal “Obama era regulation.” As civil and environmental engineering professor Jerald Schnoor described the situation in a phone interview, the administration’s effect on regulation is more subtle than opposing candidates often describe.

 What is the most significant change to come from the Obama approach?

“I would say the approach to rulemaking,” said Schnoor.

For instance, the Bush Administration delayed changes in mercury regulations, whereas the Obama administration made that scheduled update a priority and moved it up the calendar.

The environmental policy that Republicans have consistently used to attack Obama is the cap-and-trade system of reducing industrial emissions, what Schnoor describes as “a very novel system” of regulation.

A spike in controversy came when it was suggested that carbon dioxide be added to the list of toxins that need to be accounted for in cap-and-trade. In 2009 the Supreme Court,–one of the most conservative in the court’s history—ruled that the EPA had to do an endangerment assessment to determine whether carbon dioxide poses a risk to Americans’ health.

Romney and former Utah Gov. Jon Huntsman have suggested that greater congressional oversight is needed to reign in expansion of new agency regulations.

“What bothers people are that these people are not accountable,” said Michael Ralston, the executive director of the Association of Business and Industry in Des Moines. “Most business people face a heavy set of regulations, but that doesn’t mean they’re not needed.”

A preferable system, as Ralston describes it, would put congressional leaders in charge of rulemaking. Professional public servants – the often referenced rule-making bureaucrats – would then take an administrative role.

“What makes anyone think congressmen will pass more rational regulations?” By changing policy in that way, Solow said, “we’re changing how interest groups bring pressure to bear.”

The concern that Solow has is that with congressional oversight, regulations will not be created and eliminated by professional experts in a given field of the environment, education, labor, finance or so on. Those decisions would be increasingly made by senators and representatives who have concerns over fundraising and re-elections.

“It’s a balance of power — a tug-o-war,” said Schnoor, “so Congress could legislate the EPA to not make rules. It could be challenged in the Supreme Court. I suspect it would be struck down.”

GOP candidates, including former House Speaker Newt Gingrich, have said that the EPA is out of hand and out of touch, using an example of the agency regulating dust on dirt roads.

The dust issue surfaced in August last year when, in accordance with the Clean Air Act, the EPA reviewed standards and recommended possibly lowering standards from 150 micrograms per cubic meter to between 65 and 85 micrograms per meter – a measurement that would include dust and ash.

  As an agency, the EPA’S National Ambient Air Quality Standards shows that it is not concerned with dirt roads in particular. It works with scientific measurements of how much “stuff” can be in the air and still be called clean, healthy air. The Ambient Air Quality Standards has six categories of possible pollutants:  carbon monoxide, lead, nitrogen dioxide, ozone, sulfur dioxide and particle pollution.

Regulating dust on a dirt road may be laughable, but dust mites are linked with cases on asthma.

Asbestos, although widely recognized as a hazardous material, is a versatile and effective insulation material, but its dust is dangerous.

The dust that comes from asbestos has been linked with thousands of deaths from asbestosis and mesothelioma, according to the Centers For Disease Control.

“There is always a risk-benefit analysis equation that needs to happen,” said Ralston. “Every time a regulation is introduced you have to do that analysis.”

How Free Do Finances Flow?

Government agencies regulating cancer-causing hazardous materials is relatively uncontroversial. But regulating the financial sector to protect the long-term health of the economy and consumers has become the target of Republican candidates.

Romney’s economic plan calls for the repeal of the Dodd-Frank Act and other regulations that followed the financial crisis.

“The government gave itself an open check book to write ambiguous regulations that have left our businesses and households uncertain of their obligations and uncompetitive in a global marketplace,” says Romney’s “Believe in America” economic plan.

William C. (Curt) Hunter, dean of the University of Iowa Tippie College of Business, concedes that regulations

William C. Hunter

are voluminous.

“People say it’s too complicated, too much is being asked, and that a lot of these regulations …may be well-intended, but we don’t know their consequences,” Hunter said in an interview.

As a matter of nature, Hunter said, it takes time to determine the difference between the intention of a regulation, how people react to a regulation and the final results.

“Now people are saying:  ‘You put too many regulations in place,’ but they actually haven’t been implemented yet. So it’s kind of funny that they’re saying ‘these regulations are onerous,’ but they haven’t written a lot of the rules yet.”

After the financial collapse of 2008, “the country was begging for something to be done,” Hunter said.

One major goal of the Dodd-Frank Act was to forcibly limit risk-taking in the financial industry, but opponents worry that a limit on risk will limit the size of returns. As well, there is a question of whether America’s competitiveness will be affected if it is the only nation playing by these rules.

“Europe has been in a pickle in much the same way as us, and they’ve responded like in Britain, where they’ve created very restrictive rules, to the point that commercial banking and investment banking have been separate,” Hunter said.

If regulation policy is reversed, as GOP candidates propose, and Obama-era financial regulations are repealed , Hunter said he does not expect foreign investors to avoid the American market.

Although the U.S. economy is stable, Lafayette College economics professor Nicole Crain can imagine a breaking point where that central stability could be risked if regulation policy is changed radically.

“It is easy to imagine, even if unlikely to happen,” Crain said in an email to IowaWatch. “For example, in the unlikely event we put stringent limits on the ability of foreigners to take their money out of the U.S., then foreign investors likely would think twice about investing in the U.S.”

The U.S. economy has developed substantial financial security, which is why investors still put their money in the U.S. Treasury after an S&P downgrade. A Bloomberg News report from November 21 supports this view, reporting that foreign deposits at the Federal Reserve have more than doubled since 2010, from $350 billion to $715 billion. The U.S. remains the largest and one of most trustworthy economies in the world.

“Our regulations may be messy,” Hunter said, “but they’re the best in the world.”
(Jonathan Stefonek is a graduate journalism student at the University of Iowa’s School of Journalism and Mass Communication)

 

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