The White House hits back at the Economist on regulations

at 02:25 PM ET, 02/22/2012

The Treasury Department has penned a sharp response to the Economist’s cover story faulting Obama for ushering in a nightmare regime of burdensome regulations. “Anecdotes don’t constitute systematic evidence, and the article notably lacks credible facts on the overall costs and benefits of regulation,” says Jan Eberly, assistant Treasury secretary for economic policy. “There is a serious discussion to be had on this topic, but not based on the articles in last week’s issue.” More specifically, she blasts the magazine for citing just one quantitative study that’s long been criticized for using flawed methodology.
((Kellogg School of Management))

The 2010 study in question was commissioned by the Small Business Administration, and it concludes that the annual cost of federal regulations exceeded $1.75 trillion in 2008, burdening small businesses by $10,585 per employee — 36 percent more than big firms.

Eberly, in her critique, argues that the authors of the study — two economists from Lafayette College — had misused data from the World Bank that assumed “higher quality” regulations are less stringent ones. In fact, the independent Congressional Research Service talked to the World Bank officials behind the original data, who agreed that the Lafayette researchers had misused their findings — ultimately overstating the cost of regulations.

Perhaps more importantly, the SBA-commissioned study does not factor in any of the benefits of regulations, economic or otherwise. (According to the CRS, the Lafayette researchers say that the SBA had not asked them to do so.) Eberly voices this complaint as well in evaluating the magazine’s take on Dodd-Frank, which I critique here. In fact, this isn’t the first time that Eberly has waded into the fight over regulations: Shortly after joining the White house, she argued against the idea that “regulatory uncertainty” is holding back the economy.

That said, the Economist does acknowledge that “the overall cost of regulation is unknown, and measurement controversial.” More helpfully, it also offers some constructive alternatives to measuring the costs and benefits of regulations, citing former Obama official Michael Greenstone’s proposal to create “a non-partisan congressional oversight body using the best evidence available to vet regulations, much as the Congressional Budget Office vets fiscal policy.”

Despite the sharp tone of its letter to the Economist, the Obama administration has also proved highly sensitive to the potential cost of regulations to businesses, even as it touts the benefits. The Consumer Financial Protection Bureau, for instance, has gone out of its way to solicit feedback about how its pending mortgage regulations will affect small businesses.

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