George Washington University Professor Considers the Cumulative Effects of Regulation
Commentary by Bob Zwirb
In an article titled "Considering the Cumulative Effects of Regulation," Director of the Regulatory Studies Center and Professor at George Washington University, Susan E. Dudley suggests that requiring agencies to analyze the expected impact of new regulatory requirements, while important, "may not account for the cumulative effect of regulations on society or specific sectors of the economy." Dudley argues that even if "individually justified," new regulatory requirements "may have cumulative effects imposing undue, unduly complex, or inconsistent burdens."
The article addressed how the cumulative impacts of federal regulations are not only costly but burdensome to businesses and economic growth. Dudley suggested regulatory agencies should explicitly consider costs and benefits of existing regulations in the affected sector and examine actual impacts to supplement the ex-ante estimates. Rather than conducting economy-wide studies, she pointed out, it could be more effective to study certain classes of regulation or the burdens felt by certain sectors as a way to yield important insights. Dudley also recommended examining the total cost of regulations on society as a whole and investing in developing better tools for understanding the aggregate impact of regulations.
See: Dudley's "Considering the Cumulative Effects on Regulation."
Related news: FRB Announces Quantitative Impact Study on the Effects of Its Revised Regulatory Capital Framework (September 30, 2014); Senator Crapo Submits Letters to SEC, CFTC and CFPB Regarding Review of Outdated Regulations (with Zwirb Comment) (October 23, 2014).
Commentary
This article by Professor Dudley, former Director of OMB's Office of Information and Regulatory Affairs (OIRA), demonstrates the importance of analyzing both the expected or ex ante effects of proposed rules and their actual or ex post effects. Currently, agencies such as the CFTC are only required to "consider" the former, and even then not in an analytical way. Too often regulatory agencies adopt new rules without engaging in a conscientious effort to anticipate their costs, and then compound that error by ignoring evidence of how such rules work in the real world after they take effect. To carry out this function in a meaningful way, agencies should also engage in an analysis of the impact of rules after the fact. As economist and Nobel laureate George Stigler once observed, "if we cannot measure the effects of policies, the society is incapable of rational behavior—rational behavior is behavior appropriate to the ends in view, and means cannot be appropriate if their effects are unknown."