Cost-benefit analysis, applied to regulations, is a crock.

[Sam_Stone]

Imagine if you could set a cap on the total number of regulations you could have. Let’s say it’s 1000. Once you get to 1000 regulations, you have to delete old ones to have new ones. Forget why the cap is there - let’s say space aliens imposed it. But there it is.

Now, as a good progressive you want effective regulation of business. But you’ve got that pesky cap to worry about, so every new regulation you propose has to be measured against all the other regulations, because you’re going to have to kill an old one to bring in the new one. How would you do that?

You’d apply cost-benefit analysis. You’d try to figure out if the new regulation provides a greater societal benefit than any of the old ones. You’d find the weakest old regulation in terms of social benefit, and you’d see if the new one is better than that. If it is, you repeal the old one and put in the new one. And the overall value of your regulatory pool just increased.

Over time, you’d have 1000 really good, really useful regulations. The ones that help the most people, or avoid the most risk.

Now, there is no hard cap on regulations, but there is clearly a limit to how much regulation a society can stand before it starts to decline. Regulate an industry too much, and that industry will shrink and lose jobs to foreign competitors or competing products. Regulate an economy too much, and you’ll choke off GDP growth and over time your people’s standards of living will decline.

So even people who value regulation and think that government has a strong role in using regulation to improve society should still be interested in making sure that ineffective regulations or regulations that impose more cost than benefit are not passed. Because ultimately the society’s tolerance for more regulation will be determined by their perception of the value of current regulation.

The health care bill is a perfect example - the Democrats threw in crap like the 1099 requirement, which made people cynical of the entire package, and now it is unpopular and the Democrats lost the House and the country will be much less willing to tolerate more huge regulatory proposals. Cap and Trade is probably dead, and the ham-fisted way the health care bill was passed is in part responsible for that.

Everyone has a vested interest in making sure that regulations return more in value than they cost in lost productivity. Perhaps progressives more than anyone else should care about this, because they need the support of society for more regulation. If you pass every regulation that someone manages to conjure up in Congress, eventually you’ll lose all your credibility, kill economic growth, and ensure that the next time a regulation is really needed there will be no political will to pass it.

[sleestak]

@foolsguinea

Resolved: When it comes to regulation, cost-benefit analysis is arbitrary, & stupid if not disingenuous.

If one is talking about government expenditure as such, then cost-benefit analysis might be meaningful, though it still runs into the question of how one counts benefit.

But it is ridiculous beyond belief to say that we should dump regulations or laws because they cost private citizens or companies too much & benefit those same companies too little. Laws aren’t there to maximize a private individual’s profits, but to promote the general welfare.

What happens when a regulation is passed that hurts the general welfare? Would you want it repealed? If you would oppose it, how would you decide that it is actually hurting the general welfare?

Slee

[Voyager]

@Sam_Stone

So even people who value regulation and think that government has a strong role in using regulation to improve society should still be interested in making sure that ineffective regulations or regulations that impose more cost than benefit are not passed. Because ultimately the society’s tolerance for more regulation will be determined by their perception of the value of current regulation.

The problem here, and it is a common one, is that this calculation is a lot harder to make than it seems. In papers on engineering decision making we see a nice thin line for cost, and a nice thin line for benefit, and it looks easy to determine where they cross and which decision to make. In reality there is a small uncertainty region around the cost, and a big uncertainty region around the benefit. Where you place the benefit depends strongly on your political views (or optimism for engineering issues.) Since much of the benefit will be in the future, you are never going to be even close to accurate.

Even the value of current regulations is not easy to compute. We used to compute the benefit of cost reduction (simple) and cost avoidance (quite fuzzy and easy to play with.) There are no-brainer bad regulations, and no-brainer good regulations, but a lot of them are going to be in the middle, and that even goes for existing ones. I was in the hills of LA a few weeks ago and could actually see the city. How do we quantify this benefit of regulations reducing the amount of smog?

[furt]

@SteveG1

I thought business was all libertarian and was against government interference. If so then they should be glad government does not guarantee profit. That would be a form of welfare, and business keeps saying welfare is bad.

Um, no. Not even close. Most large corporations are quite in favor of government intervention into the market, as they can and will leverage said intervention against their competitors or against the consumer. Ever heard of “corporate welfare?” (and when did “business” ever say “welfare is bad?”)

Smaller businesses tend to oppose government interference in general, because they know such interference will rarely benefit them.