One is the loneliest number that you’ll ever do. Two can be as bad as one, it’s the loneliest number since the number one.
Three Dog Night was correct in saying that two can be as bad as one in the 1969 song written by Harry Nilsson.
A recent report card by the Mercatus Center graded the quality and use of federal regulatory analysis across 148 different regulations promulgated since 2008, using a scale from zero to 30 (with a rating of 30 indicating that a truly sound analysis was conducted) and found that the quality actually ranged as low as a two (which can be as bad as one according to Three Dog Night). In fact, 11 of the 148 regulations had an analysis that scored below a five, and nearly two-thirds of the regulations examined had a regulatory analysis that scored below a 15. Only one (an analysis of regulations on greenhouse gas emissions from light duty vehicles performed by the EPA and the National Highway Traffic Safety Administration) scored above 25.
If anyone is interested in why the U.S. economy is stagnating, unemployment figures are high and the debt continues to creep upwards of $17.5 trillion, you really need look no further than the economic impact of poorly designed and enforced regulations. This is why federal agencies should ensure that a proper analysis is performed to make sure that regulations both make sense and are cost effective. In its scorecard, the Mercatus Center used a scoring system that examined six distinct areas:
- First, the graders examined if the regulations dealt with a problem that markets could not solve, or rather how well did the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation was supposed to solve?
- Next, the graders examined if an Alternatives Analysis was performed to assess the effectiveness of alternative approaches.
- The graders then examined if a proper benefit/cost analysis was performed, or whether the analysis identified the desired outcomes of the proposed regulations and demonstrated that the regulation will achieve them.
- They then examined if the analysis assessed the economic costs of the regulations.
- Next, the graders examined if the proposed rule or the Regulatory Impact Analysis presented any evidence that the agency actually used the analysis in its decision making process.
- Finally, the graders examined if the agency modified the proposed rule to either maximize net benefits or if not, explained why it chose another alternative.
Each of these criteria was rated on a zero to five scale for a maximum possible score of 30 points.
We have long argued that one reason why the economy has stagnated has been that the regulatory environment at the federal, state and local levels has become so onerous that entrepreneurs are either unable to start or grown small businesses. Since small business is the driver of employment growth and innovation, this has dampened demand, job creation and productivity. While certain regulations are beneficial to a sound economy, the promulgation of impractical or unnecessary rules only make it more difficult to either hire or to start a business without providing any benefit to the country. Regulatory Impact Analysis is supposed to either weed out bad regulations, or to provide a way to identify alternative ways to meet the same goal at a lesser cost.
Amazingly, when looking across the 148 rules examined in the scorecard, the average score for the quality of Alternatives Analysis was 2.31 and for whether or not the cost effectiveness of alternatives was examined was a lowly 1.88. In other words, it looks as if federal regulatory agencies used the RIA more as a means for justifying their proposed rule rather than a way to determine the most appropriate was to achieve a goal. In a way, this makes some sense as the lowest average score (1.77) related to whether or not the rule actually addressed a market failure in the first place.
Interestingly, when a benefit/cost analysis was included in the Regulatory Impact Analysis, the benefits side was more developed than the cost side. With an average of 2.8, the adequacy of benefits analysis was the highest score for any of the criteria examined. On the other hand, it seems as if analysis of costs was downplayed as the average score is only 2.17
Even if one disagrees with some of the criteria used by the Mercatus Center, what is truly shocking about this scorecard is how low the overall average scores are. The average quality score is 13.3, and with the median score being 13 this average is not being driven by outliers. The mode (or the score with the most values) is actually higher at 16 so the analysis is not biased toward the lower end of the distribution.
Scores also differed by agency, but in most cases the averages across agency were meager. Of those agencies with at least 3 rules examined the lowest average score was for the Department of Education (7.8), while the highest average was for the Department of Energy (17.9). Other agencies with an average of less than 15 were the Department of Health and Human Services (9.9), the Department of Labor (14.1) and Department of Interior (14.1) and the Department of Agriculture (14.7).
All told, the Mercatus Center scorecard suggests that federal agencies across the board to not take Regulatory Impact Analysis as seriously as they should. The loneliest number may not just be one, but maybe 10,459,000 – the number of Americans that are currently on the unemployment rolls.