All too often, government regulation results in death by a thousand cuts for American businesses and consumers alike. The poor are disproportionately harmed by these rules, which cost trillions of dollars per year to administer, thus raising the prices of goods and services across the economy. In spite of this, many seek to downplay these issues, criticizing the Trump Administration’s deregulatory drive as protecting the interests of the “donor class.”
Chief amongst the critics of deregulation is University of California professor and former Labor Secretary Robert Reich. Earlier this month in the Baltimore Sun, Reich accused the President of nixing rules that “protect consumers, workers, investors, students and children.” This all too common understanding of the modern regulatory state completely ignores the negative impact of federal rules.
Specifically, Mr. Reich cites the administration’s push to neuter tough environmental laws, which are supposedly the “last bulwarks against climate change.” On the surface, lowering Corporate Average Fuel Economy (CAFE) standards may appear to increase emissions. As it happens, the exact opposite is true.
CAFE standards raise the price of vehicles by several thousands of dollars, effectively pricing the poor out of the market for new vehicles, and ensuring that low-income households will hold onto older, less efficient, vehicles for a longer amount of time. As economists Arthur van Benthem and Mark Jacobsen explain in the American Economic Review, higher CAFE standards may result in “a growing volume of greenhouse gas emissions from the fleet of used vehicles, many of which have been on the road for 10 years or more.”
Notice how this works: higher costs result in fewer options for low-income households, simultaneously making life more difficult for families and undermining environmental policy. This a common problem encountered by regulators: the poor bear the brunt of ill-conceived rules. Take, for instance, the biofuels mandate pushed by the Bush Administration and supported by President Obama.
“Higher costs result in fewer options for low-income households, simultaneously making life more difficult for families and undermining environmental policy.”
Four years after the Energy Policy Act of 2005 kick-started the American biofuel frenzy, the Federal Reserve found that “the increase in U.S. biofuels production (ethanol and biodiesel) pushed up corn prices by more than 22 percentage points and soybean prices (soybeans and soybean oil) by more than 15 percentage points.”
Meanwhile, studies taking into account the land clearing required for growing biofuels find that removing tree and related plant life can actually increase greenhouse gas emissions net of any environmental benefits. Setting aside crops and acreage for fuel means less resources for food production, resulting in rising food prices, and had a negligible impact on the environment.
Of course, this doesn’t mean that all environmental rules are counterproductive.
But while regulators should celebrate these successes, they must also remain vigilant in identifying regulations whose costs are simply too high. Even Mr. Reich understands this problem, noting that “Some regulations should be eliminated because they're just too costly relative to the protections they provide.”
“Setting aside crops and acreage for fuel means less resources for food production, higher prices, and a negligible impact on the environment.”
Take, for instance, the Clean Air Act, which relies on some questionable accounting from the Environmental Protection Agency (EPA) for support. The EPA assumes that, without their intervention, pollution would have increased “steadily from 1990 through 2000, 2010, and 2020,” despite their own data showing major decreases in emissions beginning before 1990.
These questionable benefits don’t stack up compared to the known cost of tens of millions of dollars each year borne, for instance, by paint and coating suppliers to reduce volatile organic compounds (VOC) emulating from their products. These costs are inevitably passed onto consumers, and borne especially by low-income households.
When regulators rely on questionable assumptions to justify flashy yet ineffective rules, they are doing a disservice to consumers, who feel the impact of these policies in their wallet instead of the environment. If Reich and others were really interested in helping the poor, they would address these issues, rather than mounting the usual attacks against deregulation.
Ross Marchand is the director of policy for the Taxpayers Protection Alliance.
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