# 505  

March 2004



Regulations: The Untold Story


by Dana Joel Gattuso

 

According to former presidential candidate Howard Dean: "In order to make capitalism work for ordinary human beings, you have to have regulation."1 That's the best oxymoron since George Carlin's "jumbo shrimp." Dean's plan to institute a new federal regulatory regime to snuff out the "greedy" pharmaceutical companies, "powerful" utilities, and media "monopolies"2 would not make capitalism work; it would wipe out private investment and innovation and send the economy into a nose dive. In the process, regular - and, in many cases, low-income - human beings would be harmed the most.

Costs of regulations reduce per capita income which lowers the quality of life for all of us. Economists Mark Crain and Thomas Hopkins put regulations' annual cost to the U.S. economy at $843 billion, or eight percent of the Gross Domestic Product.3 That's $7,700 per household for us ordinary folks.4

But it's the disproportionate effect regulations have on disadvantaged families that is most alarming. Regulatory costs, like consumption taxes, consume a larger portion of the poor's income, leaving fewer resources for adequate housing, medical care, proper diet and other crucial needs. Environmental regulations are particularly regressive. Howard Dean's interest in further regulating the utility industry and, specifically, requiring 20 percent of power production to come from renewable sources by 2020 would grossly penalize low-income Americans who already pay a disproportional share of energy costs. During the 2000-2001 energy crunch, for example, home energy costs for the typical consumer equaled 4.6 percent of their income while for low-income Americans, energy costs amounted to as much as 19.5 percent.5

Even more disturbing is the link between some regulations and mortality. Regulations, we assume, reduce risk, injury and death. Sadly this is not always the case: some regulations result in loss of life. Harvard economist W. Kip Viscusi, for example, found a number of years ago that safety caps on aspirin bottles has resulted in more fatal accidents than lives saved. As parents place full faith in the safety measure, they drop their guard, leaving bottles in harm's way or failing to fasten the top tight enough.6

Federal standards for vehicle fuel economy - known as "CAFE," for Corporate Average Fuel Economy - is another example of regulations that result in more lives lost than saved. Enacted in 1975 during the energy crisis, CAFE requires automobile manufacturers to make cars that achieve 27.5 miles per gallon to reduce energy consumption. Manufacturers meet these standards by building lighter vehicles.

But lighter automobiles do worse in collisions and place occupants at a much higher risk than occupants of heavier vehicles. The National Academy of Sciences reported last year that "the downweighting and downsizing that occurred in the late 1970s and early 1980s... probably resulted in an additional 1,300 to 2,600 traffic fatalities" and advised elected officials to consider the tradeoffs of CAFE regulations.7

Two months ago, the National Highway Traffic Safety Administration released its own report on the impact of vehicle weight on safety and found that collision fatalities resulting from weight reductions are even higher than previously believed. Accidents with small cars are twice as likely to result in fatalities as small and midsize SUVs and four times as likely as minivans.8 Despite these recent findings, leaders on the left propose raising the standard for all automobiles to 40 miles per gallon.9

Regulations will continue to cost human lives as long as regulators fail to consider the risks created by regulations along with the risks avoided. The Brookings Institution and the American Enterprise Institute recently took a look at regulations specifically intended to save lives and weighed their prevented risks against the unintended risks - called "risk-risk analysis." In "Do Federal Regulations Reduce Mortality," the authors found that of the 24 regulations reviewed, 13 resulted in a net loss of life by diverting funds away from life-saving investments. The worst of the reviewed regulations in terms of lives lost were issued by the EPA - which netted a loss of 98 lives. Of these EPA regulations, most pertained to reducing exposure to carcinogens.10

Howard Dean and his allies on the left need to reconsider their commitment to a new regulatory state. Lives are at stake - both in terms of the economic impact and the unintended risks such policies would have on all of us ordinary human beings.

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Dana Joel Gattuso is a senior fellow of The National Center for Public Policy Research. Comments may be sent to [email protected].


Footnotes:

1 Jim VandeHei, "Dean Calls for New Controls on Business; Democrat Seeks 'Re-Regulation,'" Washington Post, November 18, 2003, p. A09.

2 "Clark Criticizes Front-Runner Dean's Business Proposal," USA Today, November 19, 2003.

3 W. Mark Crain and Thomas D. Hopkins, "The Impact of Regulatory Costs on Small Firms," Report for the Office of Advocacy, U.S. Small Business Administration, Washington, D.C., RFP No. SBAHQ-00-R-0027, October 2001, p. 1.

4 "USA Statistics in Brief - Population and Vital Statistics," U.S. Census Bureau, Washington, D.C., available at www.census.gov/statab/www/part1.html as of March 23, 2004; and W. Mark Crain and Thomas D. Hopkins, "The Impact of Regulatory Costs on Small Firms," Report for the Office of Advocacy, U.S. Small Business Administration, Washington, D.C., RFP No. SBAHQ-00-R-0027, October 2001, p. 1.

5 The Cold Facts: The First Annual Report on the Effect of Home Energy Costs on Low-income Americans, The National Fuel Funds Network, The National Low-Income Energy Consortium, The National Energy Assistance Directors' Association, Washington, D.C., 2001-2002, p. 2.

6 W. Kip Viscusi, "The Lulling Effect: The Impact of Child-Resistant Packaging on Aspirin and Analgesic Ingestions," American Economic Review, May, 1984, pp. 324-327; Robert W. Hahn, Randall W. Lutter and W. Kip Viscusi, Do Federal Regulations Reduce Mortality?, AEI-Brookings Joint Center for Regulatory Studies, Washington, D.C., 2000, p. vi.

7 Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards, National Academy of Sciences, National Research Council, Washington, D.C., 2002, pp. 3 & 5.

8 Vehicle Weight, Fatality Risk and Crash Compatibility of Model Year 1991-99 Passenger Cars and Light Trucks, U.S. Department of Transportation, National Highway Traffic Safety Administration, Washington, D.C., DOT HS 809 662, October 2003; David Kiley, "Study: Lighter Cars Mean More Deaths," USA Today, October 15, 2003.

9 Howard Dean, speech, "The Next Hundred Years: Forging a Strong Environmental Policy to Take Our Natural Resources Back," San Francisco, California, July 31, 2003, available at http://www3.deanforamerica.com/site/PageServer?pagename=policy_speech_environment_thenexthundredyears as of March 23, 2004.

10 Hahn, Lutter, and Viscusi.



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