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76–032 PDF 2012

REGULATION NATION: THE OBAMA ADMINISTRATION’S REGULATORY EXPANSION VS. JOBS 

AND ECONOMIC RECOVERY 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

SEPTEMBER 20, 2012 

Serial No. 112–148 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

RICHARD HERTLING, Staff Director and Chief Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

SEPTEMBER 20, 2012 

Page 

OPENING STATEMENTS 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Chairman, Committee on the Judiciary ..................................... 1 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 3 

WITNESSES 

John B. Taylor, George P. Schultz Senior Fellow in Economics at the Hoover 

Institution, and Professor of Economics at Stanford University, CA 

Oral Testimony ..................................................................................................... 7 

Prepared Statement ............................................................................................. 10 

C. Boyden Gray, Boyden Gray and Associates, Washington, DC 

Oral Testimony ..................................................................................................... 21 

Prepared Statement ............................................................................................. 23 

Lisa Heinzerling, Professor, Georgetown University Law Center, Washington, 

DC 

Oral Testimony ..................................................................................................... 36 

Prepared Statement ............................................................................................. 38 

Robert L. Luddy, Founder and President, CaptiveAire, Inc., Raleigh, NC 

Oral Testimony ..................................................................................................... 78 

Prepared Statement ............................................................................................. 80 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Material submitted by the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Ranking Member, Committee 

on the Judiciary ................................................................................................... 3 

Material submitted by the Honorable Lamar Smith, a Representative in 

Congress from the State of Texas, and Chairman, Committee on the Judiciary ......................................................................................................................... 101 

Material submitted by the Honorable Sheila Jackson Lee, a Representative 

in Congress from the State of Texas, and Member, Committee on the 

Judiciary ............................................................................................................... 115 

Prepared Statement of the Honorable Howard Coble, a Representative in 

Congress from the State of North Carolina, and Member, Committee on 

the Judiciary ......................................................................................................... 126 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Ranking Member, Committee 

on the Judiciary ................................................................................................... 131 

Material submitted by the Honorable Howard Coble, a Representative in 

Congress from the State of North Carolina, and Member, Committee on 

the Judiciary, on behalf of the Honorable Lamar Smith, a Representative 

in Congress from the State of Texas, and Chairman, Committee on the 

Judiciary ............................................................................................................... 144 

(1) 

REGULATION NATION: THE OBAMA ADMINISTRATION’S REGULATORY EXPANSION VS. 

JOBS AND ECONOMIC RECOVERY 

THURSDAY, SEPTEMBER 20, 2012 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to call, at 10:06 a.m., in room 

2141, Rayburn Office Building, the Honorable Lamar Smith (Chairman of the Committee) presiding. 

Present: Representatives Smith, Coble, Goodlatte, Lungren, 

Chabot, King, Jordan, Griffin, Marino, Adams, Conyers, Scott, 

Jackson Lee, Cohen, and Chu. 

Staff present: (Majority) Richard Hertling, Staff Director and 

Chief Counsel; Travis Norton, Counsel; Daniel Flores, Counsel; 

John Hilton, Counsel; David Lazar, Clerk; (Minority) Perry 

Apelbaum, Staff Director and Chief Counsel; Danielle Brown, 

Counsel; James Park, Counsel; and Susan Jensen-Lachmann, 

Counsel. 

Mr. SMITH. The Judiciary Committee will come to order. 

Without the objection, the Chair is authorized to declare recesses 

of the Committee at any time. 

We welcome everyone here today. I am going to recognize myself 

for an opening statement, then the Ranking Member, then we will 

introduce the witnesses. 

Four years into the Obama administration, the outlook for jobs 

in the American economy is disheartening and bleak. There are 

fewer jobs in America than when President Obama took office. Unemployment has been over 8 percent for a record 43 straight 

months. The percentage of American workers who are unemployed 

or underemployed is nearly 15 percent. 

In August alone, 368,000 workers abandoned the workforce. The 

percentage of Americans who participate in the workforce is the 

lowest since 1981. 

In 2008, the U.S. economy was rated the most competitive in the 

world. Since then, it has fallen to 7th place. The United States’ 

credit rating has been downgraded and another downgrade has 

been threatened. This is not what the Obama administration promised for economic recovery when it took office. President Obama 

stated during an interview in 2009, ‘‘If I do not have this done in 

3 years, then there is going to be a one-term proposition.’’ 

2 

Why is unemployment still so high? A large part of the answer 

can be found in the Administration’s historic expansion of regulations and business owners’ uncertainty over what regulations 

might come next. In his 2011 State of the Union Address, President 

Obama promised to fix ‘‘rules that put an unnecessary burden on 

businesses.’’ And in his September 2011 address to a Joint Session 

of Congress, the President declared that ‘‘We should have no more 

regulation than the health, safety, and security of the American 

people require.’’ 

But his actions speak louder than his words. Rather than lighten 

regulatory burdens to promote recovery, President Obama has 

turned America into a regulation Nation. We need to encourage 

small businesses to expand, not tie them up with red tape. America’s job creators do not need more government regulation. They 

need fewer burdens, lower costs, and an environment in which they 

can predict whether they can hire and make a profit. 

A Heritage Foundation study found that in his first 3 years in 

office, President Obama adopted 106 major rules that impose $46 

billion in additional regulatory costs on the private sector. That is 

a new record. To make matters worse, the Administration’s latest 

regulatory agenda identifies over 200 major rules that are planned 

or have just been completed. Each of these rules will affect the 

economy by $100 million or more every year. 

A recent Gallup poll found that among the 85 percent of U.S. 

small business owners who are not hiring, nearly half of these cited 

being ‘‘worried about new government regulations’’ as the reason 

they are not hiring. 

To help solve America’s economic troubles, the House Judiciary 

Committee passed a comprehensive package of regulatory reform 

bills this term of Congress. These bills have all passed the House 

as well. They promise to lower regulatory costs and uncertainty 

and still protect public health, safety, and welfare. The Regulatory 

Accountability Act, for example, requires agencies to show that the 

benefits of new regulations justify their costs when the regulations 

are adopted. 

The Judiciary Committee’s legislation also includes the Regulatory Freeze for Jobs Act, which halts unneeded new major rules 

unless unemployment drops to 6 percent; the Regulatory Flexibility 

Improvements Act, which makes sure agencies account for the 

needs of small businesses before they adopt new rules; the Sunshine for Regulatory Consent Decrees and Settlements Act, which 

prevents collusion between special interests and agencies to force 

new regulations on the public; the REINS Act, which restores Congress’ accountability for new major regulations; and the RAPID 

Act, which streamlines permitting for new construction projects. 

America’s economic recovery depends on job creators, not Federal 

regulators. We need to lift the burden on small businesses and free 

them up to spend more, invest more, produce more, and create 

more jobs. Despite his promises to lighten the regulatory load, 

President Obama has threatened to veto every one of these bills. 

And the Senate has not taken any up any of them. But the Judiciary Committee will continue to push for their enactment because 

of America’s urgent need for new jobs and economic growth. 

3 

Now that concludes my opening statement. And the gentleman 

from Michigan, the Ranking Member of the Judiciary Committee, 

is recognized for his. 

Mr. CONYERS. Thank you, Chairman Smith. It is understandable 

that the political atmosphere would force the Chairman into a very 

unusual state of affairs. This is the 16th anti-regulatory hearing 

that we have conducted in the 112th Congress, and I ask unanimous consent to put them in the record. 

[A list of the hearings follows:] 


76032A-1.eps
4 

———— 

The hearings referred to in the list can be accessed at: http://judiciary.house.gov 

Mr. SMITH. Without objection. 

Mr. CONYERS. And I want to welcome the majority witnesses. 

One is an economic advisor for Mitt Romney campaign, and he also 

co-founded a group called Economists for Romney. Welcome, sir. 

We have another witness who has contributed $50,000, which is 

his right, to Restore our Future, a Romney campaign PAC. 


76032A-2.eps
5 

And then we have another witness who we welcome and who is 

the chair of the North Carolina Catholics for Romney Committee. 

So you can see what we are in for this morning, and I am perfectly willing to indulge in the tactics of the Chairman of this Committee. 

Now, today’s hearings are based on a premise and assumptions 

that are simply false. The majority makes or the Chairman makes 

the first assumption that regulations inhibit job creation even 

though there is absolutely no credible evidence so far establishing 

the fact that regulations have any substantive impact on job creation. That is not my opinion. This is what a senior political analyst in the Reagan and George H.W. Bush administration, Mr. 

Bruce Bartlett, explains. And this is a quote: ‘‘Republicans have a 

problem. People are increasingly concerned about unemployment.’’ 

This is him saying that. This is a quote. ‘‘But Republicans have 

nothing to offer them. The GOP opposes additional government 

spending for jobs programs, and, in fact, favors big cuts in spending 

that would be likely to lead to further layoffs at all levels of government.’’ 

This is quote, too. The quote continues: ‘‘These constraints have 

led Republicans to embrace the idea that government regulation is 

the principal factor holding back employment. They assert that 

Barack Obama, [the President], has unleashed a tidal wave of new 

regulations which has created uncertainty among businesses and 

prevents them from investing and hiring.’’ 

The quote continues. It is italicized. ‘‘No hard evidence is offered 

for this claim, it is simply asserted as self-evident and repeated endlessly throughout the conservative echo chamber.’’ That is the end 

of the quotations. 

All of that I have been citing is from the senior policy analyst 

in the Reagan and George H.W. Bush administrations, Bruce Bartlett, a senior policy analyst. 

Now the majority’s own witness, distinguished though he is, 

clearly debunked the myth that regulation stymie job creation at 

a legislative hearing held last year. Christopher DeMuth, with the 

American Enterprise Institute, stated in his prepared testimony 

that the ‘‘focus on . . . jobs can lead to confusion in regulatory debates.’’ The quote continues, ‘‘the employment effects of regulation, 

while important, are indeterminate.’’ 

Another unsubstantiated claim that the majority claims in support of its anti-regulatory agenda is that regulatory uncertainty is 

hurting the business community. Once again, Bruce Bartlett, the 

senior economic official for the Reagan and Bush administrations, 

responds. ‘‘Regulatory uncertainty is a canard invented by Republicans that allows them to use current economic problems to pursue 

an agenda supported by the business community year in and year 

out. In other words, it is a simple case of political opportunism, not 

a serious effort to deal with high unemployment.’’ So make no mistake, ladies and gentlemen. 

Today’s hearing is yet another example of the political opportunism recognized and described by Mr. Bartlett. And perhaps the 

biggest canard in the majority’s argument for so-called regulatory 

reform is the purported $1.75 trillion dollar cost of regulation based 

6 

on a single study. Please give me a break. This figure is utterly unreliable and meaningless. 

Again, this is not just my opinion. The non-partisan Congressional Research Service conducted an extensive examination of the 

study and found much of its methodology to be flawed. Moreover, 

the Congressional Research Service noted that the study’s authors 

themselves acknowledged that their analysis was ‘‘not meant to be 

a decision making tool for lawmakers or Federal regulatory agencies to use in choosing the ‘right’ level of regulation.’’ 

Our witness today has published well-researched material that 

will go further into it. So I hope my colleagues on both sides of the 

aisle will listen very closely to the testimony that she presents. 

And I conclude, and I thank the Chairman for the additional time 

he has generously afforded me. 

I conclude with the final reason to reject this meaningless figure. 

It completely and blatantly ignores the overwhelming benefits of 

the regulations, which is 25 times more than the net benefits during the 3 years of the George W. Bush administration. 

I will insert the rest of my statement in the record, and again 

thank Chairman Smith for the generous time that he has afforded 

me. 

Mr. SMITH. Thank you, Mr. Conyers. That was a fulsome statement, but always appreciate your comments. 

Let me proceed to introduce our witnesses today. And our first 

witness is Professor John Taylor. He is the George P. Schultz Senior Fellow in Economics at the Hoover Institution, and Professor of 

Economics at Stanford University. He was director of the Stanford 

Institute for Economic Policy Research and founding director of 

Stanford’s Introductory Economic Center. 

Professor Taylor has a distinguished record of public service. He 

served as a member of the President’s Council of Economic Advisors from 1989 to 1991, and as Under Secretary of the Treasury for 

International Affairs from 2001 to 2005. He has been a member of 

the California Governor’s Council of Economic Advisors. I want Mr. 

Conyers to be aware of the fact, Professor Taylor, that you are bipartisan when it comes to your good economic advice. 

Professor Taylor received a Bachelor’s degree in economics from 

Princeton University and a Ph.D. in economics from Stanford University. In recognition of his many achievements, in 2010, he received the prestigious Bradley Prize. 

Our next witness, Ambassador C. Boyden Gray, served as White 

House Counsel for President George H.W. Bush. During the 

Reagan administration, he served as counsel to then-Vice President 

George H.W. Bush and as counsel to the Presidential Task Force 

on Regulatory Relief. More recently, he served as Special Envoy for 

Eurasian Energy Diplomacy and Special Envoy for European 

Union Affairs, as well as U.S. Ambassador to the European Union 

in Brussels. 

Ambassador Gray practiced as a partner at the Wilmer, Cutler, 

Pickering, Hale, and Dorr law firm in Washington, D.C. Currently, 

he is a founding partner of the D.C.-based law firm, Boyden Gray 

and Associates, LLP. 

He earned his Bachelor’s degree from Harvard University and 

his Juris Doctor from the Law School of the University of North 

7 

Carolina at Chapel Hill. Following his graduation, Ambassador 

Gray served in the U.S. Marine Corps. After law school, he clerked 

for Earl Warren, Chief Justice of the United States Supreme Court. 

Our next witness, Lisa Heinzerling, is a Professor of Law at 

Georgetown University. Her specialties include environmental and 

natural resources law, administrative law, the economics of regulation and food and drug law. 

From 2009 to 2010, Professor Heinzerling served first as Senior 

Climate Policy Counsel to the Administrator of the U.S. Environmental Protection Agency, and later as Associate Administrator of 

the EPA’s Office of Policy. She has been a visiting professor at Harvard, Vermont, and Yale Law Schools. She clerked for Justice William J. Brennan, Junior, of the U.S. Supreme Court and Judge 

Richard A. Posner of the U.S. Court of Appeals for the 7th Circuit. 

She received her Bachelor’s degree from Princeton University 

and her J.D. from the University of Chicago. 

Our final witness, Robert L. Luddy, is the Founder and Chairman of CaptiveAire Systems, Inc., a leading manufacturer of commercial kitchen ventilation systems, and a leader of the Job Creators Alliance. CaptiveAire employs over 600 people and maintains 

over 80 sales office in the U.S. and Canada. 

Mr. Luddy is a lifelong entrepreneur. At the age of 20, while attending LaSalle University in Philadelphia, Mr. Luddy opened a fiberglass manufacturing business. Later, Mr. Luddy purchased a 

sheet metal shop and transformed it into CaptiveAire Systems, Inc. 

In 2006, he won the Ludwig von Mises Institute’s first ever 

‘‘Mises Entrepreneurship Award’’ for 3 decades of leadership at 

CaptiveAire and for exemplary ‘‘dedication to learning, prosperity, 

and freedom.’’ 

And we welcome you all, and, Professor Taylor, we will begin 

with you. 

TESTIMONY OF JOHN B. TAYLOR, GEORGE P. SCHULTZ SENIOR FELLOW IN ECONOMICS AT THE HOOVER INSTITUTION, 

AND PROFESSOR OF ECONOMICS AT STANFORD UNIVERSITY, CA 

Mr. TAYLOR. Thank you very much, Chairman Smith, Ranking 

Member Conyers, other Members of the Committee, for inviting 

me. 

Mr. CONYERS. Pull your mic up a little closer, sir. 

Mr. SMITH. Before you begin, Professor Taylor, I want to recognize a colleague, Randy Hultgren, who just joined us. He is sitting 

on the front row. He has been a leader in Congress when it comes 

to regulatory reform legislation. We appreciate his attendance and 

his leadership, again, on that issue. 

Professor Taylor, please begin. 

Mr. TAYLOR. So I am going to begin with, in some sense, the obvious, and that is the economy is in very bad shape. Growth is 

under 2 percent. Unemployment stays high, especially long-term 

unemployment. We have a very weak recovery compared to other 

deep recessions, and I point to the recovery in the early 80’s in my 

testimony quite extensively where growth was 5.7 percent over that 

period, and it has only been 2.2 in this period. 

8 

Many people have tried to understand what the reasons for this 

very poor economy are. Some say it is because we had a deep recession. I do not agree with that because generally speaking in American history, deep recessions are followed by very fast recoveries. 

Some people says it is because there was a big financial crisis. I 

do not see that either because previous history shows that even recoveries from financial crises are much more rapid than this one. 

So considering all the possibilities, I have come to the conclusion 

that government policy is a source of the very weak recovery, and 

in particular, part of government policy as a regulatory policy. 

My colleagues and I have just finished a book on this called Government Policies and the Delayed Economic Recovery. In that book, 

there are studies, for example, by Baker, Bloom, and Davis, which 

have tried to quantify the impact of the policy uncertainty that is 

associated with government policy. In my testimony, I have some 

examples of the data they use, tax uncertainty in particular. And 

they find it has a negative effect on growth. Correlations are not 

always causation, but they have looked at the timing, and I think 

it is convincing. 

Another piece of research in this project is by Ellen McGrattan 

and Edward Prescott. They give examples of the regulatory expansion both in terms of the amount spent and in terms of the number 

of workers involved in regulatory activities in the Federal Government, and point to that correlation with a very weak recovery. And 

again, I have in my testimony a chart—it is on page 6, Mr. Chairman—which shows the real, I think, explosion in terms of the number of Federal workers involved in regulatory activity. I tried to 

take out the TSA workers and control for that, and you can really 

see what a remarkable increase. There is of course a lot of corroborative research that supports the work in that book. 

In looking over the legislative record of this Congress, in particular this session, I have noted a lot of efforts to contain this expansion of regulation. The Red Tape Reduction and Small Business 

Job Creation Act, which of course includes 7 different bills, including this moratorium proposal that aims at the unemployment rate, 

extending cost benefit analysis requirements to the SEC and 

CFTC, dealing with the unfunded mandates simply by being transparent about them. It seems to me these bills and the ones in the 

previous session emphasize transparency, accountability, the use of 

cost benefit analysis and sound data. These are the kind of things 

that good government requires. I think they are important. 

By blocking these bills, it seems to me those people who have 

blocked them have really blocked jobs bills effectively. 

I want to just give some data. Economists refer to data all the 

time, and you sometimes do not how to interpret it. But I made a 

big point in my testimony and a just a minute ago about how weak 

this recovery has been compared to the strong recovery from an 

equally deep recession in the early 80’s—5.7 percent then, 2.2 percent now. 

Think of what has happened in the regulatory area. The number 

of Federal workers involved in regulatory activities in that expansion period in the early 80’s declined by 22,000. In this recovery in 

this period in the last 5 or 6 years, they have increased by 54,000. 

If you look at the number of pages in the Federal Register, in the 

9 

previous period basically where we had a good recovery, the number of pages in the Federal Register each year went down by 

24,000. Recently that has gone up by 4,000. 

If you look at data like that, it makes you worry that this activity, this regulatory expansion, is holding back on the economic expansion. And it seems to me every effort that the Congress can 

take to be careful about this, to contain this regulatory expansion, 

will make it better to have a stronger economic expansion. 

Thank you very much. 

[The prepared statement of Mr. Taylor follows:] 

10 


JBT-1.eps

Government Regulatory Policies and the Delayed Economic Recovery 

John B. Taylor! 

Testimony before the 

Committee on the Judiciary 

United States House of Representatives 

September 20,2012 

Chairman Smith, Ranking Member Conyers, and other members of the committee, thank 

you for the opportunity to testify at this hearing on "Regulation Nation: The Obama 

Administration's Regulatory Expansion vs. Jobs and Economic Recovery." 

In order to address this important issue systematically, I first discuss the disappointing 

economic recovery and resulting weak job growth. Second I consider the role of the recent 

expansion of regulations and other government actions in delaying the recovery andjob creation. 

Third, I review the legislation that has been put forward to control the regulatory expansion. 

Jobs and the Economic Recovery 

The persistently high unemployment rate-especially long term unemployment-is one 

of the most disturbing aspects of today' s economy The high unemployment rate is mainly the 

result of the slow pace of economic growth, which has failed to bring the economy and the labor 

market back to their potentials. Slow economic growth means that firms are not expanding or 

hiring many workers. Hence, slow economic growth means slow job growth, and that is what we 

are seeing now. In addition, many people are dropping out of the labor force If they had not 

dropped out and thus were still counted as unemployed, the unemployment rate would be even 

higher than the current 8.1 percent. 

While some jobs are being created, the pace of job creation is barely enough to keep pace 

with the growing working-age population. For example, during the past two years, employment 

increased by 3.1 million. This may sound ok, but really is quite poor for a recovery from a deep 

recession. Over the same two year period, the working age population (16 and over) increased 

by 5.7 million, which is about the same percentage growth as employment. With employment 

growing at about the same pace as the working age population, the percentage of the working 

age population that is actually working has not increased as it does in most recoveries. 

The following chart illustrates this. It shows the change in the percentage of the working 

age population that is working and compares it with the recovery from the previous deep 

recession in the early 1980s. Note that there is little or no improvement in the employment-topopulation ratio in this recovery. It is still lower than it was at the bottom of the recession. It is 

1 Mary and Robert Raymond Professor of Economies at Stanford University and George P. Shultz Senior 

fellow in Economics at Stanford's Hoover Institution 
11 


JBT-2.eps

a~ iflhe lypiclIl lifl-offhu been delayed In compa rison. Ihe percentage oflhe population Wilh 

jobs rose much more rapidly during the recovery from the back-to-back recessions of 1980 and 

1981_82 

PMC,,"! 

• 

, 

, 

., 

~c 1962 - J~n 1986 

Change in th~ perCf!fII3ge 01 

the population thai is Wl>fklng 

.lJl 2009 - Aug 2012 

Month. since ,eCe9sioo ,,"ded 

Figure ). TIle Oeillyed Recovery in Historical Perspectil'e 

The curtcnt rceovtry began in the thim qliarter of:2OO9, and it wu weak t'rQm the start 

By its !lecond an nivers~ry, the recovery wa~ still so weak that I call ed it "a rew~'ery in name 

only. so weak as to be none ~jSlcnL" The normal rebound in job creation and economic growth 

was delayed Now the f('(overy ha~ been delayed yet another year, It's the worst re«lwry from 

a deep recession sin.-:e ille recovery from theGreal Depression, ~nd poerhaps in American 

history-a tragedy that shoold not be minim~liled. 

Figure 2 shows Telll GOP during the 12 4uaners since the end oflhe recession. It also 

shows CBOs estimate of potential GOP. Clearly the economy has nOl yet Te.:overed back \0 ils 

potential. TItis delay is very unusuaL Throughout American history, recoverics from deep 

recessions have tended to be b~n much fRSler than recoveries from shallow \reces§ions. is 

Milton Friedman (1988) showed 10llg ago and Michael Bordo and Joscph Haubrich (2011) have. 

recently coofirmcd. The re;;overy oflhe economy bac~ 10 potenti.1 GOP in InC. !2 qURr1ers 

following the )981-82 recession was much quicker. 

1 
12 


JBT-3.eps

B.lOioM of 2005 <101111,. 

14,400 

13.600 

'2,800 

R.al QOP 

Fi)!ure 2: EcUnom;c O'~1111s Too Slow 10 Close Ille Gap 

Tile IWO recoveries can also be compared by examining real GDP growllI rales in tile 

r«overy periods. The growth rales i,\ eacll orille 12 quafTers orlhe 1'1'0 recove ri es are ~how n in 

Figure J The comparison ~ strikin)!. Economic growlh averaged 2::' ~rc~nl in. Ihe receo! 12 

qwu1ers compared wilh :; 7 percenl in Ihe (9805 reeove!)' 

ntat ... " annual ",Ie. 

N 

• 

• 

• 

, 

, 

Relfj GOP !OWIn I 200901.101202; .""'ge. " 2.2% • 196301 . I~SS04 .""'Qa" 5,7% 

II r I , , , , , • • l ' 12 

QU8r1erS Since The Stan 01 The Recovery 

Fi!5ure 1: Reccnl Slolll Gro\\1h in Historical Perspectille 

J 
13 


JBT-4.eps

Unfortunately recent data are even more disappointing. In the months of July and August 

alone-the most recent data we have-Sl8 thousand people have given up looking for work and 

have dropped out of the labor force, while the number employed has dropped by another 314 

thousand. With economic growth slowing to 1 V:, percent in the second quarter of this year, 

perilously close to another recession, it is not surprising that few firms are hiring. 

Why the Delayed Recovery? 

Some arS'lIe that the weak recovery is due to the seriousness of the preceding financial 

crisis where people took on too much debt and now must cut back on consumption to pay back 

debt, commonly called deleveraging. However, the stronger recovery in the early 1980s occurred 

while people were consuming a much smaller fraction of their income than in the recent 

recovery. The saving rate was as much as 10 percent then and only 3 to 4 percent now. 

Others argue that the slow recovery is due to the weak housing market. But strong 

recoveries frequently have weak sectors, and housing is less of a drag now than other sectors, 

such as foreign trade, were in the strong 1980s recovery. Still others point to Europe, but the 

recovery has been continuously weak from the start even as the European situation has had its 

ups and downs. Moreover, through most of the recovery, economic growth in most of the world 

has been strong, and net exports have not been a drag on the economy. 

Having considered the various explanations, I have come to the conclusion that the 

delayed recovery is due to poor government policies, of which regulatory expansion and policy 

uncertainty are a substantial part. Indeed, this is the general conclusion ofa number of 

researchers whose findings we have collected in the just released book: Government Policies and 

Ihe f)elayed ,,"'col1omic RecOI'ery (see Ohanian, Taylor and Wright (2012)). As discussed in the 

book's Introduction, "the delayed recovery has been due to the enactment of poor economic 

policies and the failure to implement good economic policies .... The clear implication is that a 

change in the direction of economic policy is sorely needed. Simply waiting for economic 

problems to work themselves out, hoping that growth will improve as the Great Recession of 

2007-2009 fades into the distant past, will not be enough to restore strong economic growth in 

America." Here is a summary of some of the findings: 

Scott Baker, Nick Bloom, and Steve Davis (2012) investigate whether policy uncertainty 

could be a factor in the recent slow growth. They develop a quantitative index ofpolicy 

uncertainty. For example, they include the number of provisions in the tax code which expire 

each year. Indeed, this type of temporary tax change is making the entire tax and regulatory 

system unpredictable, as I illustrate in Figure 4 below using data collected in the years shown by 

the Joint Committee on Taxation. 

4 
14 


JBT-5.eps

'" 

'" 

'" 

'" 

80 

" 

., 

" 

Number of provisions expiring 

in the U.S. tax code 

'~~~-- ~~~--.-~~~~~~~ 98 99 00 01 02 03 04 05 06 07 08 09 10 11 

Year 

Figure 4: Thf' In<'rfllse in Tu Policy ('nl~inl y 

Baker, Bloom and Davis use statistical tedmiqucs 10 lest whether (;hangl'5 in their overall 

illde,~ are correlated wilh changes in economic groWlh over lime. Tho!)' find 1hal increases in the 

iudtl:-o-Srt:.llcr policy uncenaimy- tend 10 bl: assQl;iHlcd "ill! reductions in COOJlOm;c !!ToWlh. 

The effect is Slatistieally sigllificam nd Ihe timing indi catcs thaI increases in the indes lelld to 

ro:ducti( 1)s in ~-con{>mic gro"1h. suggesting tausaliOfl. They found ,ha, this overall policy 

uncet1ainty reduced GOP by 1.4 percent in 2011 alone. and thaI restnring pre-crisis If.'Vf.'ls of 

ten D; n!y would add 2.3 mill ion jobs in 18 momhs. 

Usi ng an entirely different approach Greenspan (2012a) pre~nlS empirical evidence thai 

100 much policy activism has hecn a major f.1ctor holding back economic growth in the recenl 

reco\'el)'. Additional corroborating e\'id.mce that policy uncertaimy has reduced grO"1h and 

employment comes from work at the research d"''P3rtmenl of the Federal Rel'efVe Bank of San 

FTI'Incisco, where Leduc and Liu (20 12) lind that " hi gher uncertainly is estimated to have lifted 

the U.S. unemployment rate by at least one percentage point since early 2008." 

McGrallKn and Pl'e5COll (2012) provide data Ullthe increased fedl'1lll !:;Qvl'fnmenl 

regulations which suggest that th~ re,!!ula!ions are a source of the slow economicgrmV\h They 

look at spending on regulatOl)' activitie~ and the numberoffedln.l workers involved in these 

aCliviti es. Figure 5 below illustrates the type of data lhey use, which shows a rece.u expansion 

ofrcgulatOl)' activiliL'S. The chart uses data from research by Susan Dudley and 1'>'ldinda Warren 

(20 12). It takes their.series 011 the number of "full time equivalent" fedcrnl emplo)'l'<:s ill 

regulatory activities and subtr1lCls out the number of Transportation Safety Administration (TSA) 

workers. (The years 2002 and 2003 when TSA W85 e:o:panding and moving from OOT to DHS 

, 
15 


JBT-6.eps

are interpolated) There has beell II 25 percellt increase jusl since 2007 And these data barely 

,etkct the increased regulations from the health care 81ld lina llcial rdorm legislation 

22D.OOII 

"."" 

180.000 

Number ~ f~eral wofkff'S 

l!f1llIoyed ... regulatory actsvitleS 

excluding TSA ~ees 

t10,* -\l.-l,.LJ..L--4l,-l-.L-J.,L-l,.LJ..L--4l,-l-.L-J.,L-l,.LJl.LJ, • 01 ~ ~ ~ H " ~ ~ ~ 10 II n 

Yo. 

FiJ;ure S. The Recent Government Regulatory Expansion 

To test their re,sults McUnl1!an and Prcscoll develop a model of the ecollolllY Ihat features 

intangible capital in,'es\1nell1 and technological change. They thef) show that intallgible 

investment declined in th~ , .. 'Cent rCCt'ssion 8nd has not yet recovered, Thus actual economic 

growth is likely \0 have experienced a negative shock which is correlated with the increase in 

regulations. Using 8 fom!al \:Conomi.:: model. He rk enkolr and Ohanian (2012) also find that 

employment has not recovered because va ri ou~ gov;:m,"~1l1 interventions hA\'e depre.~sed labor 

markets by negatively impacting the incentives fox business to hire workers and for worker.; to 

accept ofren 

Alan Greellspall (2012b) consider.; wme of the_economic impac ~ of the reglLlatory 

e~pansion. He ~rgucs Ihl Ihe Wall Street Refonn and Consumer Protection Act of 20 10;s 

largely un-implement able ba.~ on his kllowledge of how the Federal Re~rve and oth<¢!" 

regulatory agcllCieS'oper81e. This act requires more than 200 r\llcmakings by Ihe Federal 

R<.· ~erve aotl <;lllter agencies, far more than they had wimpJement in comparable periodi in the 

past The general regulatOlY principles are put in the law but the detailed regul8tions must be 

implemented by the regulatol)l agencies. The bill is riddled with many new regulations that ar ... 

not related to the crisis_ These reqllire vel)l comple>< r\llcmakings 10 implement, and the vel)l 

comple.~ity makes them difiicl1lt to enforte A~ Gr.:enspan put iI, -There are innumerable hidden 

problems like this in Ihe law and Ihe sooner "e decide to SllJrt from scratch, the hener otT this 

COU1111)1 will be:' A far better way to deal wilh the risks that led to Ihe fioancial crisis would be to 

, 
16 


JBT-7.eps

make sure that financial institutions have adequate capital and that the regulations in the books 

are rigorously enforced by the regulators. 

Quantitative reports from the Office of Management and Budget (OMB) show that the 

costs of regulation have been growing over the past few years. The Government Accountability 

Otlice reports that federal agencies issued 43 major new rules in fiscal year 2010, including 15 in 

the financial area, lOin the environmental area, and 5 in the health care area. See Gattuso 

(2011). Many more regulatory rules are in the process of being written and issued, including 

from the Patient Protection and Affordable Care Act of 20 1 O. While Washington is worried 

about a fiscal cliff, a regulatory cliff is also looming. 

Earlier this year, The Economisr magazine published a report entitled the "OverRegulated America" which provides specific examples of how the United States "is being 

suffocated by excessive and badly written regulation," and data support these examples. It 

focusses on the "flaws in the confused, bloated law passed in the aftermath of America's 

financial crisis." The sheer complexity of the regulations increases uncertainly which holds back 

investment and firm expansion. 

Legislative Efforts to Slowdown the Regnlatory Expansion and Raise Economic Growth 

The House of Representatives recently passed a number of regulatory reform bills. 

Perhaps most significantly the House passed the Red Tape Reduction and Small Business Job 

Creation Act of 20 12 (H.R. 4078), a comprehensi ve package of seven regulatory reform bills, 

which, as I briefly describe below, are designed to contain the recent regulatory expansion. 

• Regulatory Freeze for Jobs Act of 20 12 (H.R. 4078) 

o The bill would create a moratorium on new significant regulations until the 

national unemploy ment rate stabilizes at or below 6 percent. 

o As I testified in February (Taylor (2012), in order to help strengthen the weak 

economic recovery, Ijoined several other economists-George Shultz, Michael 

Boskin, John Cogan, Allan Meltzer-with a similar moratorium recommendation, 

but for three years. We regret that a moratorium did not become law. 

o But the 2012 bill has an advantage over the three-year moratorium because it is 

tied to unemployment, which should be a major focus of government policy now. 

o Under the proposed legislation, the President could waive the moratorium for 

national security, but would have to explain the need for the waiver in writing, 

and the regulation would be subject to judicial review. 

• Midnight Rule Relief Act of2012 (H.R. 4607) 

o This act would prohibit agencies trom proposing or finalizing significant 

regulations from the day after the November election to inauguration day. 

o This period has traditionally been one where costly regulations are promulgated. 

• Sunshine for Regulatory Decrees and Settlements Act of2012 (H.R. 3862) 

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17 


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o This act would help cut down on the "sue and settle" practice whereby special 

interest groups seeking new regulations sue regulatory agencies and then settle 

with a new reb'lliation that is often quite costly. 

o The bill would require that the consent decrees and settlement agreements and 

attorneys' fees be published. In addition, any proposed consent decree or 

settlement agreement would have to be published in the Federal Register 60 days 

prior to filing with the court. 

• Unfunded Mandates Information and Transparency Act of 20 1 1 (HR. 373) 

o This bill would help cut down on the practice whereby Congress mandates that 

business firms or state and local governments carry out tasks rather than creating 

and funding a federal program to carry out the task directly. 

o The bill simply requires that the costs of unfunded mandates on firms for local 

governments be disclosed. 

• Responsibly and Professionally Invigorating Development (RAPID) Act of 2012 (H.R. 

4377) 

o This bill would streamline the permitting process for infrastructure projects. 

o It would require that developers be able to obtain environmental permits and 

approvals for their projects in a timely and efficient manner. 

• SEC Regulatory Accountability Act (HR 2308) 

• Commodity Futures Trading Commission-Cost-Benefit Analysis Legislation (H.R. 1840) 

o These two bills would require the SEC and the CFTC to perform cost benefit 

analysis much as executive branch agencies are required to do. 

o Basic economics says that these agencies should follow cost benefit analysis in 

their rule making, just as executive branch agencies. A report of the President's 

Job Council found that many rules issued by the SEC did not undergo 

comprehensive cost benefit analysis as in executive branch agencies. 

o An extension would be to apply the requirements for cost-benefit analysis and 

centralized review to all independent agencies, including the Federal Reserve. 

Assuming that the centralized review can occur in a timely manner this reform 

would reduce the costs and uncertainty of regulation on the economy. 

As this summary shows, a common feature of these bills is that they increase 

transparency, accountability, serious cost-benefit analysis, and use of sound science and reliable 

data. The same is true of regulatory bills passed by the House in the last session: the Regulatory 

Flexibility Improvements Act of 20 11, the Regulatory Accountability Act of 20 11, and the 

Regulations From the Executive in Need of Scrutiny Act of 20 11. Good government bills like 

these are essential for controlling the regulatory process. Because the regulatory expansion along 

with other government policies is a likely cause of the poor economic growth and job 

performance, they should also be an essential part of an economic recovery program. 

8 
18 


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Conclnsion 

I have argued in this testimony that the weak recovery and high unemployment have been 

caused by poor economic policy of which the recent expansion of costly regulations is a part. If 

the bills reviewed here and passed by the House had also been passed by the Senate and signed 

into law by the President, the regulatory process would have become far more streamlined and 

far less costly to the American economy. To the extent that the bills would have halted or 

mitigated the regulatory expansion, the economic recovery would have been stronger. In other 

words, they are as much jobs bills as they are regulatory reform bills. The actions to block them 

have adversely affected the high priority goal of increasing growth and creating jobs. 

9 
19 


JBT-10.eps

References 

Baker, Scott R., Nicholas Bloom, Steven J. Davis (2012), "Has Economic Policy Uncertainty 

Hampered the Recovery?" in Ohanian, Lee E, John B. Taylor and Ian J. Wright (Eds.), 

Government Policies and the Delayed Fconmnic Recovery, Hoover Institution Press, Stanford, 

California 

Bordo, Michael D. and Joseph G. Haubrich (20 II), "Deep Recessions, Fast Recoveries, and 

Financial Crises: Evidence from the American Record," 13 September 

Dudley, Susan and Melissa A Warren (20 I 0), "Decade of Grow1h in the Regulator's Budget: An 

Analysis of the US Budget for Fiscal Years 2010 and 2011," George Washington University 

and the Weidenbaum Center on the Economy, Government, and Public Policy, Washington 

University in St. Louis. 

Friedman, Milton (1988), "The 'Plucking Model' of Business Fluctuations Revisited," Hoover 

Institution Working Paper, E48-88. 

Gattuso, James (2011) "Regulatory Impediments to Job Creation," Testimony before the 

Committee on Oversight and Government Reform, United States House of Representatives, 

February 10. 

Greenspan, Alan (20 I2a), "Uncertainty Unbundled: The Metrics of Activism," in Ohanian, Lee 

E., John B. Taylor and Ian J. Wright (Eds.), Government Policies and the Delayed Economic 

Recovery, Hoover Institution Press, Stanford, California 

Greenspan, Alan (20 12b) "Restoring Sound Economic Policy: Three Views" a panel discussion 

with George P. Shultz, and John H. Cochrane, in Ohanian, Lee E., John B. Taylor and Ian J. 

Wright (Eds.), Government Policies and the Delayed Ewnomic Recovery, Hoover Institution 

Press, Stanford, California 

Herkenhofr, Kyle F. and Lee E. Ohanian (2012), "Why the U.S. Economy Has Failed to 

Recover and What Policies Will Promote Growth," in Ohanian, Lee E., John B. Taylor and Tan J. 

Wright (Eds.), Government Policies and the Delayed Fconomic Recove/y, Hoover Institution 

Press, Stanford, California 

Leduc, Sylvain and Zheng Liu (2012), "Uncertainty, Unemployment, and Inflation, " FRBSF 

Economic Letter, 2012-28, September 

McGrattan, Ellen R., and Edward C. Prescott, (2012), "The Great Recession and Delayed 

Economic Recovery A Labor Productivity Puzzle? "Ohanian, Lee E., John B. Taylor and Ian J. 

Wright (Eds.), Government Policies and the Delayed Fconomic RecovelY, Hoover Institution 

Press, Stanford, California 

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Ohanian, Lee E., John B. Taylor and Ian J. Wright (2012), Government Policies and the Delayed 

Economic Recove/y, Hoover Institution Press, Stanford, California 

"Over-Regulated America," (2012), The Economist, February 18. 

Taylor, John B. (2012) hrst Principles: Five Keys to Restoring America's Prosperity, W.W. 

Norton, New York. 

Taylor, John B. (2012) "A Regulatory Moratorium as Part of a Comprehensive Economic 

Strategy," Testimony before the Subcommittee on Courts, Commercial and Administrative Law, 

Committee on the Judiciary, February 27, 2012 

11 
21 

Mr. SMITH. Thank you, Mr. Taylor. 

Ambassador Gray. 

TESTIMONY OF C. BOYDEN GRAY, BOYDEN GRAY AND 

ASSOCIATES, WASHINGTON, DC 

Mr. GRAY. Thank you, Mr. Chairman, Mr. Conyers, for the opportunity to appear. I appreciate coming after John Taylor because as 

an economist, he is in a better position to give you the quantification of how regulation impacts adversely the economy. But my simple point is it is a huge wet blanket on economic growth. And it 

does not mean that you do not have any regulation. It means that 

you do it in a much smarter way. 

I think in terms of quantification, I am going to give a couple of 

examples at the end of where history I think makes clear how big 

a problem this is. 

The problem is at least two-fold. You have regulatory costs that 

are imposed on businesses here that may not be imposed in China 

or in other competing countries. So you have a question of pricing 

ourselves out of international markets in the global economy. That 

does not mean you get rid of regulation. It just means you do it 

better. 

We tried to market incentives with the acid rain program in the 

Clean Air Act of 1990. The costs came in at about a fifth of what 

they were supposed to come in at, what command and control 

would have provided. And it did not harm or pull back on the recovery that turned out to be one of the greatest booms in America 

history throughout the 90’s and the first decade of this century. 

The other problem is uncertainty. Again, hard to quantify, but I 

cite a study of a team of Stanford and Chicago economists on page 

of my testimony trying to quantify what this uncertainty does in 

terms of economic growth. I do not want to waste time giving the 

facts here, but it is there at page 3. 

There is a tendency, and this is partly, I think, Congress’ fault, 

a tendency to delegate huge amounts of unlimited discretion to bureaucrats because it is easier than resolving it here in the Committees that have jurisdiction over the various substantive statutes. 

And the result is unfortunately a lack of guidance to the business 

community. They do not know what it is going to take to comply. 

You have Mr. Cordray at the Consumer Bureau saying I am not 

going to go and issue rulemaking to give people notice in advance 

of what conduct is expected of them. That fair notice is really the 

heart of the Administrative Procure Act. That is the heart of our 

administrative law system. I am going to do it by enforcement. I 

am going to do it after the fact. I am going to let you know what 

it is when I think I have seen it. This is not conducive to job 

growth or investment. 

There are some good answers to this: not wiping out regulation, 

but making it better. There are many bills pending in Congress 

here in the House. Some of them have been discussed already by 

the Chairman. They would include suggestions that John Taylor 

has made: clear cost benefit analysis and requirements; clear guidance, and instruction, and details from the Congress itself to inform the regulatory agencies how to issue rulemaking to give the 

kind of guidance and notice to the public that is affected; the use 

22 

of market incentives and performance standards so as to reduce the 

discretionary micromanagement by agencies, and give the complying public the choice of how to meet the goals that should be 

clearly stated rather than left to the discretion of the executive 

branch. 

Now what examples would I choose? I served in the Reagan administration. We went through a really bad recession, double-digit 

inflation, double-digit interest rates. It is kind of hard to believe 

how bad it was. But the Reagan program of regulatory reform I 

think works, and we snapped back with one of the greatest recoveries and greatest booms in U.S. history. 

As a result of my service in Europe, I am fond of asking the 

question who was the sick man of Europe when I first went there. 

The sick man of Europe in 2006 was Germany. Now it became the 

colossus of Europe in less than a year, year and a half. Why? Because of regulatory reform, a little bit of Reagan/Thatcher, a little 

bit of labor law, a little bit of welfare reform, and a little bit of 

labor law restrictions lifted. And now it has rocketed. And that is 

all Germany wants the rest of Europe to try to emulate. And if it 

did and we corresponded and worked with the Europeans 

transatlantically to reduce regulatory burdens, you could add 1 or 

2 points of GDP growth, and this has been documented by the 

OECD. 

So we have examples of how this works, and I think we ought 

to get on with it. And I appreciate your interest in this subject matter. Thanks. 

[The prepared statement of Mr. Gray follows:] 

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Hearing before the 

U.S. House of Representatives 

Committee on the Judiciary 

"REGULATION NATION: THE OBAMA ADMINISTRATION'S 

REGULATORY EXPANSION VS. JOBS AND ECONOMIC RECOVERY" 

September 20,2012 

Statement of Amb. C. Boyden Gray 

I am pleased to have been asked to testify before the Committee on the 

question ofthe current regulatory burden on the national economy. This is the single most 

pressing domestic policy matter of the day, and I am honored to contribute to the discussion. 

As it is so often said, "history never repeats itself, but it rhymes." This seems 

to be one of those moments. Thirty years after President Reagan campaigned in large part 

on a platform of regulatory reform, and successfully reformed much of the administrative 

state, we find ourselves largely back where we began. Regulatory agencies once again rival 

the tax code and monetary policy in their ability to retard economic growth. And they are 

doing so at the worst possible opportunity-when we need economic growth more than ever. 

Fortunately, while we have encountered these problems before, we also know 

from experience the best remedies: require regulatory agencies to subject their rules to the 

rigors of meaningful cost-benefit analysis; erect administrative law procedures that are 

transparent, predictable, and reliable; maximize the fruits of market-based solutions; and 

craft substantive statutes that give clear direction to-and place clear limits upon-the 

agencies that will administer them. 
24 


CBG-2.eps

The solution is not just to "roll back some regulations, and call me in the 

morning," as President Obama glibly mischaracterized in his speech to the Democratic 

Party's convention earlier this month. Rather, the question is how we can best structure the 

administrative state to make its regulations both effective and efficient. It is not a question of 

deregulation; it is a question of smart regulation. 

I. The Costs of Regulation and of Regulatory Uncertainty 

T am a lawyer, not an economist, and so T defer largely to the economic 

analysis offered by my esteemed co-panelist, Professor John Taylor of Stanford and the 

Hoover Institution. That said, even a lawyer can recognize the basic facts of regulatory 

burden on the economy. 

First, the Obama Administration's regulations impose immense costs on the 

economy. By their own estimate, their regulations have cost up to $32.1 billion-but that 

figure covers just forty-five so-called "major rules" issued in 2009,2010, and 2011.' Of 

course, we should view the Administration's self-serving estimates of regulatory costs and 

benefits with a skeptical eye: as Susan Dudley, former Administrator of the White House 

Office of Information and Regulatory Affairs ("OIRA") and now Director of George 

Washington University's Regulatory Studies Center, noted recently in Business Economics, 

Agencies have strong incentives to demonstrate through analysis that 

their desired regulations "Will result in benefits that exceed costs .... A 

better baseball analogy might note that, as the regulatory game is now 

structured, OIRA is the umpire-the sole judge of the balls and strikes 

pitched by the agencies. When the umpire boasts with such 

See OTRA, "Draft 2012 Report to Congress on the Benefits and Costs of Federal 

Regulations and Unfunded Mandates on State, Local, and Tribal Entities," at p. 19 (Mar. 

2012), at http://www.whitehouse.gov /sites/ default/files/ omb/ oira/ drafC2012_cost 

_beneficreport.pdf. 

2 
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enthusiasm about his team's score, one has to wonder who will ensure 

that the game is played fairly.' 

Tn sharp contrast to the Administration's own estimate, the American Action Forum (led by 

Douglas Holtz-Eakin, former chief economist of the President's Council of Economic 

Advisers and director of the Congressional Budget Office) estimates that this 

Administration's regulatory burden on the economy exceeds $450 billion.' 

Second, regulators impose costs not just through the regulations that they 

directly impose, but also through the problem ofregulatory uncertainty. While some assert 

that regulatory uncertainty is a "canard,"· a team of Stanford and Chicago economists 

recently demonstrated the impact of policy uncertainty, analyzing data that "foreshadows 

drops in private investment of 16 percent within 3 quarters, industrial production drops of 4 

percent after 16 months, and aggregate employment reductions of2.3 million within two 

years"-findings that "reinforce concerns that policy-related uncertainty played a role in the 

slow growth and fitful recovery of recent years[.]'" 

Of course, the problem is not "regulatory uncertainty" in the abstract. 

Uncertainty beats certainty when the certainty in question is a massively costly regulation 

Susan E. Dudley, "Perpetuating Puffery: An Analysis of the Composition of OMB's 

Reported Benefits of Regulation," Business Economics 47:3, at p. 175 (2012) 

See "President's Regulatory Record in the Courts" (Aug. 21, 2012), at 

http:// americanactionforu m. org/topic /president' s-regulatory-record-co urts. 

See, e.g., Jonathan Cohn, "The GOP's Uncertainty Canard" (Oct. 4, 2011), at 

http://Vv"Vvw. tnr.comlblog/jonathan-cohn/95 748/ republican-regulation-uncertaintybusiness-data-cantor-mishel-bartlett. 

Scott R. Baker, Nicholas Bloom, and Steven J. Davis, "Measuring Economic Policy 

Uncertainty" (June 4, 2012), at http://faculty.chicagobooth.edu/steven.davis/pdf 

/PolicyU ncertainty. pdf. 
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CBG-4.eps

"ith no benefits. Rather, the problem is costly, inefficient regulation, and the possibility of 

still more costly, inefficient regulation. 

II. Regulatory Reform's Record 

As T noted at the outset of this testimony, our present problems are 

challenging but not wholly unprecedented. The present economic malaise deservedly draws 

comparisons to the malaise of the 1970s, when heavy regulation combined with other 

headwinds to prevent economic growth. To the credit of economist Alfred Kahn, lawyer 

Stephen Breyer, and others, the Carter Administration and Congress began to wake up to 

those problems in the late 1970s. But Ronald Reagan truly understood the challenge, and he 

campaigned vigorously in 1980 on a platform of regulatory reform. Once elected, he put his 

mandate into effect by commissioning a serious reform effort. 

I was privileged to participate in that process, which culminated with the 

landmark Executive Order 12291, creating the Office of Information and Regulatory Affairs 

and requiring executive branch agencies to subject regulations to meaningful cost-benefit 

analysis under OIRA's direction, among other things. President Reagan's Republican 

successors, Presidents George H.W. Bush and George W. Bush, continued to support and 

expand upon those reforms. And even Reagan's Democratic successor, President Clinton, 

largely maintained those reforms in Executive Order 12866. 

To be clear, the Reagan reforms were not perfect. Most significantly, E.O. 

12291 limited its requirements to executive agencies (the Environmental Protection Agency, 

Labor Department, and so on) but did not touch the so-called "independent" agencies-the 

Securities and Exchange Commission, National Labor Relations Board, and others. Even 

though the President has constitutional authority to impose such rules on the independent 

4 
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CBG-5.eps

agencies, the Reagan Administration stayed its own hand. It was a prudential decision: at 

that time, independent agencies' regulatory impact was much less than it is today. 

The results were overwhelming, as seen in the economic growth that followed. 

But aside from the well-known statistical evidence, my favorite illustration of the success of 

Reagan's regulatory reforms is a personal anecdote. A couple of years after President 

Reagan promulgated his reforms, when the economy was in recovery, I encountered the 

wife of the C.E.O. of one of the Big Three U.S. auto companies. She said her husband 

attributed the recovery to the regulatory reform program-not just because of the revision of 

old regulations but because of the signal that new regulations would be efficient and 

transparent enough to enable the companies to focus less on Washington and more on cars 

and consumers. 

III. Regulatory Refonn Recedes 

Unfortunately, in politics few victories are truly permanent, and regulatory 

reform is no exception. In recent years, the benefits of past reforms have been eroded by a 

number of developments. 

First, and as T just noted, the so-called "independent" agencies have come to 

impose a much greater burden on the economy. The Securities and Exchange Commission, 

National Labor Relations Board, and other longstanding agencies wield immensely more 

power than they once did. Once-sleepy agencies such as the Commodity Futures Trading 

Commission were given vast new powers by the Dodd-Frank Act and other new laws. And 

Dodd-Frank created another new independent agency, the Bureau of Consumer Financial 

Protection ("CFPB"), which threatens economic costs of its own. While the Obama 

Administration has made much of the fact that it nominally asked independent agencies to 
28 


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review the costs and benefits of their regulations, the executive branch has not taken serious 

steps to actually align the costs and benefits of independent agencies' regulations. Moreover, 

Congress is increasingly unwilling to oversee those agencies, as demonstrated by the DoddFrank provisions preventing Congress even from reviewing the budget of the self-funded 

CFPB. 

Second, the executive branch's control of cost-benefit analysis increasingly 

lacks credibility, as Professor Dudley's aforementioned article demonstrates. The 

Administration's self-serving claims that its regulatory benefits far exceed the costs of 

unprecedented environmental regulations should be met with serious suspicion. One 

notorious case study is the Administration's proposed valuation methodology for power 

plants' "cooling water intake" facilities. To establish the value offish harmed by those 

facilities, the EPA conducted a survey asking respondents how much they would be "willing 

to pay" to save certain species of fish. Of course such a study is wildly hypothetical, even 

ridiculous-few citizens are ever presented with a real-life situation in which they would 

pay real money to save real fish. And so the results, garnered from well-meaning 

respondents, were predictably skewed in favor of high values. That flimsy methodology 

might next be used to support costly regulations on the nation's energy producers. 

Furthermore, too much of the current Administration's regulations are driven 

not by transparent notice-and-comment rulemakings, but through backroom deals. Perhaps 

the most notorious example of this is the Administration's "bailout" ofthe auto industry. 

Seizing upon the industry's 2008-2009 crisis, the White House and EPA coerced auto 

companies into agreeing to accept overwhelmingly burdensome greenhouse gas regulations 

before a single word of the proposal was ever drafted-a disturbing incident recounted 

6 
29 


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forcefully in the House Oversight and Government Reform Committee's new report. 6 To 

the extent that the Administration forced this deal upon private industry, it was a serious 

abuse of power; to the extent that some inside the industry welcomed the arrangement, to 

the detriment of other auto companies and the economy at large, it was a textbook case of 

the "crony capitalism," backroom deals, and logrolling inherent in a regulatory process that 

lacks true transparency. As regulations proliferate, so do the opportunities for secret deals. 

IV. Regulatory Reforms To Solve Our Modern Problems 

Given those and other problems, the basic solutions clearly present 

themselves. Regulatory cost-benefit analysis requirements must be extended to independent 

agencies. And the framework for such review can no longer be designed and executed 

exclusively by the executive branch, without outside oversight. 

In the last two years, Congress has seen many legislative reforms 

incorporating these solutions. In fact, the bills considered and passed by this Committee, 

described below, constitute a comprehensive set of reforms that would solve many or all of 

the problems at hand. 

First, the Regulatory Accountability Act (H.R. 3010) takes the cost-benefit 

analysis currently required of agencies pursuant to executive orders and applies it to all 

agencies, executive and "independent" alike, as a matter of federal statutory law. By 

requiring agencies to analyze costs and benefits on the record, it gives the public an 

opportunity to comment upon the estimates of those costs and benefits, ultimately 

improving the final calculations by increasing the amount and quality of information in the 

"A Dismissal of Safety, Choice, and Cost: The Obama Administration's New Auto 

Regulations" (Aug. 10, 2012), athttp://oversight.house.gov/wp-content/uploadsI2012 

/08/CAFE-Report-8-1O-12-FlNALpdf 

7 
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administrative record. Furthermore, the Act would generally require agencies to choose the 

lowest-cost rulemaking alternative that meets the objectives of the underlying substantive 

statute-it would not supersede the requirements of, e.g., the Clean Air Act, but rather it 

would simply require regulators to select the regulatory framework that achieves those 

requirements at the lowest possible cost. And the Act preserves agency discretion to choose 

a higher-cost alternative if necessary to protect the public health, safety, and welfare, so long 

as the additional benefits justify the additional cost. 

The Regulatory Accountability Act would also require agencies to consider 

market-based alternatives to command-and-control rulemaking. This is a particularly 

laudable proposal. During my time in the Reagan and Bush Administrations, some of the 

government's greatest legislative successes promoted market-based solutions. The Clean Air 

Act, for example, fostered a system of emissions trading that allowed the free market to 

solve some of the most vexing regulatory challenges presented by air pollution. (That 

genuine cap-and-trade system stands in marked contrast to the phony "market-based" capand-tax solution promoted more recently by climate-change activists.) Unfortunately, 

recent legislation has trended in the other direction-for example, much of the regulatory 

mandates imposed by Dodd-Frank, to end the problem of "Too Big To Fail" banks, are 

counterproductive and destined to fail, whereas simple capital requirements would allow the 

market to solve the problem itself. The Regulatory Accountability Act will help to correct 

this trend, by restoring market-based solutions to a central place in regulatory policymaking. 

By requiring - not merely inviting - the White House to impose cost-benefit 

analysis requirements on "independent" agencies, and then subjecting that review to 

deferential-yet -meaningful judicial review, the Act would ensure that the President and 

8 
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CBG-9.eps

OIRA will take responsibility for independent agencies, with the further oversight provided 

by judicial review of the agency's eventual output. 

The Regulatory Flexibility Improvements Act (H.R. 527) targets the problems 

that regulatory agencies currently create for small businesses. By requiring agencies to 

account for the total impact ofregulations-their cumulative direct and indirect impactsand by requiring the agencies to open the door to small businesses to advise on the realworld effects of regulation, the Act would create a process to prevent regulators from 

placing heavy regulations on the nation's job creators without first exercising due care and 

prudence. True to its name, this bill improves the existing Regulatory Flexibility Act and 

Small Business Regulatory Enforcement Fairness Act, to finally achieve those laws' original 

aims. 

The "REINS" Act (H.R. 10) would restore Congress's constitutional 

responsibility as the nation's sole repository of legislative power, by requiring Congress to 

vote for major regulations before they go into effect. For the past century, Congress has 

delegated more and more power to regulators, raising serious constitutional concerns. Even 

if such delegations will not be remedied in the courts under the old "Nondelegation 

Doctrine," they certainly can be remedied by Congress itself. The REINS Act is a laudable 

attempt by Congress to prevent itself from abdicating its constitutional responsibilities, 

refocusing accountability on legislators who-unlike federal bureaucrats-are directly 

accountable to the People. 

The Regulatory Freeze for Jobs Act (H.R. 4078, Title I) recognizes that the 

current economic malaise calls for immediate action. To that end, the Act would freeze 

regulations costing more than $100 million until the unemployment rate finally reaches 6 

9 
32 


CBG-10.eps

percent. The Act, which includes exceptions necessary to protect national security and 

public health, safety, and welfare, would create the "breathing room" necessary to repair the 

economic injuries exacerbated by over-burdensome regulations. We need to grow the 

economy, not the Federal Register. 

The Sunshine for Regulatory Decrees and Settlements Act (H.R. 4078, Title 

Ill) would help to solve the longstanding collusion between activist groups and sympathetic 

regulators, which use sham ("sue and settle") litigation and resultant "consent decrees" to 

constrict or prevent true transparency in the regulatory process. By requiring greater public 

notice, tougher judicial scrutiny, a more open judicial process, and (in the Attorney 

General's office) direct accountability at the highest levels ofthe Executive Branch, this Act 

would ensure that "public interest" litigation truly promotes, not impairs, the public interest. 

Finally, the "RAPID" Act (H.R. 4078, Title V) recognizes that the burdens of 

regulation are not limited to the rulemaking process. Countless federal statutes require 

companies to apply for permits before undertaking job-creating projects. And too often, 

regulators, aided by activist groups, now seem to think that the goal of the permitting 

process is not to get safe, sound projects approved, but to block projects for political, 

ideological, or even fundraising reasons. The RAPID Act would streamline the permitting 

process, directing agencies to work together in a single, coherent process that promotes 

efficiency and accountability, inel uding meaningful deadlines for the completion of 

administrative reviews and for the filing of suits challenging permit approvals. 

Some have argued that those legislative reforms are too heavy-handed, 

placing too much power in the hands of federal judges to micromanage regulatory or 

economic decisions better left to experts. I disagree. These reforms do not prescribe any 

10 
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CBG-11.eps

substantive outcomes; they do not nUllify substantive statutes governing finance or the 

environment; rather, they merely erect procedures that will require the White House and 

agencies to seriously consider costs, benefits, and alternatives. This is a light burden and, 

given the burdens that agencies place on persons and businesses, an entirely proportionate 

one. 

The best example of how these reforms would work in practice is the D.C. 

Circuit's recent decision in Business Roundtable v. SEC,' an appeal of the S.E.C.'s "proxy 

access rule." A federal statute required the S.E.C. to consider the costs and benefits of that 

rule. When the proxy access rule was appealed in the D.C. Circuit, the court did not try to 

undertake its own economic analysis, or even micromanage the agency's own substantive 

review; rather, the court reviewed only whether the S.E.C. had sufficiently considered the 

evidence in the record before the agency, and whether the agency had meaningfully 

considered and replied to affected parties' arguments. Because the agency clearly had failed 

to satisfy those minimal requirements, the court vacated the rule and remanded the matter 

to the agency-it gave the agency another bite at the apple. The court did not prohibit the 

S.E.C. from reaching the same substantive outcome; it simply required the agency to satisfy 

the applicable procedural requirements. 

Some have argued that these statutes would make regulators' work too 

difficult. Last autumn, when this committee convened a hearing on the Regulatory 

Accountability Act (H.R. 3010), a group oflaw professors wrote that "the procedural and 

analytical requirements added by" the Act "would be enormously burdensome.'" I could 

647 F.3d 1144 (D.C. Cir. 2011). 

See https:/ IVv'Vv'W.law. upenn.edu/blogsl regblog/Letter%20to%20House%20Judiciary 

%20Committee%20on%20HR%203010.pdf 

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CBG-12.eps

not myself devise a better parody of the myopic, regulator-centric view of the regulatory 

state. Administrative agencies place enormous burdens on American companies every day; 

those burdens, not procedural requirements placed on bureaucrats, are the problem that 

cries out for immediate alleviation. 

And again, reforms of the kind reflected in Business Roundtable v. SEC do not 

impose umeasonable burdens on either regulators or the courts. Indeed, the caseload of the 

D.C. Circuit, which is the principal reviewing court, appears to be declining, not growing.' 

And within that shrinking caseload, the court's regulatory docket is declining even faster. lU 

* * * 

Tn closing, let me note that the Reagan Administration's successes are not the 

only examples worth considering. In the 1990s and early 2000s, the "sick man of Europe" 

was Germany-perhaps a difficult fact to recall, considering that Germany is today the 

engine of European economic growth and the continent's best hope for economic stability. 

Germany saved itself first and foremost through regulatory reform in 2003-2005, especially 

with respect to labor law restrictions, and the reforms worked very quickly to tum 

Germany's recovery around. 

See, e.g., "Judicial Business of the United States Courts," 2011 Annual Report of the 

Director of the Administrative Office of the U.S. Courts, at p. 59 

(http://www. uscourts.gov luscourts/Statistics/JudiciaIBusiness120 II IJudiciaIBusiness20 I 

l.pdf). 

10 See, e.g., Hon. Douglas H. Ginsburg, Remarks Upon Receiving the Lifetime Service Award of 

the Georgetown Federalist Society Chapter, 10 GEO. J. L. & PUB. POL'y I, 2 (2012) ("The 

number of cases filed in the D.C. Circuit has declined more or less continuously over the 

last twenty-five years. More surprising, the number of administrative law cases filed in our 

court also has declined over that period, again consistently, and the percentage of 

administrative law cases on our docket is lower now than it has been in all but two of the 

last twenty-five years. "). 

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CBG-13.eps

Germany's resurgence has shaped much of the modem political-economic 

debate, not just on questions of European bailouts but also on the issue of the proposed 

U.S.-E. U. free trade agreement-a treaty that could dramatically reduce transatlantic overregulatory friction. 

But amidst all of that, we must not neglect the lessons relevant to the issues 

before this committee today. Germany's Chancellor Merkel is urging Europe to recognize 

that structural reform is needed to rescue the continent from economic disaster. We should 

heed her warnings as well, and begin by reforming the structure of the administrative state. 

13 
36 

Mr. SMITH. Thank you, Mr. Gray. 

Professor Heinzerling. 

TESTIMONY OF LISA HEINZERLING, PROFESSOR, 

GEORGETOWN UNIVERSITY LAW CENTER, WASHINGTON, DC 

Ms. HEINZERLING. Mr. Chairman, Mr. Conyers, Members of the 

Committee, thank you very much for giving me this opportunity to 

testify here today. 

As has become typical in discussions criticizing regulation, we 

have heard this morning about the cost of regulation, but very little 

about the benefits. Yet regulation promotes multiple and diverse 

human interests and prevents multiple and diverse human harms. 

Regulation is, after all, just another word for ‘‘law,’’ and law is, 

given humans’ propensity to hurt each other in the absence of constraints on their behavior, a predicate for freedom. Regulation 

saves consumers money, prevents human illnesses, saves lives, and 

much more. 

To have a conversation about regulation without talking first 

about what regulation is for is not very illuminating. Consider the 

example of the Clean Air Act, one of the more embattled sources 

of regulatory authority in government today. The terms ‘‘public 

health’’ and ‘‘public welfare’’ appear like mantras throughout the 

Act. At its core, the Act aims to protect people from dying, or falling ill, or suffering other harm, such as damage to water, soils, 

crops, property, vegetation, and more due to air pollution. What is 

more, by targeting specific sources of pollution and by generally requiring that these sources do their level best to control their pollution, the Act aims to prevent the people in charge of these sources, 

the ones who choose and control the mechanisms of pollution, from 

hurting other people. 

Seen in this light, the Clean Air Act and other like modern laws, 

follow in a direct line from our framers and their ambitions for government by constraining human behavior in a way that promotes 

human freedom. To the extent the debates over the scope and 

shape of the regulatory state ignore these benefits of regulation, 

they will lead us badly astray. 

On the other side of the ledger, overstating the costs of regulation has become a dismayingly effective way of making regulation 

look foolish, but that does not make the overstatements any more 

accurate. A recent example is the one we have heard about already 

this morning, the study commissioned by the Small Business Administration’s Office of Advocacy. This study claims that Federal 

regulation costs $1.75 trillion per year in this country. This figure 

has been widely cited and credulously accepted. It is has been 

wheeled both to try to defeat new regulatory initiatives and to scale 

back existing ones. 

The report is not, however, a credible account of the costs of regulation in this country. There are many, many flaws in the report. 

They are detailed in my written statement and the attachment to 

that statement. 

I will rest with one example here. For environmental regulation, 

the report tallies up the costs and benefits of major rules as reported in annual reports issued by the Office of Management and 

Budget. The trouble is many of these rules do not exist. Many have 

37 

been withdrawn. Some have been overturned by the courts. Some 

were issued decades ago and are fully implemented at this time. 

The report is simply not a credit account of what we spend on 

regulation in this country today. To the extent that critiques of the 

regulatory state rely on such flawed statistics, they are not credible. 

We have heard this morning about a cascade of bills passed in 

this chamber, which we are told would improve upon the supposedly dismal state of regulation in this country. The bills pile 

procedure on procedure and analysis on analysis in a system already overburdened with procedural dictates and analytical complexity. The regulatory system, we are told, is too uncertain and 

too complicated, and produces just to many pages in the Federal 

Register. 

Cost benefit analysis, we are also told, just cannot be trusted any 

more now that the Obama administration is in charge. But the 

praised this morning would do little except add to the uncertainty, 

complexity, and sheer prolixity of the regulatory system. And they 

would deepen, rather than limit, the system’s reliance on the cost 

benefit analysis elsewhere critiqued. 

The challenge then, I think, is to answer the question, what 

would these bills do. One answer is clearly right: they would slow 

down, complicate, maybe even paralyze the system we have for 

making rules governing harmful human behavior. Thank you very 

much. 

[The prepared statement of Ms. Heinzerling follows:] 

38 


LH-1.eps

TESTIMONY 

OF 

LISA HEINZERLING 

PROFESSOR OF LAW, 

GEORGETOWN UNIVERSITY LAW CENTER 

BEFORE THE COMMITTEE ON THE JUDICIARY 

UNITED STATES HOUSE OF REPRESENTATIVES 

HEARING ON 

REGULATION NATION: 

THE OBAMA ADMINISTRATION'S REGULATORY EXPANSION VS. 

JOBS AND ECONOMIC RECOVERY 

SEPTEMBER 20, 2012 
39 


LH-2.eps

Mr. Chairman and Members of the Committee, thank you for giving me the 

opportunity to testify before you today. 

I am a Professor of Law at the Georgetown University Law Center. My primary 

expertise is in environmental law and administrative law. My work in these areas 

includes four books and dozens of law review articles and book chapters. From 

January 2009 to December 2010, I took a leave of absence from Georgetown to 

serve first as Senior Climate Policy Counsel and then as head of the Office of Policy 

at the U.s. Environmental Protection Agency. 

I. Introduction 

We are in the midst of a contentious and high-stakes debate over the proper 

role of regulation in our society. Reasonable people can disagree about the 

appropriate scope, shape, and pace of regulation, and a debate on these matters is 

surely healthy. Unfortunately, however, the debate over regulation is often not 

framed in a reasonable or even honest way. All too often, in fact, the debate 

recklessly ignores the many benefits of regulation and inaccurately reports its costs. 

The title of this morning's hearing is a case in point. In apparently pitting 

regulation against jobs and the economy, implying that they are in tension with each 

other or even mutually exclusive, the framing for today's discussion dismisses the 

economic (and noneconomic) benefits of regulation and inflates its costs. In such a 

setting, it is worthwhile to return to first principles: why do we regulate? My 

remarks thus begin with a review of the benefits of regulation, and then turn to a 

prominent recent example of dissembling on the matter of regulatory costs. 

II. The Benefits of Regulation! 

It is hard to improve upon James Madison's reminder about why we have 

both government and constraints on government: "If men were angels, no 

government would be necessary. If angels were to govern men, neither external nor 

internal controls on government would be necessary."2 Yet recent debates over the 

scope and shape of the regulatory state have fixed on the second insight in 

Madison's famous passage while ignoring the first. Proposals to rein in 

administrative agencies - to slash their budgets, veto their rules, undo their legal 

authority - are offered as though rules governing human behavior produce all costs 

and no gains. They proceed as if people will not hurt other people if government 

! The discussion in this section draws heavily on an Issue Brief I wrote in November 

2011 for the American Constitution Society; this Issue Brief is available at 

https:/ /www.acslaw.org/sites/default/files/Heinzerling_-

_Missin~a_Teachable_Moment.pdf. 

2 The Federalist No. 51 (1787). 

1 
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LH-3.eps

steps aside. People are angels, in other words, outside of government; they mostly 

just go about their business, not trying to hurt anybody. We gain nothing by 

constraining their behavior. 

Lost in this vision are three simple facts. 

First, people are not angels. It is not just that people can be cruel and 

vindictive. It is also that they can be greedy, selfish, careless, and callous. Even 

when they do not set out to harm other people, they can end up doing so through 

greed and neglect. The financiers who helped bring the U.S. economy to its knees did 

not mean to hurt anyone; BP and Transocean did not want the workers on the 

Deepwater Horizon oil rig to die; U.S. utilities would surely prefer that the pollution 

from their power plants did not kill thousands every year. A great deal of human 

suffering, in fact, has nothing to do with maliciousness and everything to do with 

avarice and indifference. But pursuing profit in the face of a known risk to others is 

not angelic. 

Second, given that people are not angels, a basic purpose of government is to 

protect people from being hurt by other people. And, far from illegitimately 

constraining freedom, law actually promotes freedom when it protects people from 

being hurt by other people. As John Locke - whose views on the purposes of 

government greatly influenced this country's founding generation - put it: "Where 

there is no law, there is no freedom. For liberty is to be free from restraint and 

violence from others, which cannot be where there is no law." Discussants in 

current debates over the regulatory state seem to forget that "regulation" is just 

another word for "law," and that law is a predicate for human freedom. 

Third, protecting people from being hurt by other people is also the 

predominant purpose of the kinds of regulation now under the most vociferous 

attack - health, safety, consumer, and environmental regulation. Consider the 

example of the Clean Air Act, perhaps the most embattled source of regulatory 

authority in government today. The terms "public health" and "public welfare" 

appear like mantras throughout the Act; at its core, the Act aims to protect people 

from dying or falling ill, or suffering other, welfare-based harms such as damage to 

water, soils, crops, and wildlife, due to air pollution. What is more, by targeting 

specific sources of pollution and by generally requiring that these sources do their 

level best to control their pollution, the Act aims to prevent the people in charge of 

these sources - the ones who choose and control the mechanisms of pollution -

from hurting other people. Seen in this light, the Clean Air Act and other like 

modern laws follow in a direct line from the framers and their ambitions for 

government, by constraining human behavior in a way that promotes human 

freedom. 

In explaining why we regulate and what regulation does for us, it is also 

important to describe the exact harms that will befall people if we do not regulate. 

2 
41 


LH-4.eps

That is, in addition to discussing the human role in creating these harms, we should 

also identify the harms themselves. 

These harms are many and varied. 

One category of harms avoided through regulatory intervention is an 

especially clear-cut counterpoint to the economic costs of regulation: sometimes, 

consumers and others directly lose money in the absence of regulation. Or, put 

another way, regulation sometimes saves people money. When the Federal Trade 

Commission sued a marketer of dietary supplements for offering "free trials" of 

dietary supplements that came paired with recurring charges that were very 

difficult to avoid, it took aim at a problem that cost consumers over $30 million in 

one year alone; and this is just one of some 60 like cases brought by the FTC in the 

last decade.3 Likewise, when the FTC cracked down on companies making false 

promises of employment and business success to people who were unemployed or 

otherwise falling behind in the economic downturn, it sought to control practices 

that also cost consumers tens of millions of dollars; the agency charged that one 

company alone had bilked consumers out of $40 million.4 Rules issued in the last 20 

or so years by the Department of Energy, setting efficiency standards for household 

appliances, will have saved consumers over $100 billion by 2030.5 Far from taking 

money out of consumers' pockets, these kinds of legal efforts put money back in 

them - or make sure it doesn't leave in the first place. 

Regulation can also save people money more indirectly. When a person does 

not have to go to the hospital because a rule has reduced the air pollution that 

would have made her sick, or when she does not miss work for the same reason, the 

rule has saved her the expense of a hospital visit or wages lost due to missed work. 

Similarly, when a person does not have to go to the hospital or miss work because -

although she has been in a car accident - a vehicle safety feature mandated by a rule 

protected her from serious injury, the rule has saved her money. Indeed, in 

examples too numerous to list here, rules that protect health and safety also protect 

pocketbooks, as they alleviate the costs of doctor's visits, medicines, hospital stays, 

lost work days, and other interventions and disruptions associated with ill health 

and inadequate safety. 

Beyond saving money, directly and indirectly, regulation also protects people 

from harms that are not fully captured as "money saved." Cancers of all kinds, heart 

attacks, asthma attacks, and more are prevented by environmental rules. 

Occupational safety rules can help prevent people from being electrocuted or 

crushed by heavy equipment. Vehicle safety rules can help drivers not back over 

3 FTC news release, available at http://www.ftc.gov /opa/2010/08/acaicolon.shtm. 

4 FTC news release, available at 

http://www.ftc.gov / opa/2011/03/emptypromises.shtm. 

5 DOE, The Standard Setting Process, available at http://ees.ead.lbl.gov/node/2. 

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LH-5.eps

people (especially children) who are difficult to see in an ordinary rearview mirror. 

The full range of human illness and suffering alleviated by regulation is huge. 

Regulation also, of course, often prevents (or at least forestalls) the ultimate 

adverse event, death. In this domain, it is especially important to remember the link 

between human behavior and human harm; our legal and ethical norms make 

proceeding in the face of known and avoidable risks of death an especially egregious 

form of behavior. Yet sometimes even large numbers of saved lives fail to persuade 

the anti-regulatory crowd that regulation is a good idea; some embattled EPA rules, 

for example, are expected to save many thousands oflives every year, yet embattled 

they remain. 

Strangely, statistics alone can sometimes be more lulling than moving. A 

peculiar inversion can occur when one tries to speak in numerical terms about the 

benefits of regulation, especially health, safety, and environmental regulation: the 

more people who are protected from dying or falling ill, the less we seem able to 

grasp the magnitude of the problem. It is easy to understand an intervention that 

saves the life of someone right in front of us. It is unthinkable not to save the little 

girl trapped in the well. But to save thousands from dying due to air pollution? The 

temptation, often indulged by anti-regulatory forces, is to act as though the 

thousands endangered by air pollution somehow do not exist. But they do. 

To summarize: regulation promotes multiple and diverse human interests 

and prevents mUltiple and diverse human harms. To the extent that current debates 

over the scope and shape of the regulatory state ignore these benefits of regulation, 

they will lead us badly astray. 

II. The False Narrative About Regulatory Costs6 

Keeping regulation at bay requires hard work. Disastrous failures of 

regulation lie just beneath such spectacularly bad problems as the financial 

breakdown, the oil spill in the Gulf, the climate crisis, and more. It takes constant 

vigilance to prevent a public outcry for more and better regulation. It also often 

takes phony numbers. 

Often, the phony numbers relate to regulatory costs. Here, one of the latest 

and biggest phony numbers being circulated by the anti-regulatory crowd is the 

figure of $1.75 trillion-supposedly the amount we in the United States spend every 

year on federal regulations. This figure has been widely cited and credulously 

accepted. It has been wheeled out both to try to defeat new regulatory initiatives 

and to scale back existing ones. It has also been deployed in the service of a 

6 This discussion is drawn from Lisa Heinzerling and Frank Ackerman, The $1.75 

Trillion Lie, 1 Mich. J. Envtl. & Admin. Law 127 (2012). This article is provided as an 

attachment to this testimony. 

4 
43 


LH-6.eps

legislative agenda aimed at hamstringing the regulatory agencies responsible for 

these purportedly massive costs. 

The number comes from a report commissioned, reviewed, edited, and, 

despite withering criticisms of it, defended by the Office of Advocacy of the U.S. 

Small Business Administration (SBA). Authored by Lafayette College economists 

Nicole V. Crain and W. Mark Crain, the SBA-sponsored report concludes that $1.75 

trillion is the combined annual cost of complying with economic regulations, 

environmental regulations, the federal tax code, occupational safety and health 

regulations, and homeland security regulations.? 

The Crain and Crain report is, however, not a credible account of the costs of 

regulation in this country. Several critiques of the report have pointed out that not 

only does the report completely omit discussion of the benefits of regulation-thus 

providing an entirely one-sided picture of regulatory consequences-it also uses 

evidence not intended, nor suitable, for the purposes to which Crain and Crain put 

it.n It also explains away its own potential cost overestimation by assertingcontrary to existing evidence9-that regulatory agencies tend to underestimate 

regulatory costs. The nonpartisan Congressional Research Service (CRS) undertook 

its own regression analysis using almost the same data, but much sounder methods 

than those used by Crain and Crain, and found that, with those adjustments, a 

central component of Crain and Crain's analysis (the "regulatory quality index" 

developed by the World Bank for a different purpose) ceased having the effect Crain 

and Crain claimed for it.1o 

The economist Frank Ackerman and I have taken another, even deeper 

plunge into Crain and Crain's estimates of costs, and have found even more 

troubling problems. We focused on Crain and Crain's estimates of the costs of 

economic regulation, environmental regulation, and workplace safety and health 

regulation. Together, these categories account for approximately $1.6 trillion of 

Crain and Crain's $1.75 trillion estimate. 

For economic regulation, we found that Crain and Crain come up with a 

breathtaking $1.24 trillion in estimated aggregate costs-seventy percent of their 

7 Nicole V. Crain & W. Mark Crain, The Impact of Regulatory Costs on Small Firms 

(2010). 

8 For a detailed critique, see Sidney A. Shapiro et al., Setting the Record Straight: The 

Crain and Crain Report on Regulatory Costs (2011), available at 

http:// www.progressivereform.org/articles/SBA_Regulatory _ Costs_Analysis_l1 0 3. 

pdf. 

9 Shapiro et ai., at 7-9; Isaac Shapiro & John Irons, Regulation, Employment, and the 

Economy: Fears of Job Losses Are Overblown 21-23 (2011), available at 

http://www.epi.org/ files/20 I1/BriefingPaper30 5.pdf. 

10 Curtis W. Copeland, Congo Research Serv., R41763, Analysis of an Estimate of the 

Total Costs of Federal Regulations 27-28 (2011). 

5 
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LH-7.eps

entire numerical picture of regulatory burden-from a single, poorly designed 

equation which they built on a misinterpretation of a World Bank database. They 

take this equation as proof that better "regulatory quality" causes higher incomes; 

and they read the World Bank data quite incorrectly to say that there is a welldefined maximum for regulatory quality which the United States falls far below. 

Ackerman and I identified several serious errors in the Crain and Crain treatment of 

economic costs; each of these errors alone is sufficient to invalidate their analysis. 

Ackerman and I also found that Crain and Crain's estimates of the costs of 

environmental regulation are deeply troubled as well. For environmental rules 

issued before 1988, they rely on a single study published in 1991 that uses a general 

equilibrium model to spin out a conjecture about a possible impact of early 1980s 

regulations as a whole: if regulatory costs raise prices in general, then real wages 

will drop; at lower real wages, textbook economics implies that workers will choose 

to work less, reducing output and incomes. For regulatory costs of environmental 

rules issued after 1988, Crain and Crain-among other mistakes-claim costs for 

regulations that no longer exist because the agency itself pulled them back; they 

include costs of rules that no longer exist because the courts overturned them; they 

double count by including sets of rules that all have the same regulatory end; and 

they include the costs of regulations issued many years, sometimes decades, ago, the 

current costs of which (if they still even exist) cannot be fairly attributed to 

regulatory programs. 

In estimating the cost of workplace rules, Crain and Crain rely-indirectly, 

after laundering it through several more recent studies from marginally less 

partisan sources-on a study done in 1974 by the National Association of 

Manufacturers. Beyond reliance on an outdated and highly partisan source, Crain 

and Crain's estimates ofthe costs of workplace rules also suffer from the same flaws 

embodied in their estimates of the costs of environmental rules. 

Added to the numerous flaws revealed by other commentators, the problems 

Frank Ackerman and I found with Crain and Crain's estimate of regulatory costs 

raised a disturbing possibility: the mistakes were so many, cut in only one direction 

so thoroughly, and could have been discovered by the authors so easily, that one is 

pressed to conclude that the study was designed to produce a really big number. The 

number is a rhetorical device, a talking point, a trope; it is not the product of sound 

analysis. 

The development and wide circulation of misleading statistics, supposedly 

showing the foolishness of regulation, is not a new phenomenon. Previous periods 

of discontent with the scope and content of regulatory activity have also featured 

arresting statistics that, all by themselves, appear to make the case for regulatory 

reform: federal regulations spend hundreds of millions, even billions, of dollars to 

6 
45 


LH-8.eps

save a single human life;l1 regulation "statistically murders" 60,000 people a year by 

directing limited resources to very expensive life-saving measures rather than to 

cheaper ones;12 once a regulation costs more than a certain amount (estimates 

ranged from $3 to $50 million) to save a life, people are killed through this cost 

alone because it prevents spending money on other life-saving measures like health 

care.13 just as the $1.75 trillion figure has recently been served up now as Exhibit 1 

in the case for regulatory reform, so these previous statistics were offered to prove 

that the regulatory system had gone badly awry. The trouble was, these statistics 

were no more reliable than the statistics Crain and Crain have offered.14 

The specific numbers change from time to time, but the game remains the 

same: make regulation look outlandish by claiming costs for it that are not real. This 

is not a sound basis on which to evaluate the regulatory state. 

Attachment: The $1.75 Trillion Lie 

11 john F. MorralillI, A Review of the Record, Regulation, Nov.-Dec. 1986, at 25, 30-

31. 

12 Tammy O. Tengs & john D. Graham, The Opportunity Costs of Haphazard Social 

Investments in Life-Saving, in Risks, Costs, and Lives Saved: Getting Better Results 

from Regulation 167, 172 (Robert W. Hahn ed., 1996). 

13 Randall Lutter et aI., The Cost-Per-Life-Saved Cutoff for Safety-Enhancing 

Regulations, 37 Econ. Inquiry 599 (1999); W. Kip Viscusi, Risk-Risk Analysi,~, 8 j. 

Risk & Uncertainty (Special Issue) 5 (1994). 

l~ For previous critiques, see Frank Ackerman & Lisa Heinzerling, Priceless: On 

Knowing the Price of Everything and the Value of Nothing (The New Press 2004); 

Lisa Heinzeriing, Five Hundred Life-Saving Interventions and Their Misuse in the 

Debate Over Regulatory Reform, 13 Risk, Safety & Env't 151 (2002); Lisa 

Heinzerling & Frank Ackerman, The Humbugs of the Anti-Regulatory Movement, 87 

Cornell L. Rev. 648 (2002); Lisa Heinzerling, Regulatory Costs of Mythic Proportions, 

107 Yale L.j.1981 (1998) . 

7 
46 


LH-9.eps

THE $1.75 TRILLION LIE 

Lisa Heinzerling' 

Frank Ackerman" 

A 2010 study commissioned b the Office of Advocacy of the U.S. Small 

Business Administration claims that federal regulations impose annual economic 

costs of $1. 75 trillion. This estimate has been widely circulated, in everything from 

op-ed pages to Congressional testimony. But the estimate is not credible. For costs 

of economic regulations, the estimate reflects a calculation that rests on a misunderstanding of the definition of the relevant data, flunks an elementary question 

on the normal distribution, pads the analysis with several years of near-identical 

data, and Jails to recognize the difference between correlation and causation. For 

costs of environmental regulation, the bulk of the estimate relies on decades-old 

studies of decades-old rules, suggesting that voluntary unemployment is the real 

culprit in todafl regulatory emJironment. The remainder of it is filled with nonexistent rules and other phantoms-as is the Jlawed estimate of the costs of 

workplace safety and health rules. 

It would be bad enough if this were a private study, undertaken with private funds. Even then, the viral spread of the utterly unfounded $1.75 trillion 

estimate would be worrying enough. But this is a study requested, funded, reviewed, and edited by a government agency, the Small Business Administration's 

Office of Advocacy. :the Office of Advocacy's sponsorship and official embrace of 

the study-including defense of the study in testimony before Congress even after 

it had been severely criticized-embroils this public agency in an unwholesome 

blend of ineptitude and bias. The Office of Advocacy should acknowledge the 

study's many failings and publicly disavow it. 

INTRODUCTION ................................................................................ 128 

I. GETTING TO No: How CRAIN AND CRAIN REACH 

$1.75 TRILLION ..................................................................... 132 

A. Economic Regulations ............................................................ 133 

B. Environmental Regulations ...................................................... 135 

C. Workplace Regulations ............................................................ 136 

II. THE MANY SHORTCOMINGS OF CRAIN AND CRAIN'S 

ESTIMATE ............................................................................ 137 

A. Economic Regulation ................. .............................................. 137 

1. Why Be Normal? ......................................................... 137 

2. Padding the Evidence ................................................... 139 

Professor of Law, Georgetown University. 

Senior economist, Stockholm Environment Institute-U.S. Center, Tufts University. 
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128 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

3. Inside the OECD ........................................................ 141 

4. Correlation Is Not Causation ........................................ 142 

B. Environmental Regulation ...................................................... 143 

1. Old Data on Old Rules ................................................. 143 

2. Is Our Real Problem Voluntary Unemployment? 

Really? ........................................................................ 144 

3. Piling On: Crain and Crain's Use of OMB Reports 

on the Costs of Environmental Rules ............................ 150 

C. Workplace Safety and Health ................................................... 155 

CONCLUSION ................................................................................... 157 

INTRODUCTION 

Keeping regulation at bay requires hard work. Disastrous failures of 

regulation lie just beneath such spectacularly bad problems as the financial 

breakdown/ the oil spill in the GulC the nuclear meltdown in Japan/ the 

climate crisis,4 and more. 5 It takes constant vigilance to prevent a public 

outcry for more and better regulation. It also often takes phony numbers. 

The latest and biggest phony number being circulated by the antiregulatory crowd is the figure of $1.75 trillion-supposedly the amount we 

in the United States spend every year on federal regulations. 6 This figure 

has been widely cited and credulously accepted. It has been wheeled out 

both to try to defeat new regulatory initiatives and to scale back existing 

ones. 7 It has also been deployed in the service of a legislative agenda aimed 

1. 

2. 

(2011). 

See. e.g., Anthony Faiola et aI., What Went Wrong, WASH. POST, Oct. 15,2008, at A1. 

See, e.g., John Wyeth Griggs, BP Gulf of Mexico Oil Spill, 32 E'lERGY L.J. 57, 66, 79 

3. See, e.g., James Glanz & Norimitsu Onishi,]apanese Rules for Nuclear Plants Relied 

on Old Science, N.Y. TIMES, Mar. 27,2011, at Al (discussing underestimation of tsunami risk 

to nuclear reactors by Japanese regulators and industry); Daniel Kaufmann & Veronika 

Penciakova, Preventing Nuclear Meltdown: Assessing Regulatocy Failure in japan and the United 

States, BROOKINGS (Apr. 1, 2011), http://www·.brookings.edu/opinionsI2011/040Cnuclear_ 

meltdown_kaufmann.aspx. 

4. See, e.g., Lisa Heinzerling, Health Regulation and Governance: Climate Change, 

Human Health, and the Post-Cautionary Principle, 96 GEO. L.J. 445,455-58 (2008) (discussing 

years of missed opportunities to act on climate change). 

5. SIDNEY SHAPIRO ET AL., SAVING LIVES, PRESERVING THE ENVIRONME'lT, 

GROWING THE ECONOMY: THE TRUTH ABOUT REGULATION 7-9 (2011), available at 

http://www.progressivereform.org/articles/RegBenefits_1109.pdf (discussing the cost of 

various failures to regulate). 

6. NICOLE V. CRAI'l & W. MARK CRAIN, THE IMPACT OF REGULATORY COSTS ON 

SMALL FIRMS, at iv (2010). The study was developed under contract number SBAHQ-08-

M-0466 for the Small Business Association's (SBA) Office of Advocacy. 

7. As the blog for the Center for Progressive Reform has observed, one recent 

congressional hearing prominently featured the $1.75 trillion figure. Ben Somberg, Debunked 

SBA Regulatory Costs Study Front and Center Qt House Energy (3 Commerce Committee 
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Spring 20121 The $1.75 Trillion Lie 129 

at hamstringing the regulatory agencies responsible for these purportedly 

massive costS. 8 It has even become part of the rhetoric of the race for the 

presidency.9 

The number comes from a report commissioned, reviewed, edited, and, 

despite withering criticisms of it, defended by the Office of Advocacy of 

the U.S. Small Business Administration (SBA). Authored by Lafayette 

College economists Nicole V. Crain and W. Mark Crain, the SBAsponsored report concludes that $1.75 trillion is the combined annual cost 

of complying with economic regulations, environmental regulations, the 

federal tax code, occupational safety and health regulations, and homeland 

security regulations. 10 

The Crain and Crain report is, as Obama regulatory czar Cass Sunstein 

put it in recent congressional testimony, "deeply flawed.,,11 Several previous 

Hearing, CPRBLOG (July 15, 2011), http://www.progressivereform.org/CPRBlog.cfm? 

idBlog~2EODC7E3-B914-9703-69CCOD539EF8EC34; see also The Views of the Administration on Regulatory Reform: Hearing Before the H. Comm. On the Energy and Commerce, 

Subcomm. On Oversight and Investigation, 112th Congo 3 (2011) (statement of the u.s. Chamber of Commerce by William L. Kovacs, Senior Vice President, Environment, Technology 

and Regulatory Affairs); Thomas M. Arnold & Jerry L. Stevens, Mixed Afpldas and Government Regulation of Business: Can We Clean Up The Mess?, 45 U. RICH. L. REV. 1059, 1073 

(2011); James L. Gattuso et ai., Red Tape Rising: Obama's Torrent of New Regulation, 

HERITAGE FOUND. BACKGROUNDER, Oct. 26, 2010, at 1, available at http://thCmedia.s3. 

amazonaws.com/2010/pdf/bg2482.pdf; Phil Kerpen, Op-Ed., Regalatory State Needs More 

Than a Trim, WASH. TIMES, Jan. 24,2011, at B3; Mark R. Warner, Op-Ed., Red-Tape Relief 

for a Sluggish Recovery, WASH. POST, Dec. 13, 2010, at A19; Glenn Kessler, Is Obama Bad for 

Business?, WASH. POST (Jan. 14, 2011, 6:00 AM), http://voices.washingtonpost.com/factcheckerl2011/01lis_obama_badjor_business.html (quoting Thomas Donohue, President of 

the U.S. Chamber of Commerce, and Rep. Darrell Issa (R-Calif.), Chairman of the House 

Oversight Committee, who both cite Crain and Crain's study). 

8. See, e.g., Wayne Crews & Ryan Young, Op-Ed., Regulation Without Representation, 

INVESTOR'S Bus. DAILY, Feb. 9,2011, at A13; Thomas A. Hemphill, REINing in Regulation, 

AM. E"ITERPRISE INST. (Nov. 22, 2010), http://www.american.com/archiveI2010Inovember/ 

reining-in-regulation. 

9. See, e.g., Mitt Romney, Op-Ed., Romney: My Plan to Turn Around the U.S. Economy, 

USA TODAY, Sept. 6, 2011, at A11 ("With scant regard for the costs imposed on consumers 

and businesses, President Obama has vastly expanded the regulatory reach of government. 

The federal government has estimated the price tag for its regulations at $1.75 trillion."); 

Tim Pawlenty, Former Governor of Minnesota and Former 2012 Presidential Candidate, 

Economic Policy Remarks at the University of Chicago: A Better Deal (June 7, 2011) 

(transcript available at http://blogs.ws j .comlwashwire/2011/06/07ltext -of-pawlentys-speechon-his-economic-planl) ("But the fact is-federal regulations will cost our economy 1.75 

trillion dollars this year alone. It's a hidden tax on every American consumer. Built into the 

price of every good and service in the economy."). 

10. CRAIN & CRAIN, supra note 6, at iv,5. 

11. See, e.g., Jessica Randall, OIRA Administrator Sunstein Calls Crain [3 Crain Report 

'Deeply Flawed,' OMB WATCH (June 23, 2011), http://www.ombwatch.org/node/11742 (discussing the oral testimony given by Sunstein on June 23, 2011 at the hearing before the 

Senate Committee on Homeland Security and Governmental Affairs). 
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130 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

CrItiques of the report have pointed out that not only does the report 

completely omit discussion of the benefits of regulation-thus providing an 

entirely one-sided picture of regulatory consequences-it also uses evidence 

not intended, nor suitable, for the purposes to which Crain and Crain put 

it. 12 It also explains away its own potential cost overestimation by asserting-contrary to existing evidence13 -that regulatory agencies tend to 

underestimate regulatory costS. 14 The nonpartisan Congressional Research 

Service (CRS) undertook its own regression analysis using almost the same 

data, but much sounder methods than those used by Crain and Crain, and 

found that, with those adjustments, a central component of Crain and 

Crain's analysis (the "regulatory quality index" developed by the World 

Bank for a different purpose) ceased having the effect Crain and Crain 

claimed for it. IS 

Our Article takes another, even deeper plunge into Crain and Crain's 

estimates of costs, and finds even more troubling problems. We focus on 

Crain and Crain's estimates of the costs of economic regulation, environmental regulation, and workplace safety and health regulation. Together, 

these categories account for approximately $1.6 trillion of Crain and Crain's 

$1. 75 trillion estimate. 16 

For economic regulation, we find that Crain and Crain come up with a 

breathtaking $1.24 trillion in estimated aggregate costs-seventy percent of 

their entire numerical picture of regulatory burden-from a single, poorly 

designed equation which they built on a misinterpretation of a World Bank 

database. They take this equation as proof that better "regulatory quality" 

causes higher incomes; and they read the World Bank data quite incorrectly 

to say that there is a well-defined maximum for regulatory quality which 

the United States falls far below. We will identify four serious errors in the 

Crain and Crain treatment of economic costs; each of these errors alone is 

sufficient to invalidate their analysis. 

Crain and Crain's estimates of the costs of environmental regulation are 

also deeply troubled. For environmental rules issued before 1988, they rely 

12. See, e.g., Austin Goolsbee, A 21st Century Regulatory System, WHITE HOUSE BLOG 

Gune 23, 2011, 3:08 PM), http://www.whitehouse.gov/blog/2011/06/23121st-centuryregulatory-system. For a detailed critique making these and other points, see SIDNEY A. 

SHAPIRO ET AL., SETTING THE RECORD STRAIGHT: THE CRAIN AND CRAIN REPORT ON 

REGULATORY COSTS (2011), available at http://www.progressivereform.org/articles/SBA_ 

Regulatory _ Costs_Analysis_ll03. pdf. 

13. See SHAPIRO ET AL., supra note 12, at 7-9; ISAAC SHAPIRO & JOHN IRONS, 

REGULATION, EMPLOYMENT, AND THE ECO:\lOMY: FEARS OF JOB LOSSES ARE OVERBLOWN 

21-23 (2011), available at http://www.epi.orglfiles/2011!BriefingPaper305.pdf. 

14. CRAIN & CRAIN, supra note 6, at 27, 28 n.27. 

15. CURTIS W. COPELAND, CONGo RESEARCH SERV., R41763, ANALYSIS OF AN 

ESTIMATE OF THE TOTAL COSTS OF FEDERAL REGULATIONS 27-28 (2011). 

16. CRATN & CRATN, supra note 6, at 31 tb1.6. 
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Spring 20121 The $1.75 Trillion Lie 131 

on a single study published in 199117 that uses a general equilibrium model 

to spin out a tortuous conjecture about a possible impact of early 1980s 

regulations as a whole: if regulatory costs raise prices in general, then real 

wages will drop; at lower real wages, textbook economics implies 

that workers will choose to work less, reducing output and incomes. For 

regulatory costs of environmental rules issued after 1988, Crain and 

Crain-among other mistakes-claim costs for regulations that no longer 

exist because the agency itself pulled them back; they include costs of rules 

that no longer exist because the courts overturned them; they double count 

by including sets of rules that all have the same regulatory end; and they 

include the costs of regulations issued many years, sometimes decades, ago, 

the current costs of which (if they still even exist) cannot be fairly attributed 

to regulatory programs. 

In estimating the cost of workplace rules, Crain and Crain relyindirectly, after laundering it through several more recent studies from 

marginally less partisan sources-on a study done in 1974 by the National 

Association of Manufacturers.l~ Beyond reliance on an outdated and highly 

partisan source, Crain and Crain's estimates of the costs of workplace rules 

also suffer from the same flaws embodied in their estimates of the costs of 

environmental rules. 

Added to the numerous flaws already revealed by other commentators, 

the problems we have found with Crain and Crain's estimate of regulatory 

costs raise a disturbing possibility: the mistakes are so many, cut in only 

one direction so thoroughly, and could have been discovered by the authors 

so easily, that one is pressed to conclude that the study was designed to 

produce a really big number. The number is a rhetorical device, a talking 

point, a trope; it is not the product of sound analysis. 

We have been here before. Previous periods of discontent with the scope 

and content of regulatory activity have also featured arresting statistics that, 

all by themselves, appear to make the case for regulatory reform: federal 

regulations spend hundreds of millions, even billions, of dollars to save a 

single human life;19 regulation "statistically murders" 60,000 people a year 

by directing limited resources to very expensive life-saving measures rather 

17. !d. at 25 (noting their reliance on Robert VI. Hahn & John A. Hird, The Costs and 

Benefits of Regulation: Review and Synthesis, 8 YALE J. 0:\1 REG. 233 (1991) for cost estimates 

on environmental regulations). 

18. !d. at 30 n.29 (noting that they rely on Joseph M. Johnson, A Revie'w and Synthesis 

of the Cost of Workplace Regulations, in CRoss-BORDER HUMAN RESOURCES, LABOR Al\D 

EMPLOYMENT ISSUES 433 (Andrew P. Morriss & Samuel Estreicher eds., 2005)). Johnson's 

study relies on HARVEY S. JAMES, JR., ESTIMATING OSHA COMPLIANCE COSTS (1996), a 

policy study conducted for the Center for the Study of American Business, which, finally, 

directly relies on the 1974 study by the National Association of Manufacturers. 

19. John F. Morrall III,A Review of the Record, REG., Nov.-Dec. 1986, at 25, 30-31. 
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132 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

than to cheaper ones/o once a regulation costs more than a certain amount 

(estimates ranged from $3 to $50 million) to save a life, people are killed 

through this cost alone because it prevents spending money on other lifesaving measures like health care.2

! Just as the $1.75 trillion figure is being 

served up now as Exhibit 1 in the case for regulatory reform,22 so these 

previous statistics were offered to prove that the regulatory system had 

gone badly awry. 

We have challenged the empirical basis for these previous numbers at 

length elsewhere/3 and we will not repeat our criticisms here. It is worth 

noting, though, that in our long experience with fantastical numbers offered 

in the service of an anti-regulatory agenda, we have not seen anything quite 

like Crain and Crain's number. The new high figure for regulatory costs 

marks a new low in anti-regulatory analysis. 

1. GETTING TO No: 

How CRAIN AND CRAIN REACH $1.75 TRILLION 

Before turning to our critique, we need to explain how Crain and Crain 

reached their estimates of regulatory costs. 

Crain and Crain divide regulatory costs into several different categories 

(economic regulations, environmental regulations, the federal tax code, 

occupational safety and health regulations, and homeland security regulations), and use several different methodologies, depending on the category, 

for estimating these costS. 24 We assess the estimates pertaining to economic 

regulations, environmental regulations, and occupational safety and health 

regulations. Together, these categories make up over ninety percent of 

Crain and Crain's overall estimate of annual United States regulatory 

costS. 25 

20. Tammy O. Tengs & John D. Graham, The Opportunity Costs of Haphazard Social 

Investments in Life-Saving, in RISKS, COSTS, AND LIVES SAVED: GETTING BETTER RESULTS 

FROM REGULATION 167, 172 (Robert W. Hahn ed., 1996). 

21. E.g., Randall Lutter et al., The Cost-Per-Life-Saved Cutoff for Safety-Enhancing 

Ref(ulations, 37 ECON. INQUIRY 599 (1999); W. Kip Viscusi, Risk-Risk Analysis, 8 J. RISK & 

UNCERTAINTY (SPECIAL ISSUE) 5 (1994). 

22. See supra note 7 and accompanying text. 

23. FRANK ACKERMAN & LISA HEINZERLING, PRICELESS: ON KNOWING THE PRICE 

OF EVERYTHING AND THE VALUE OF NOTHING (2004); Lisa Heinzerling, Five Hundred 

Life-Saving Interventions and Their Misuse in the Debate Over Regulatory Reform, 13 RISK, 

SAFETY & ENV'T 151 (2002) [hereinafter Five Hundred Life-Saving Interventions]; Lisa 

Heinzerling, Regulatory Costs of Mythic Proportions, 107 YALE L.J. 1981 (1998); Lisa Heinzerling & Frank Ackerman, The Humbugs of the Anti-Regulatory Movement, 87 CORNELL L. 

REv. 648 (2002). 

24. CRAIN & CRAIN, supra note 6, at 31 tbl.6. 

25. See id. 
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Spring 20121 The $1.75 Trillion Lie 133 

A. Economic Regulations 

The $1.24 trillion supposedly lost to economic regulations is described 

as an estimate of the costs of compliance, but no specific regulations are 

described in any detail, and no costs are presented for any actual compliance activities. Rather, the entire $1.24 trillion comes from a single equation 

formulated by Crain and Crain, using comparative international data on per 

capita incomes and a World Bank "regulatory quality index" (RQI), among 

other variables. 26 The equation finds a positive relationship between income 

per capita and the RQI. The United States received a very good, but not 

perfect, score on the RQI; if it had received a perfect score, the equation 

seems to imp1y that GDP wou1d have been $1.24 trillion higher. 

The RQI is one of six "governance indicators" calculated by World 

Bank researchers Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi. 27 

They define "regulatory quality" as "capturing perceptions of the ability of 

the government to formulate and implement sound policies and regulations 

that permit and promote private sector development.,,28 The other five 

indicators are voice and accountability, political stability and absence of 

violence, government effectiveness, rule of law, and control of corruption. 

Va1ues of these six indicators are avai1ab1e for more than 200 countries, 

starting in 1996 and appearing annually since 2002.29 

As explained in their paper on methodology, Kaufmann, Kraay, and 

Mastruzzi collect information from thirty-one different data sources, inc1uding commercia1 business information providers, surveys, NGOs, and 

public sector sources. 3D Each individual observation is converted into a 

numerical score, with higher values for better outcomes. 31 The authors then 

make what they call the "innocuous" assumption that the true quality of 

governance in each area (the qua1ity of regu1ation, for the RQI) is "a 

normally distributed random variable with mean zero and variance one. 

This means that the units of our aggregate governance indicators will also 

be those of a standard normal random variable, i.e. with zero mean, unit 

standard deviation, and ranging approximately from -2.5 to 2.5.,,32 The final 

portion of this quotation simply reflects a well-known mathematical result: 

26. See id. at 21-22. 

27. Worldwide Governance Indicators, WORLD BANK GRP., http://info.worldbank.org/ 

governance/wgi/pdflwgidataset.xls (last visited Nov. 19,2011). 

28. Daniel Kaufmann et al., The Worldwide Governance Indicators: Methodology and 

Analytical Issues 4 (World Bank Dev. Research Grp., Policy Research Working Paper 

No. 5430, 2010), available at http://siteresources.worldbank.org/INTMACRO/Resources/ 

WPS5430.pdf. 

29. Worldwide Governance Indicators, supra note 27. 

30. Kaufmann et al., supra note 28, at 2. 

31. !d. at 8. 

32. Id. at 9. 
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134 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

about ninety-nine percent of the time, a random variable with a normal 

distribution falls within 2.5 standard deviations of the mean. 

Crain and Crain evidently misread this statement; they reported that 

the RQI "is scaled to have values that range from -2.5 to 2.5.,,33 Since they 

reported34 that the United States had a RQI of 1.579 in 2008, it appeared to 

them that it would have been possible to improve our regulations up to a 

level that received a 2.5. Therefore, they constructed a regression analysis to 

estimate the economic benefit that would result from improving the U.S. 

RQI from 1.579 to 2.5. 

The equation used in Crain and Crain's regression analysis expresses 

CDP per capita as a function of the RQI and several other variables: foreign trade as a share of CDP, total population, primary school enrollment 

as a share of the eligible population, and broadband subscribers as a share of 

the population. This selection of variables is explained only by the statement that they "are drawn from the empirical literature that examines 

differences in economic levels across countries and over time.,,35 The equation is estimated using seven years of annual data, from 2002 through 2008, 

for twenty-five countries that belong to the Organization for Economic 

Cooperation and Development (OECD)-an organization whose membership is roughly, though no longer exactly, synonymous with high-income, 

developed countries. 

The regression results show that CDP per capita is positively related to 

the RQI, to the share of foreign trade in CDP, and to the proportion of 

broadband subscribers in the population. It also shows that CDP per capita, 

in this data set, is significantly negatively related to the fraction of the population in primary education. 36 Thus if this regression were accurate, and if 

correlation always implied causation, CDP per capita could be increased 

by raising the RQI, the dependence on foreign trade, or the number of 

broadband subscribers, or by decreasing enrollment in primary education. 

Judging by Crain and Crain's regression results, the relationship between 

broadband connections and per capita income is by far the most reliable of 

these links. 37 

33. CRAIN & CRAIN, supra note 6, at 21. 

34. The World Bank Group updates RQI data from time to time; the United States' 

RQI for 2008 is now 1.550 per the data we downloaded in November 2011. Worldwide Governance Indicators, supra note 27. 

35. CRAIN & CRAIN, supra note 6, at 21-22. 

36. !d. at 23 tb1.2. 

37. Table 2 in Crain and Crain's report shows a t statistic of 8.89 for the relationship 

of broadband subscription rates to G D P per capita, far above any other t statistic in the 

table. !d. The t statistic is a measure of the statistical significance of a relationship: the larger 

the t statistic, the less likely it is that the observed relationship occurred by chance. 
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Spring 20121 The $1.75 Trillion Lie 135 

Using these regression results and holding all other data constant, 

Crain and Crain reported that an increase of 0.92 in the RQI (from 1.579 to 

2.5) would correspond to an 8.7% increase in GDP per capita, or a $1.236 

trillion increase in total U.S. GDP in 2008, measured in 2009 

dollars.38 

B. Environmental Regulations 

Crain and Crain estimate the current annual cost of United States 

environmental regulation to be $281 billion. 39 To reach this number, Crain 

and Crain add up all of the costs presented in the Office of Management 

and Budget's (OMB) 2001 to 2009 reports on the costs and benefits of 

federal regulations (and adjust them for inflation).40 OMB's reports from 

2002 through 2009 estimate the total costs and benefits of the previous 

year's regulations by compiling estimates-with some adjustments-from 

agencies' Regulatory Impact Analyses (RIA) for rules costing $100 million 

or more per year. 

OMB's 2001 report, relied upon by Crain and Crain for the vast bulk 

of the costs they attribute to environmental regulation,41 took a different 

tack. In this report, OMB estimated costs for rules issued from the beginning of the modern environmental era all the way through the first quarter 

of the year 2000.42 For rules issued prior to 1989, OMB based its high-end 

estimate on a 1991 article by Robert Hahn and John Hird,43 which itself 

relied on a 1990 study by Michael Hazilla and Raymond KOpp.44 Almost 

half of Crain and Crain's estimate of the current annual costs of environmental regulation-$132 out of $281 billion-comes from Hahn and Hird's 

estimate of the costs of rules issued over twenty-five years ago.

4S 

38. !d. at 24. The actual calculation of $1.236 trillion is not well explained. Our 

attempt to reproduce it, using their assumptions, yielded $1.30 trillion. 

39. !d. at 31 tbl.6 (reporting costs in 2009 dollars). 

40. !d. at 26 tb1.3. 

41. !d. (reporting high-end cost estimates of almost $192 billion (in 2001 dollars) 

based on OMB's 2001 report; this is approximately $230 billion in 2009 dollars). 

42. OFFICE OF MGMT. & BUDGET, MAKIl\G SENSE OF REGULATIOl\: REPORT TO 

CONGRESS ON THE COSTS AND BENEFITS OF FEDERAL REGULATIONS AND UNFUNDED 

MANDATES ON STATE, LOCAL, MD TRIBAL ENTITIES 10 n.7, 11 tbl.2 (2001) [hereinafter 

OMB 2001 REPORT]' OMB's 2001 report actually relies on OMB's 2000 report for this 

estimate. [d. at 11 tbl.2 (referring, in the source note, to OFFICE OF MGMT. & BUDGET, 

REpORT TO CONGRESS ON THE COSTS AND BENEFITS OF FEDERAL REGULATIONS tbls.1, 2 

& 3 (2000) [hereinafter OMB 2000 REpORT]). 

43. CRAIN & CRAIN, supra note 6, at 25; Hahn & Hird, supra note 17, at 256 tbl.2. 

44. Michael Hazilla & Raymond Kopp, The Social Cost of Environmental Quality 

Regulations: A General Equilibrium Analysis, 98 J. POL. ECON. 853,865 tbl.2 (1990). 

45. See CRAIN & CRAIN, supra note 6, at 27 (utilizing the high end of the cost range 

provided in Hahn & Hird, supra note 17, at 256 tbI.2); OMB 2000 REPORT, supra note 42, at 

20 tbl.l (reporting a high-end cost estimate of $99 billion (in 1996 dollars) for environmental 
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136 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

Hazilla and Kopp used general equilibrium analysis to estimate the 

costs of environmental regulation. They modeled the economy as it existed 

from 1958 to 1974 in order to establish a pre-regulation baseline. They then 

re-ran the model, this time incorporating the Environmental Protection 

Agency's (EPA) 1984 estimate of the costs of compliance with the Clean 

Air Act and the Clean Water Act, based on the regulations in place as of 

December 1982. In their analysis, the direct costs of regulation raise prices 

throughout the economy. Higher prices cause lower real wages, inducing 

workers to work less (in the language of economics, households choose to 

substitute leisure for labor). The reduction in labor decreases income, consumption, and savings, relative to the pre-regulation baseline. Lower 

savings means less investment, slowing the economy's rate of growth and 

causing decreases in production that are compounded over time. Simulating 

outcomes from 1981 through 1990, Hazilla and Kopp estimated that household labor supply would decrease by about 1%, and real (inflation-adjusted) 

gross national product would decrease by 2.4% in 1981, and 5.8% in 1990.46 

For the environmental rules issued between 1989 and 2000, OMB's 

2001 report (and, by extension, Crain and Crain) relied on OMB's 2000 

report, which itself relied on a report OMB issued in 1996 (estimating costs 

for rules issued from 1987 to 1994), along with estimates of the costs of 

rules from 1995 to 1999.47 

C. Workplace Regulations 

Crain and Crain estimate costs of $64.313 billion for occupational 

safety and health regulations issued prior to 2001, and $471 million for such 

regulations issued between 2001 and 2008. 4

' For the costs of rules issued 

before 2001, Crain and Crain rely on an analysis published in 2005 by 

Joseph M. Johnson. 49 Johnson estimated the costs of workplace safety and 

health rules by multiplying earlier estimates of these costs by 5.55, based 

upon findings in a 1974 study conducted by the National Association of 

Manufacturers.5o For the costs of rules issued between 2001 and 2008, 

Crain and Crain use an aggregate estimate provided in OMB's 2009 report 

on the costs and benefits of federal regulation. 51 OMB's estimate is based 

rules as of 1988 based on Hahn and Hird, supra note 17; in 2009 dollars, this is $132 billion); 

infra note 82 and accompanying text. 

46. Hazilla & Kopp. supra note 44, at 867 tb1.3. 

47.0MB 2001 REPORT,supra note 42, at 11 tbls.l & 2. 

48. CRAIN & CRAIN, supra note 6, at 30 tbl.5 (reporting costs in 2009 dollars). 

49. !d. 

50. Johnson, supra note 18, at 455 & n.37. 

51. CRATN & CRATN, supra note 6, at 30 tb1.5. 
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Spring 20121 The $1.75 Trillion Lie 137 

on the RIA the Occupational Safety and Health Administration (OSHA) 

filed for major rules issued in the relevant years. 

II. THE MANY SHORTCOMINGS OF CRAIN AND CRAIN'S ESTIMATE 

Crain and Crain's study is littered with misunderstandings, mistakes, 

and double counting. At every step of the way, they choose data and 

assumptions that make the costs climb higher and higher. At every step of 

the way, they also make outright, objective errors that have the same effect. 

The result is a mix of apparent bias and ineptitude that make their estimate 

of $1.75 trillion wholly unreliable. 

We begin by discussing the flaws in Crain and Crain's estimate of the 

costs of economic regulation, and then turn to the flaws in their estimates 

regarding environmental and workplace regulations. 

A. Economic Regulation 

Crain and Crain's one-equation analysis of economic regulation has at 

least four fatal flaws, anyone of which would be enough to destroy its prediction of a $1.24 trillion loss. First, Crain and Crain have misunderstood 

the scale of the RQI and the meaning of the number they treat as a perfect 

score. Second, they have inappropriately lumped together seven years of 

extremely similar data in the same equation, creating a spurious appearance 

of statistical significance. Third, there is in fact no correlation between the 

RQI and per capita income among high-income countries. Fourth, correlation is not causation: if the RQI does show that the United States has a 

higher quality of regulations than some middle-income countries, this could 

mean either that better regulations create higher incomes, or that higher 

incomes allow the creation of better regulations. 

1. Why Be Normal? 

The normal distribution-also known as the Gaussian distribution or 

the bell curve-is one of the most familiar and frequently used distributions in statistics. As is well known, it has no maximum or minimum value; 

rather, values farther and farther away from the mean become less and less 

probable. Thus it is common to describe the probability of a normally 

distributed variable falling within a certain distance from the mean. For 

example, there is a ninety-five percent probability that a randomly chosen 

value of a normally distributed variable falls within 1.96 standard deviations 

of the mean. Or, in the example used by the authors of the RQI, there is a 

ninety-nine percent probability of such a variable falling within about 2.5 

standard deviations of the mean. 
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138 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

Crain and Crain missed this elementary fact about normal distributions, and assumed that 2.5 standard deviations is an absolute upper limit 

and -2.5 is an absolute lower limit. They are wrong both in theory and in 

the empirical description of the RQI (which, as noted above, is defined as a 

normally distributed variable with a mean of zero and standard deviation of 

one). For the 207 countries for which the World Bank researchers reported 

an RQI value for 2008, the RQI ranged from -2.66 in Somalia to 1.98 in 

Hong Kong. The highest RQI on record is 2.23 for Singapore; since 2002, 

no country has received an RQI of 1.99 or higher. 5

:! If, instead of the arbitrary target of 2.5, Crain and Crain had assumed that the best the United 

States could do was to match the best existing performance on the RQIreaching the state of regulatory nirvana achieved by Hong Kong-then the 

potential improvement, and hence the estimated costs of economic regulation, would have been cut roughly in half. That is, even if one accepted the 

rest of their methodology, about $600 billion of Crain and Crain's supposed 

costs of regulation would be eliminated, with no change in information 

about any United States regulations, simply by reading the international 

RQI data in a more measured and defensible manner. 

More broadly, Crain and Crain use the RQI with little thought about 

its limitations. As two of the developers of the World Bank's governance 

indicators (including the RQI) have written, "Governance indicators can be 

used for regular cross-country comparisons. .. [but] they often remain 

blunt tools for monitoring governance and studying the causes and consequences of good governance at the country level."s3 They further caution 

users, noting: 

All governance indicators include measurement error and so should 

be thought of as imperfect proxies for the fundamentals of good 

governance .... Whenever possible, such margins of error should 

be explicitly acknowledged, as they are in the WGI [the database 

that includes the RQIl, and taken seriously when the indicators are 

used to monitor progress on governance. 54 

The RQI estimates are published with standard errors, implying that the 

authors of the database believe that about two-thirds of the time, the true 

value will fall within one standard error of the reported value. For the 

United States in 2008, the RQI is 1.55 and the standard error is 0.22, 

implying that there is a two-thirds probability that the "true" United States 

52. See Worldwide Governance Indicators, supra note 27. 

53. Daniel Kaufmann & Aart Kraay, Governance Indicators: Where Are We. Where 

Should We Be Going?, 23 WORLD BANK RES. OBSERVER 1,25 (2008). 

54. !d. at 26. 
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Spring 20121 The $1.75 Trillion Lie 139 

RQI is between 1.33 and 1.77.55 Of the 207 countries with RQI values for 

2008 reported in the World Bank database, there were only fourteen with 

RQI above the United States value of 1.55, and just six with RQI above 

1.77, the upper limit of the United States confidence interval: Denmark, 

Hong Kong, Ireland, New Zealand, Singapore, and the United Kingdom.56 

The evidence is meager that the United States lags significantly behind 

other countries in the quality of its regulations as measured by the World 

Bank's RQI. Yet the unexplained hope for a great leap forward in the RQI, 

well beyond all worldwide experience to date, is the fulcrum for most of 

Crain and Crain's estimated regulatory costs. 

The RQI is just one of the World Bank's regulatory indicators; another 

one, the "doing business indicator," is explicitly designed to measure how 

easy it is to set up and run a business in 183 countries around the world.57 

The doing business indicator confirms that the United States is close to the 

top, ranking fifth in the world behind Singapore, Hong Kong, New 

Zealand, and the United Kingdom.58 The ranking is purely ordinal, with no 

theoretical maximum. The United States could aspire to be number one, 

but there is no way to tell what economic consequences, if any, might be 

associated with making it easier to do business here than in all 182 other 

countries in the database, rather than just 178. Thus a broader look at the 

World Bank's regulatory indicators provides no basis for Crain and Crain's 

presumption that measurable increases in the United States' regulatory 

quality could boost our rate of economic growth. 

2. Padding the Evidence 

Crain and Crain use seven years of data, annually from 2002 through 

2008, on the RQI, per capita incomes, and other variables. This artificially 

boosts the reported significance of the results; it is a violation of standard 

statistical practice, which makes the regression results misleading. 

To see why this matters, consider the results of a coin toss. Suppose 

that a penny is flipped once and lands heads up. This is clearly not a statistically significant result; it is a random event, expected to occur half the 

time. Now suppose that a penny is flipped seven times in succession, landing heads each time. In contrast to the single toss, seven identical tosses are 

very significant. The chance of getting seven heads in a row is one in 128; 

55. See supra note 34 and accompanying text. 

56. See Worldwide Governance Indicators, supra note 27. 

57. The "doing business indicator" is a tool developed by the Doing Business Project 

and is available at DOING BUSINESS, http://www.doingbusiness.org (last visited Nov. 4, 

2011). 

58. Economy Rankings, DOING BUSINESS, http://www.doingbusiness.org/rankings (last 

visited Sept. 19, 2011). 
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140 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

in other words, we are more than ninety-nine percent sure that seven successive tosses will not all be heads. Spend all day flipping pennies, and 

seven successive heads will probably happen at some point; but if it happens 

on the first seven flips, it might lead to questions about whether the penny 

is weighted or the experimenter is biasing the results. 

Now imagine a research paper reporting seven separate observations of 

a single coin toss as if they were independent events. This would misleadingly convert an ordinary, random event-the single toss-into something 

that appears to be highly significant and unlikely to occur by chance alone. 

Crain and Crain combine seven years of annual data for twenty-five 

OECD countries on GDP per capita, the RQI, and other variables. Both 

GDP per capita and the RQI, however, change very little from year to year. 

For the OECD countries, the correlation between GDP per capita in 2007 

and 2008 has an adjusted r2 of 0.999;59 even for the first and last years in 

the Crain and Crain sample, 2002 and 2008, the correlation between GDP 

per capita has an adjusted 1'2 of 0.982. Thus, the seven years of data on GDP 

per capita, treated by Crain and Crain as separate observations, contain 

virtually identical information about the relative affluence of OECD countries. The RQI is also highly correlated from year to year: for the OECD 

countries, the correlation between the 2007 and 2008 RQIs has an adjusted 

1'2 of 0.944, falling to 0.815 for the RQIs of 2002 versus 2008. 60 

In short, the data used by Crain and Crain are much more like seven 

observations of the same coin toss, not seven independent observations of 

new information about the world. As a result, the correlation they report 

between RQI and GDP per capita is spuriously high. 

There are econometric techniques designed for datasets like this with 

serial correlation between observations. Crain and Crain mention, with 

little explanation, that they included country fixed effect variables. 61 This 

might be part of an appropriate methodology, but it alone is far from sufficient. Readers interested in pursuing this question should consult the CRS 

study, which repeats the Crain and Crain analysis with a rigorous econometric methodology-and finds no significant relationship between GDP 

per capita and RQI. 

59. In an ordinary regression analysis, / measures how much of the variation in one 

variable (shown on the left-hand side of the equation) can be predicted by assuming a linear 

relationship with the other variables in the equation. The adjusted r2 of 0.999 reported here 

means that 99.9% of the variation among OECD countries in GDP per capita in 2008 can 

be predicted from their GDP per capita in 2007. 

60. These calculations are based on GDP per capita at market exchange rates downloaded from the World Bank website in January 2011 and RQI data downloaded in 

November 2011 for all thirty-four OECD member nations. See Worldwide Governance Indicators, supra note 27. Adjusted r2, discussed supra note 59, is used here to adjust for a small 

sample size. The more familiar, unadjusted r2 would be larger in every case. 

61. CRATN & CRATN, supra note 6, at 22. 
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Spring 20121 The $1.75 Trillion Lie 141 

3. Inside the OECD 

Crain and Crain focus on countries in the OECD, which is often taken 

to be synonymous with high-income, industrialized countries. The organization, however, has diversified its membership to include a number of 

middle-income countries, including Turkey, Mexico, Chile, and several 

eastern European nations. Some of the middle-income OECD members, 

notably Turkey and Mexico, do have much lower RQI scores. Within the 

high-income OECD member countries, on the other hand, there is literally 

no relationship between income and RQI. 

If we restrict our attention to the nineteen OECD countries with per 

capita GDP above $20,000 in 200S62-including northern and western 

Europe, Australia, Canada, Israel, Japan, and the United States-then the 

correlation between RQI and the logarithm of per capita GDP (the form of 

the data used by Crain and Crain) for 200S has an adjusted r2 of -0.06. This 

puzzling result means that there is less relationship between these two data 

series than would be expected by chance alone; the unadjusted r2 is 

0.000003. 63 

A graph of the data, highlighting the position of the United States, is 

presented in Figure 1. The absence of a trend is visible in these data. 

3' 

'0-

~ 

u 

... 

<l.) 

P-. 

p... 

~ 

S2-

bO 

...s 

FIGURE 1- GDP PER CAPITA vs RQI, 2008: 

no 

10.8 

10.6 

10.4 

10.2 

10.0 

9.8 

1.0 

HIGH-INCOME OECD COUNTRIES 

4l> 

.., 

+ 

1.2 1.4 1.6 1.8 

Regulatory Quality Index (RQI) 

Global mean ~ 0, standard deviation ~ 1 

1.0 

62. See GDP per Capita (Current US$) , WORLD BANK, http://data.worldbank.org/ 

indicatorlNY.GDP.PCAP.CD (last visited Nov. 4, 2011). 

63. In the regression of log GDP per capita versus RQI for these countries, the slope 

has a t statistic of -0.008 and a p value of 0.99, implying there is an ninety-nine percent 

probability of getting a relationship at least this good by chance alone, e.g., when comparing 

two series of random numbers. In general, a negative value for adjusted r2 means that there 

is a better than fifty percent probability of getting a relationship this good by chance alone. 
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142 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

4. Correlation Is Not Causation 

A correlation can be found between RQI and income only by comparing countries at very different income levels;64 we have seen that this 

relationship disappears within the world of countries above about half the 

United States' level of income. 65 Suppose, for the sake of the argument, 

that the RQI measures something meaningful about the quality of regulation (determining exactly what the RQI measures is an important issue 

which we do not address). Turkey and Mexico, two of the lowest-income 

members of the OECD, also have the lowest RQI scores in the OECD. 

This does not tell us that the quality of regulation makes a country richer 

or poorer; the reverse could equally well be true. 

The United States is much richer than Turkey or Mexico, and, according to the RQI, has much better regulations. Does this mean that better 

regulation made the United States richer? Or does it mean that being richer 

enabled the United States to adopt better regulations? Or, since the RQI is 

based on the perception of regulatory quality by a number of observers, does 

the greater wealth of the United States lead to a perception that it has 

better regulations than Turkey or Mexico? Even if the Crain and Crain 

calculation was reliable and problem free (which it definitely is not, as seen 

above), it would founder on this shoal: their estimate of regulatory costs 

depends on the unstated premise that causation is all one way, from regulatory quality to income. If, instead, wealth creates better regulation, their 

entire argument sinks beneath the waves. 

If correlation implied causation, in the manner assumed by Crain and 

Crain, then their curious finding of negative correlation between GDP per 

capita and primary school enrollment would suggest another low-cost route 

to wealth: throw kids out of school. We almost hesitate to mention this, 

given the viral spread of Crain and Crain's implausible conclusions 

throughout current political debates. We trust that it is self-evident that the 

64. OECD membership now includes thirty-four countries at varying income levels. 

Crain and Crain used twenty-five of these countries in their analysis; the CRS study used 

thirty. See COPELAND, supra note 15, at 27; CRAIN & CRAIl\, supra note 6, at 21. Neither 

study reported which countries they included. The previous section of this Article referred 

only to the nineteen highest-income OECD members-a group that corresponds, we believe, to the common (mis)understanding of OECD membership as a synonym for high 

income. This section discusses our exploration of the data for all thirty-four countries; it 

does not include the other explanatory variables used by Crain and Crain and by the CRS 

study, so it is not directly comparable to those results. 

65. United States GDP per capita was $38,345 in 2008, according to the World Bank. 

CDP per Capita (Current US$), supra note 62. 
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Spring 20121 The $1.75 Trillion Lie 143 

error lies in giving credence to Crain and Crain's calculations, not in the 

idea of educating children. 66 

B. Environmental Regulation 

Crain and Crain's estimates of the costs of environmental regulations 

likewise suffer from several basic flaws. First, they are based on evidence-and regulations-so old as to be unreliable, as OMB itself has 

acknowledged. 67 Second, they rely heavily on an outdated version of general 

equilibrium analysis, analysis which, even if updated to reflect the current 

state of the art, would nonetheless remain deeply problematic in its 

assumptions. Third, these estimates contain objective errors, such as double 

counting of the same costs and inclusion of costs for rules that do not exist. 

1. Old Data on Old Rules 

Crain and Crain's estimates of the costs of environmental regulations 

corne from OMB's 2001-2009 reports on federal regulation. The earliest of 

these reports provide estimates of regulatory costs going back decades. In 

2003, OMB stopped providing such estimates for the costs of regulations 

that had been issued more than ten years before, explaining that long-ago 

estimates were not reliable guides for current policy.68 Several years before, 

OMB had explained that it was hard to justify continuing to debit such 

costs to the federal government's regulatory program, as it was unlikely that 

if the regulations were pulled, businesses would actually withdraw whatever 

protections they had installed in response to the relevant regulations. 69 In 

its 2002 report, moreover, OMB had cast a skeptical eye on aggregate cost 

estimates that attempted to announce an overall figure for the costs of old 

and new regulations, observing: 

66. Crain and Crain never precisely defined their educational enrollment variable, but 

they reportedly told CRS that their negative coefficient on educational enrollment could 

reflect "aging pyramid" effects. COPELAND, supra note 15, at 27. If lower-income OECD 

nations such as Turkey and Mexico have younger populations than other OECD members, 

then school-age children, and hence school enrollment, may be a larger percentage of the 

total population in the lower-income countries. This could create a negative correlation 

between educational enrollment and income per capita in the Crain and Crain dataset. 

67. See OFFICE OF MGMT. & BUDGET, STIMULATING SMARTER REGULATION: 2002 

REpORT TO CONGRESS 01\ THE COSTS AND BENEFITS OF REGULATIONS AND UNFUNDED 

MANDATES ON STATE, LoCAL, AND TRIBAL ENTITIES 40 (2002) [hereinafter OMB 2002 

REpORT] (describing plans for subsequent reports). 

68. See id.; see also COPELAND, supra note 15, at 21. 

69. COPELAND, supra note 15, at 24-25 (citing OFFICE OF MGMT. & BUDGET, 

REPORT TO CONGRESS ON THE COSTS AND BENE,'lTS m' FEDERAL REGm.ATIONS (1997)). 
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144 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

We included these aggregate estimates in the appendix rather than 

the text to emphasize the quality differences in the two sets of 

estimates. The estimates of the costs and benefits of Federal regulations over the period of April 1, 1995, to March 31, 2001, are 

based on agency analyses subject to public notice and comments 

and OMB review under E.O. 12866. The estimates ... for earlier 

regulations were based on studies of varying quality. Some are 

first-rate studies published in peer-reviewed journals. Others are 

non-random surveys of questionable methodology. And some estimates are based on studies completed 20 years ago for regulations 

issued over 30 years ago, whose precise costs and benefits today are 

unknown. 7o 

By 2003, these older estimates had disappeared entirely from OMB's 

report, and they have not come back. 

Despite OMB's admonition against using cost estimates that are over 

ten years old, Crain and Crain use OMB estimates of regulatory costs 

going back more than twenty years. In using Hazilla and Kopp's estimates 

for rules issued prior to 1988, they go back to the very beginning of United 

States environmental law. As OMB itself has observed, costs going back 

this far are unreliable.?l The great bulk of Crain and Crain's estimate of the 

costs of environmental regulation comes from numbers generated so long 

ago that OMB does not now use them in its own calculations. Crain and 

Crain should not have used them either. If Crain and Crain had followed 

OMB's cautions about the unreliability of these old estimates, and eliminated them from their estimate, the total cost of environmental regulation 

would have fallen from $281 billion to $48 billion.72 

As we explain below, even this much smaller figure contains large 

errors. 

2. Is Our Real Problem Voluntary Unemployment? Really? 

Crain and Crain's calculations for rules adopted before 1988 relied on 

the Hazilla and Kopp studl3 -which is, strictly speaking, an estimate of 

potential economic consequences, from 1981 through 1990, of major environmental rules in effect in 1982. To make that estimate, Hazilla and Kopp 

applied a general equilibrium framework, familiar in textbook economics, in 

which economic changes are often governed by household responses to 

70.0MB 2002 REPORT, supra note 67, at 39. 

71. !d. at 40. 

72. This is based on converting Crain and Crain's estimate of costs "through 2000" to 

2009 dollars. See CRAIN & CRAIN, supra note 6, at 26 tb1.3. 

73. Hazilla & Kopp, supra note 44, at 856-57. 
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Spring 20121 The $1.75 Trillion Lie 145 

small price differentials, including the (voluntary) choice between leisure 

and labor.74 

Even within the narrow field of abstract economic models of regulatory 

costs, Hazilla and Kopp's 1990 paper no longer represents the state of the 

art. Newer work has identified many subtleties in the modeling of environmental regulations, and leads to a surprisingly wide range of possible 

outcomes, including ones quite different from Hazilla and Kopp's estimates. 75 Nonetheless, Crain and Crain chose to rely on Hazilla and Kopp, 

not on newer work in this field. 

Although the Hazilla and Kopp estimate of regulatory costs is driven 

by a decrease in employment, this is not involuntary unemployment, of the 

sort seen in recessions and all too well known in reality today. The general 

equilibrium framework used in economics typically assumes that all markets clear-that is, supply equals demand for every commodity and for 

factors of production such as labor. 76 Instead, the reduction in employment 

of interest to Hazilla and Kopp stems from a voluntary choice: looking at 

the higher prices, and consequently lower real wages, that result from environmental protection costs, households decide that they would prefer to 

reduce their aggregate hours of work by about one percent. 77 Leisure is 

presumably just as rewarding as ever, but labor is slightly less rewarding at 

the slightly lower real wages, so rational utility maximizers (the only species of human beings found in the model) choose to work slightly less. For 

someone working a forty-hour, fifty-week year, one percent less work is a 

reduction of twenty hours, or 2.5 days, per year. All the costs of pre-1989 

74. Hazilla and Kopp's description of their model begins with a discussion of the 

importance and the challenge of modelling household preferences correctly, and cites 

numerous other economic models in a similar vein. !d. at 857-62. They observe that their 

model "is suitable for assessing long-run impacts of regulatory programs on neoclassical 

economic growth," i.e., impacts on abstract economic models. !d. at 859. 

75. See, e.g., Don Fullerton & Garth Heutel, The General Equilibrium Incidence of 

Environmental Mandates, AM. ECON. J.: ECON. POL'y, Aug. 2010, at 64. 

76. Hazilla and Kopp are not explicit about their labor market assumptions. The 

paper they cite as the source of their model includes the possibility of involuntary unemployment, but does not discuss it. It does, however, highlight the household decision about 

voluntary leisure time. Edward A. Hudson & Dale W. Jorgenson, U.S. Energy Policy and 

Economic Growth. 1975-2000,5 BELLJ. ECON. & MCMT. SCI. 461 (1974). 

For a discussion on the limitations of general equilibrium models for policy analysis, 

with an emphasis on trade policy, see Frank Ackerman & Kevin Gallagher, The Shrinking 

Gains from Global Trade Liberalization in Computable General Equilibrium Models: A Critical 

Assessment, 37 INT'L J. POL. ECOl\. 50 (2008). For a discussion on the limitations of the 

underlying economic theory, see Frank Ackerman, Still Dead After All These Years: Interpreting 

the Failure of General Equilibrium Theory, 9 J. ECON. METHODOLOGY 119 (2002). 

77. Labor supply in the environmental cost scenario is 0.84% lower than in the noregulation baseline in 1981, and 1.18% lower in 1990. Hazilla & Kopp, supra note 44, at 867 

tbU. 
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146 jVIhhigan journal of Environmental (3 Administrative Law rVol.l:l 

regulations, for Crain and Crain, are consequences of this minor, voluntary 

adjustment in working hours. 

Since it is a voluntary choice, why complain about workers choosing 

more leisure? The problem, for Hazilla and Kopp, is as old as the Protestant 

ethic: more work means more income, some of which is saved and can be 

invested in capital goods, leading to faster economic growth-but more 

leisure just means another 2.5 days at the beach. In the folkloric tradition of 

kingdoms lost for a nail, it is the imposition of environmental regulationswhich raised prices, which lowered real wages, which made workers choose 

more leisure, which lowered incomes, which lowered savings, which lowered 

investment, which caused slower economic growth-which imposed such 

burdensome costs on the economy. 

What's wrong with this long and winding tale of economic causation? 

One might well question the real-world relevance of a model of automatic 

full employment. In a world with business cycles and involuntary unemployment, it is quite possible that regulatory costs could lead to increased 

expenditures and employment. 78 Beyond such fundamental questions about 

general equilibrium modeling, there are several additional problems with 

the Hazilla and Kopp analysis. 

For one thing, there is no sign of awareness of any possible benefits of 

regulation-to human health, to nature, or even to the economy. Hazilla 

and Kopp analyzed the economic impact of the earliest regulations adopted 

under the Clean Air Act and the Clean Water Act-rules that save thousands of people per year from dying of lung disease, prevent rivers from 

catching fire, and keep lead out of gasoline. Is the main economic impact of 

these sweeping changes in our conditions of life really a slight increase in 

prices that inspires workers to do one percent less work? Even in narrowly 

economic terms, healthier people, with fewer respiratory diseases, are more 

productive workers, and children growing up free of exposure to lead have, 

on average, higher IQs and higher lifetime earnings prospects.79 

More broadly speaking, the benefits of clean air and clean water are 

immensely valuable, and widely valued. In EPA's retrospective cost-benefit 

analysis of the early stages of the Clean Air Act, the estimated value of the 

benefits is more than forty times the costs, and more than enough to 

78. When, as at present, businesses are earning significant profits but not investing 

them due to a lack of demand for their products, regulations could force businesses to spend 

some of those profits on pollution controls; that spending would create an economic stimulus. 

79. E.g., SHAPIRO ET AL., supra note 5, at 11 (estimating that regulation saves $76 

billion in child healthcare costs, $38 billion dollars in municipal charges, and thousands of 

lives); EPA, THE BENEFITS AND COSTS OF THE CLEAN AIR ACT: 1990 TO 2010, at 75 (1999), 

available at http://www.epa.gov/oar/sect812/1990-2010/chap1130.pdf (estimating the benefits 

of Clean Air Act regulations to be $110 billion). 
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Spring 20121 The $1.75 Trillion Lie 147 

outweigh Hazilla and Kopp's estimates of regulatory costs. 80 Crain and 

Crain, following in Hazilla and Kopp's footsteps, were happy to use calculations based on EPA's estimates of the costs of regulation, but entirely 

ignored EPA's much larger estimates of the benefits of the same rules. 8

! 

Another problem is that Hazilla and Kopp's projections of the costs of 

regulations grow rapidly over time, and should by now be vastly-but 

laughably-larger than Crain and Crain's estimate. The number used by 

Crain and Crain to represent the current costs of environmental regulations 

adopted before 1989 is in fact Hazilla and Kopp's estimate of costs as of 

1985 (adjusted for inflation), mislabeled as the cost in 1988. 82 There is, 

however, no reason to stop in 1985: the Hazilla and Kopp cost estimate is 

much larger for 1990, the last year in their analysis, than for 198583 -and 

the logic of their model implies that the costs resulting from 1980s regulations should have continued to escalate, considerably faster than inflation, 

beyond 1990. 

The rapid, ongoing escalation can be seen in a comparison of Hazilla 

and Kopp's social cost projections to EPA's estimates of direct compliance 

costs. The true social cost of early 1980s clean air and clean water rules, 

according to Hazilla and Kopp, was 67% of EPA's estimate of direct compliance costs in 1981, rising to 126% in 1985 and 258% in 1990. 84 Hazilla and 

Kopp's social costs were lower than direct compliance costs in 1981, the first 

year of the rules they analyzed, because they subtracted the assumed value 

of the increase in leisure. Yet, over time, the cumulative, dynamic effects of 

reduced labor become steadily more important. Every year that workers 

work less, thereby reducing income, savings, investment, and growth, the 

next year's GDP becomes smaller than it would have been. As time goes on, 

the reductions in income and growth are compounded, so the regulatory cost 

scenario falls farther and farther behind the no-regulation baseline. 

As a result, the social cost of regulation, defined as the gap between the 

baseline and regulatory cost scenarios, grows ever larger. 

80. See Retrospective Study-Study Design and Summary of Results, EPA, 

http://www.epa.gov/airlsect812/retro.html (last visited Nov. 4, 2011). 

81. The OMB reports on which Crain and Crain rely for their estimates of the costs 

of rules issued after 1988, CRAIN & CRAIN, supra note 6, at 26 tb1.3, themselves rely on 

EPA's estimates of costs as reflected in their RIAs for major rules. ld. at 25. 

82. The error in dates occurs in Hahn and Hird's treatment of the Hazilla and Kopp 

estimate. In the appendix explaining their numbers, Hahn and Hird recognized that they 

were using an inflation-adjusted version of Hazilla and Kopp's estimate for 1985. Hahn & 

Hird, supra note 17, at 272 & n.224 (explaining their $77.6 billion figure). In the body of 

their article, however, Hahn and Hird inserted the same number, without comment or 

adjustment, into a table of regulatory costs and benefits in 1988. ld. at 256 tbl.2. 

83. Hazilla and Kopp, supra note 44, at 865 tbl.2. 

84. Calculated from id. 
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148 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

From 1981 to 1985, Hazilla and Kopp's social cost estimate, measured in 

constant (inflation-adjusted) dollars, grows by an average of 20.5% per year. 

From 1985 to 1990, the growth rate is only slightly slower, at 18.8% per 

year. 85 Nothing is said in the article (or in the subsequent articles citing it) 

about what growth rates to expect beyond 1990; two hypothetical examples, 

however, demonstrate the importance of this question. First, if the post1985 rate of growth, 18.8% annually, continued into the future, then by 2009 

the social cost of early-1980s environmental regulation would have reached 

$8.8 trillion, well over half of the GDP. Second, if the rate of growth continued to decline by 1.7 percentage points every five years, as it did from 

the early- to late-1980s in Hazilla and Kopp's analysis, then the social cost 

of early-1980s regulations would have been "only" $4.5 trillion by 2009, 

nearly one-third of the GDP. 86 Surely these numbers are large enough to 

fail the laugh test: they are humorously, absurdly wrong on their face. In 

order to make sensible, contemporary use of the Hazilla and Kopp estimates, it would be necessary to explain why their growth decelerates or 

stops-an explanation which is not present in Hazilla and Kopp, or in 

Crain and Crain. 

Within the (limited, as we have seen) logic of this model, what prevents the costs of a fixed set of regulations from growing without limit? 

Hazilla and Kopp are not alone in having missed an obvious answer: high 

initial costs of regulatory compliance create an incentive for innovation, 

which lowers future costs. General equilibrium analyses frequently focus on 

the implications of consumers' and workers' responses to small price changes, 

such as the one percent reduction in working hours modeled by Hazilla and 

Kopp. Yet they typically omit the comparable response of engineers and 

entrepreneurs to regulations: if compliance costs are high enough, there are 

profits to be made by inventing cheaper alternative technologies. Why 

should entrepreneurs, who are in the business of seeking out new opportunities for profits, be less sensitive to price incentives than households? 

Innovation may seem less predictable than changes in consumer purchases 

or workers' desire to work-but the assumption that regulation creates an 

incentive for innovation makes sense out of the repeated empirical finding 

that regulatory costs turn out to be lower than predicted in advance. 87 

The argument that regulations create important incentives for innovation exists in economics literature. The "Porter hypothesis" claims that 

85. Calculated from the "Social Cost" estimates, id., converted to constant dollars. 

86. Calculated by applying the indicated growth rates to the Hazilla and Kopp estimate of social costs in 1990, id., converted to 2009 dollars. 

87. See e.g., SHAPIRO ET AL., supra note 5, at 2; Frank Ackerman, The Unbearable 

Lightness of Regulatory Costs, 33 FORDHAM URB. L.J. 1071,1083 (2006); Thomas O. McGarity 

& Ruth Ruttenberg, Counting the Cost of Health, Safety, and Environmental Regulation, 80 TEX. 

1. RFV.1997, 1998 (2002). 
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Spring 20121 The $1.75 Trillion Lie 149 

well-designed regulations can prompt enough innovation to increase the 

competitiveness of regulated firms.88 This idea has been controversial 

among economists, since it implies that, prior to regulation, the firms were 

not maximizing profits. There is, however, extensive empirical evidence to 

support the hypothesis. At a macro level, Germany's large, longstanding 

trade surplus suggests that the country's famously strict regulations do not 

destroy competitiveness. 89 

The article introducing the Porter hypothesis cites Hazilla and Kopp as 

an example of a study that is biased against regulation by its failure to consider the incentives it creates (as well as the failure to evaluate any benefits 

of regulation).90 A more empirically-grounded account of the economic 

impact of 1980s regulations, the subject of Hazilla and Kopp's analysis, 

would include, for example, the unexpectedly low cost to society of removing lead from gasoline, since the catalytic converters introduced by 

automobile manufacturers at about that time required unleaded gasoline. 91 

By the 1990s, unleaded gasoline had become the universal standard, and it 

was no longer meaningful to say that its costs were higher than the baseline 

(as assumed in the Hazilla and Kopp cost estimates). Once there was no 

longer any leaded fuel option available on the market, no one could save 

money by going back to it; the only baseline worth talking about was the 

new, healthier world of unleaded gasoline. 92 

88. Michael E. Porter & Claas van der Linde, Toward a New Conception of the Environment-Competitiveness Relationship, 9 J. ECON. PERSP. 97,97-98 (1995). 

89. For a historical analysis of Germany's institutional framework and its positive 

relationship to economic growth, see Wendy Carlin, West German Growth and Institutions, in 

ECONOMIC GROWTH IN EUROPE SINCE 1945, at 455 (Nicholas Crats & Gianni Toniolo eds., 

1996). For an attempt at quantitative analysis of the effects of German regulations on economic growth, finding a positive effect on growth from environmental regulations and a 

negative effect from capital market regulations, see Helge Berger, Regulation in Germany: 

Some Stylized Facts About its Time Path, Causes, and Consequences, 118 ZEITSCHRIFT FUR 

WIRTSCHAFTS- UND SOZIALWISSENSCHAFTEN rJ. ApPLIED SOC. SCI. STUD.l 185 (1998) 

(Ger.). 

Germany's trade surplus is documented in the numerous statistical reports available 

from the WORLD TRADE ORG., http://www.wto.org (last visited Nov. 19, 2011). For example, 

in 2009, Germany had a merchandise trade surplus of $188 billion, second only to China's 

$196 billion. See WORLD TRADE ORG., Il'\TERl'\ATIONi\L TRADE STATISTICS 2010, at 13 

tbl.I.8 (2010), available at http://www.wto.org/englishlres_e/statis_e/its2010_e/its2010_e.pdf. 

90. Porter & van der Linde, supra note 88, at 108. 

91. See e.g., Frank Ackerman et al.,Applying Cost-Benefit Analysis to Past Decisions: Was 

Environmental Protection Ever a Good Idea?, 57 ADMIN. L. REV. 155, 164-65 (2005); Jamie 

Lincoln Kitman, The Secret History of Lead, NATION, Mar. 20,2000, at 11. 

92. The Clean Air Act banned the sale of leaded gasoline as of 1996, and other countries around the world took similar actions. As of June 2011, the only countries relying 

exclusively on leaded gasoline were Myanmar (Burma) and Afghanistan; the only other 

countries still selling any leaded gasoline for road use were Algeria, Iraq, North Korea, and 

Yemen. Robert Taylor & Zac Gethin-Damon, Countries Where I,eaded Petrol is Possibly Still 
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150 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

Yet phony numbers have a life of their own; repetition of Hazilla and 

Kopp's estimate, passed from Hahn and Hird to OMB to Crain and Crain, 

continued even as the innovative processes of the real-world economy eliminated the costs that were estimated, so long ago, in such a biased manner. 

3. Piling On: Crain and Crain's Use of OMB Reports on the 

Costs of Environmental Rules 

In their tallies of total costs, Crain and Crain always use the high end 

of the range of OMB's cost estimates. They explain that agencies underestimate costs and that this justifies use of high-end estimates. 93 But the 

empirical evidence that exists on actual regulatory costs-limited though it 

may be-does not support Crain and Crain's assertion that agencies underestimate regulatory costs. Indeed, the evidence that exists tends to point in 

the opposite direction. 91 Although the refrain that agencies have an incentive to underestimate costs pervades discourse on the costs of regulation,9S 

in fact at least EPA often has exactly the opposite incentive. Much environmental regulation stems from laws directing EPA to set limits based on 

the best available technology for pollution control. 96 A primary consideration in determining which technology is available is economic affordability.97 

In anticipating the inevitable legal challenge to a rule generated within this 

legal framework, EPA has an incentive to overestimate rather than underestimate the costs of the technology. If the technology is affordable even 

based on an overly-high cost estimate, then it should survive legal attack. 98 

Whether EPA does more harm than good to itself when it deliberately 

highballs its estimates of costs, the fact remains that it does so, and this 

belies the claims that the agency aims at the low end in estimating costs. 

Sold for Road Use as at 17th june 2011 [sic], THE LEAD GRP. (June 17, 2011), http://W\'IW. 

lead.org.au/fs/fst27.html. 

California banned the sale of leaded gasoline in 1992, four years earlier than the federal 

government, and found that the initiative had no statistically significant effect on the price 

of gasoline in California. Hayley H. Chouinard & Jeffrey M. Perloff, Gasoline Price Differences: Taxes, Pollution Regulations, Iv[ergers, Market Power, and Market Conditions, 7 B.E. J. 

ECON. ANALYSIS & POL'y 1,12,20 tbl.5 (2007). 

93. CRAIN & CRAIN, supra note 6, at 27. 

94. See, e.g., SHAPIRO ET AL., supra note 5, at 7; Ackerman, supra note 87, at 1083. 

95. See, e.g., Morrall,supra note 19, at 29. 

96. See, e.g., Cass R. Sunstein,Administrative Substance, 1991 DUKE L.J. 607, 627-31. 

97. See, e.g., Effluent Limitations Guidelines and Standards for the Construction and 

Development Point Source Category, 74 Fed. Reg. 62,996, 63,002 (Dec. 1, 2009) (to be 

codified at 40 C.F.R. pt. 450); Effluent Limitations Guidelines and New Source Performance Standards for the Airport Deicing Category, 74 Fed. Reg. 44,676, 44,678 (Aug. 28, 

2009) (to be codified at 40 C.F.R. pt. 449). 

98. SHAPIRO ET AL., supra note 12, at 7 (citing McGarity & Ruttenberg, supra note 87, 

at 2011, 2044-45). 
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It must be remembered, moreover, that the cost estimates in EPA's 

RIAs always go through OMB review. 99 OMB has no incentive to allow 

EPA to underestimate costs, and, indeed, OMB stands ready to direct the 

agency to change cost estimates in the RIAs that accompany major rules 

sent to OMB for review. OMB staff members are not shy about insisting 

on significant changes to RIAs as a condition of OMB clearance. loo Thus, 

although the cost estimates in OMB's recent reports all come from the 

agency's own RIAs, those RIAs reflect OMB's prior input; they are not the 

work product of the agency alone. 

Crain and Crain also justify the use of high-end estimates byemphasizing that OMB's annual reports count the costs only of major rules that cost 

$100 million or more per year, and exclude regulatory programs (like 

Superfund) that do not rely on rules as their predominant regulatory 

mechanism. lol Crain and Crain are correct in saying that OMB's reports do 

not cover the regulatory waterfront. Insofar as OMB estimates only the 

costs and benefits of major rules, it does not capture the costs and benefits 

either of rules costing less than this or of regulatory programs that are not 

primarily implemented through rule making. 

But OMB itself has concluded that major rules account for the "vast 

majority" of the total costs of federal rules.102 And Crain and Crain 

themselves tell only a tiny part of the story. As others have observed, they 

completely omit regulatory benefits, as if federal regulatory programs cost 

money but give us nothing in return. 103 More subtly, they completely 

ignore the fact that many federal programs in fact provide money to, rather 

than just taking money from, the very industries covered by the regulatory 

programs they criticize. Direct and indirect subsidies cost taxpayers billions 

of dollars every year, yet these costs do not figure at all in Crain and Crain's 

report. 104 

Then there are outright errors that further inflate Crain and Crain's 

figures on regulatory costs. Table 3 of the study reports the costs of rules 

99. By definition, RIAs are done for economically significant rules. and OMB reviews 

economically significant rules. 

100. For a particularly dramatic example of changes made to an RIA during OMB 

review, see Sidney Shapiro, Back to the Future: OMB Intervention in Coal Ash Rule Replicates 

the Bush Administration's Way of Doing Business, CPRBLOG (Jan. 1, 2010). http://www. 

progressivereform.org/ CPRBlog.cfm ?idBlog~lD D EASOF -E885-B550-C04BD E576F2COB6E. 

101. CR1\lN & CR1\lN, supra note 6, at 4, 26. 

102. OMB 2002 REPORT,supra note 67, at 38. 

103. COPELAND, supra note 15, at 12-13; SHAPIRO ET AL .• supra note 12, at 1-2, 6. 

104. See, e.g., AUTUMN HANNA ET AL., GREEN SCISSORS 2011: CUTTIl\G WASTEFUL 

AND ENVIRO"lMENTALLY HARMFUL GOVERNMENT SPENDING (2011), available at http:// 

heartland.org/sites/default/files/ _ Green_Scissors_2011_ Webj2Lpdf; Lisa Heinzerling, New 

Directions in Environmental Law: A Climate of Possibility, 35 HARV. ENVTL. 1. REv. 263. 

268-69 (2011). 
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152 j\IIichigan journal of Environmental (3 Administrative Law rVo!'1:1 

issued "[t]hrough 2000, Q1" and the costs of rules issued from April 1999 to 

September 2001. This double counts the costs of rules issued between April 

1, 1999 and March 31, 2000. It is difficult to know exactly how large a difference this double counting makes in Crain and Crain's estimates because 

the OMB reports from which Crain and Crain draw do not provide annualized costs for all of the rules issued in the period of overlap. lOS But we do 

know the difference is large. Just considering the costs of the rules for 

which OMB does provide annualized cost estimates, we can see that the 

costs Crain and Crain double count amount to over $3 billion (in 2009 

dollars).lo6 And this does not include two rules that together, several years 

out, were estimated to cost almost $10 billion. lO? For the period October 

2003 to October 2004, Crain and Crain report the costs of all federal rules 

and not just EPA rules. 108 The cost of this mistake is just over $1 billion.lo9 

These errors together account for well over $4 billion of the annual costs 

Crain and Crain attribute to environmental rules for the ten-year period 

from 1999 through 2008. 

Crain and Crain also include the costs of many rules that no longer 

exist. Some of these rules were never put into effect because EPA chose to 

reconsider them. These include air toxics rules on boilersllO and plywood,111 

a New Source Performance Standard for petroleum refineries,112 and the 

105. OMB 2001 REpORT, supra note 42, at 22-28 tb1.4 (reporting costs of rules issued 

between April 1, 1999 and March 31, 2000, some annualized and some single-year). 

106. See id. (providing the costs of storm water discharges (phase II), handheld 

engines, and section 126 petitions for purposes of reducing interstate ozone transport). All 

of our subsequent estimates of the effect, in dollars, of double counting and other errors on 

Crain and Crain's total estimates are stated in 2009 dollars. 

107. See id. (noting the Tier 2!new motor vehicle emissions standards at a cost estimate 

of $5.3 billion per year (1997 dollars) in 2030 and the regional haze rule at a high-cost 

estimate of $4.4 billion per year (1990 dollars) in 2015). 

108. Crain and Crain report a high-cost estimate of just over $4 billion for this period. 

CRMN & CRMN, supra note 6, at 26 tb1.3. This is the same as OMB's estimate for the costs 

of all federal regulations for this same period. OFFICE OF MGMT. Al'D BUDGET, 

VALIDATING REGULATORY ANALYSIS: 2005 REpORT TO CONGRESS ON THE COSTS Al'D 

BENEFITS OF FEDERAL REGULATIONS AND UNFUNDED MANDATES ON STATE, LOCAL, MD 

TRIBAL ENTITIES 12 tbl.1-3 (2005) [hereinafter OMB 2005 REPORTJ. 

109. $862 million in 2001 dollars. 

110. See National Emission Standards for Hazardous Air Pollutants for Industrial, 

Commercial, and Institutional Boilers and Process Heaters, 69 Fed. Reg. 55,218 (Sept. 13, 

2004) (to be codified at 40 C.F.R. pt. 63); OMB 2005 REpORT, supra note 108, at 13 tbl.1-4 

(noting a high-end cost estimate of $876 million in 2001 dollars). 

111. See National Emission Standards for Hazardous Air Pollutants: Plywood and 

Composite Vlood Products; List of Hazardous Air Pollutants, Lesser Quantity Designations, 

Source Category List; Reconsideration, 70 Fed. Reg. 43,820 (July 29, 2005) (to be codified at 

40 C.F.R. pt. 63); OMB 2005 REpORT, supra note 108, at 13 tbl.1-4 (noting a high-end cost 

estimate of $291 million in 2001 dollars). 

112. See Standards of Performance for Petroleum Refineries, 73 Fed. Reg. 55,751 (Sept. 

26,2008) (granting reconsideration and stay of the effective date); O,','1CE (W MGY1T. Al'D 
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Spring 20121 The $1.75 Trillion Lie 153 

National Ambient Air Quality Standard (NAAQS) for ozone set in 2008.113 

In including rules that the agency itself has pulled, Crain and Crain overstate actual regulatory costs for the relevant period by almost $11 billion. 

Similarly, Crain and Crain also include rules that no longer exist 

because the courts have overturned them. Rules invalidated by the courts, 

yet embraced within Crain and Crain's estimates of today's regulatory costs, 

include the Bush administration's Clean Air Act rule governing mercury 

from power plants,114 its Clean Water Act rules on concentrated animal 

feeding operations,115 and rules on cooling water intake structures at power 

plants and other facilities. 116 The cost of including these rules in Crain and 

Crain's cost estimates is almost $6 billion. It is also worth noting that two 

of the rules most cited in industry complaints about the aggressiveness of 

the Obama EPA are do-overs of these two invalidated rules-the proposed 

new rules on air toxics from power plants and on cooling water intake structures.ll7 Crain and Crain use defunct cost estimates associated with past, 

invalidated incarnations of these rules, and many observers have then taken 

Crain and Crain's flawed cost estimates as a reason to caution against the 

new rules in this administration-which include new versions of these very 

same rules. 118 If ever there was double counting, this surely is it. 

Crain and Crain also double count by including rules that together aim 

at the same regulatory end point. They include the 2006 NAAQS for 

BUDGET, 2009 REPORT TO CONGRESS ON THE BENEFITS AND COSTS OF FEDERAL 

REGULATIONS AND UNFUNDED MANDATES 0/\ STATE, LOCAL, AND TRIBAL ENTITIES 16 

tbl.1-4 (2010) [hereinafter OMB 2009 REPORT] (noting a cost estimate of $7 million in 

2001 dollars). 

113. See OMB 2009 REPORT, supra note 112, at 16 tbl.1-4 (noting a high-end cost 

estimate of $7.73 billion in 2001 dollars). 

114. See OFFICE OF MGMT. & BUDGET, 2006 REPORT TO CONGRESS 0/\ THE 

BENEFITS AND COSTS OF FEDERAL REGULATIONS AND UNFUNDED MANDATES ON STATE, 

LoCAL AND TRIBAL ENTITIES 9 tbl.1-4 (2007) [hereinafter OMB 2006 REPORT] (noting a 

high-end cost estimate of $500 million). 

115. See OFFICE OF MGMT. & BUDGET, PROGRESS IN REGULATORY REFORM: 2004 

REpORT TO CONGRESS ON THE BENEFITS AND COSTS OF FEDERAL REGULATIONS A/\D 

UNFUNDED MANDATES ON STATE, LOCAL AND TRIBAL ENTITIES 18 tbl.4 (2004) (noting a 

cost estimate of $360 million). 

116. See Waterkeeper Alliance, Inc. v. EPA, 399 F.3d 486 (2d Cir. 2009) (vacating 

rule); National Pollutant Discharge Elimination System-Final Regulations to Establish 

Requirements for Cooling \Vater Intake Structures at Phase II Existing Facilities, 69 Fed. 

Reg. 41,576 Ouly 9,2004) (to be codified at 40 C.F.R. pts. 9, 122-125); OMB 2005 REPORT, 

supra note 108, at 13 tb1.1-4 (noting a high-end cost estimate of $383 million). 

117. See, e.g., AM. LEGISLATIVE EXCH. COUNCIL, EPA's REGULATORY ThAIN WRECK: 

STRATEGIES FOR STATE LEGISLATORS 12-13, 15 (2011), available at http://timeopinions. 

files.wordpress.comI2011/10/epa -train -wreck -2011-final-full-printres. pdf. 

118. See supra text accompanying notes 7-9. 
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154 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

particulate matter119 and the implementation plans for meeting these 

standards/20 while at the same time including other rules that also target 

the same emissions of particulate matter. l2l Likewise, Crain and Crain 

include both the estimated costs of the 1997 ozone NAAQS122 and rules 

designed to meet those very standards.123 OMB, for its part, eschews this 

kind of double counting. 124 The cost of Crain and Crain's double counting 

here is well over $10 billion. 

All told, these mistakes add up to over $30 billion out of the $48 billion Crain and Crain report for the costs of environmental regulation from 

1999 to 2008. 125 And this only accounts for Crain and Crain's double 

counting and their inclusion of nonexistent rules, not for the likely overestimation of regulatory costs in RIAs126 or for any other contestable part of 

their analysis. No one, we hope, would argue that it is acceptable to count 

the costs of the same rule more than once in estimating actual regulatory 

costs. Nor, we hope, would anyone argue that the costs of nonexistent rules 

should figure in estimates of actual regulatory costs. Taking out these phantom costs cuts Crain and Crain's estimate of the costs of environmental 

regulation post-2000 by two-thirds. 

We have not toted up every single possible instance of double counting 

or of counting the costs of rules that are not in force. Once we discovered 

the magnitude of the errors in Crain and Crain's analysis, it seemed like 

119. See National Ambient Air Quality Standards for Particulate Matter. 71 Fed. Reg. 

61,144 (Oct. 17, 2006) (to be codified at 40 C.F.R. pt. 50); OFFICE OF MGMT. & BUDGET, 

2007 REPORT TO CONGRESS ON THE BENEFITS AND COSTS OF FEDERAL REGULATIONS 

AND UNFUNDED MAl\DATES 0'1 STATE, LOCAL, AND TRIBAL ENTITIES 9 tbl.1-4 (2008) 

[hereinafter OMB 2007 REPORT] (noting a high-end cost estimate of $2.83 billion in 2001 

dollars, equivalent to $3.42 billion in 2009 dollars). 

120. See OFFICE OF MGMT. & BUDGET, 2008 REpORT TO CONGRESS ON THE 

BENEFITS AND COSTS OF FEDERAL REGULATIONS AND UNFUNDED MANDATES ON STATE, 

LoCAL, AND TRIBAL ENTITIES 11 tbl.1-4 (2009) (noting a high-end cost estimate of $7.32 

billion in 2001 dollars). 

121. Rules on regional haze, boilers, petroleum refineries, automobile emissions, and 

more: all share particulate matter emissions as one of their regulatory targets. 

122. See OFFICE OF MGMT. & BUDGET, REPORT TO CONGRESS ON THE COSTS Al\D 

BENEFITS OF FEDERAL REGULATIONS 79 tbl.15 (1998) (noting a cost estimate of $4.5 billion 

in 1996 dollars, equivalent to over $6.1 billion in 2009 dollars). 

123. See OMB 2006 REPORT, supra note 114, at 8 tbl.1-4 (noting a cost estimate of 

$1.89 billion in 2001 dollars for the Clean Air Interstate Rule Formerly Titled: Interstate Air 

Quality Rule); OMB 2000 REPORT, supra note 42, at 38, 39 (noting a cost estimate of $1.7 

billion in 1990 dollars for the NOx SIP Call). 

124. See OMB 2007 REPORT, supra note 119, at 36. 

125. The figures are converted from CRAIN & CRAIN, supra note 6, at 26 tbl.3, which 

were reported in 2001 dollars, to 2009 dollars based on the figures reported in CRAIN & 

CRAIN, supra note 6, at 31 tbl.6, which were reported in 2009 dollars. 

126. See supra text accompanying notes 94-100. 
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overdoing it to chase after more double counted or miscounted millions 

when we had found so many double counted and miscounted billions. 

But be assured: there are more millions, and even billions, to be found, 

and excised from Crain and Crain's estimates. For example: OMB's 1998 

report estimates an annual cost of $17 billion in 1996 dollars for the 1997 

particulate matter NAAQS ($23.28 billion in 2009 dollars). This estimate is 

carried over into Crain and Crain's estimates through their use of OMB's 

2001 report. Yet Crain and Crain also include the costs of many rules that 

reduce particulate matter and are aimed in large part at attaining that 1997 

standard. If the 1997 NAAQS rule is removed from Crain and Crain's 

aggregate cost estimate, that estimate declines by over $23 billion. And 

another example of many millions left on our cutting room floor: Crain and 

Crain's estimates surely include the costs of EPA's 1989 ban on asbestosoverturned in court almost twenty years ago.127 

C. Workplace Safety and Health 

Crain and Crain estimate costs of $64.3 billion for occupational safety 

and health regulations issued prior to 2001, and $471 million for such regulations issued between 2001 and 2008.128 For the costs of rules issued before 

2001, Crain and Crain rely on a book chapter published in 2005 by Joseph 

M. Johnson. 129 As Sidney Shapiro and his co-authors from the Center for 

Progressive Reform have tellingly observed, Johnson's figure has an exceptionally dubious provenance: Johnson aggregates cost estimates for 

occupational safety and health rules through 2001, then multiplies them by 

5.55 based on a 1996 study130 which itself relied on a 1974-yes, 1974-

estimate of compliance costs ("unpublished and otherwise unavailable," 

Shapiro et al. point out) by the National Association of Manufacturers.l3l 

Despite these awkward origins, Crain and Crain apparently think so highly 

of the Johnson estimate that they report they used the Johnson calculations 

127. These costs are included in OMB's 2001 report (incorporated by Crain and Crain) 

through use of estimates compiled in 1996 for major rules issued between 1987 and 1994. 

The asbestos ban was issued in 1989, Asbestos Ban and Phaseout Rule, 40 C.F.R. § 763 

(1989), and estimated (on the high end, which is what Crain and Crain used) to cost approximately $62 million per year. If Crain and Crain's analysis is to be believed, we are still 

paying over $100 million a year (based on adjusting the $62 million figure for inflation, as 

Crain and Crain do) for this ban, which was overturned by the courts in 1991. See Corrosion 

Proof Fittings v. Envtl. Prot. Agency, 947 F.2d 1201 (5th Cir. 1991). For the anti-regulatory 

crowd, this defunct ban is certainly the gift that keeps on giving. See Five Hundred LifeSaving Interventions, supra note 23, at 156 (criticizing the invalidated asbestos ban in one-third 

of the environmental measures discussed). 

128. CRAIN & CRAIN, supra note 6, at 30 tbl.5 (reporting cost in 2009 dollars). 

129. Id. (citing Johnson, supra note 18). 

130. JAMES, supra note 18. 

131. SHAPTRO ET AT .. , supra note 12, at 9. 
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156 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

"where possible, that is, until 2001.,,132 Apart from showing a strange preference for calculations of dubious quality, Crain and Crain's suggestion that 

it was not possible to use the Johnson estimate for rules after 2001 betrays a 

lack of understanding of how that estimate was derived. All Crain and 

Crain had to do, if they really believed in the Johnson estimate as much as 

they appeared to, was to multiply the cost estimates for rules issued after 

2001 by 5.55!133 

One of us has previously criticized this multiplier, which comes from a 

study by Harvey James: 134 

Harvey James estimates the costs of compliance with 25 OSHA 

regulations as of 1993. But he also observes that the cost per firm 

was 5.5 times higher in a 1974 study of OSHA compliance costs 

done by the National Association of Manufacturers. James then 

simply asserts that the costs per firm could not be lower today than 

in 1974. On that basis, he multiplies his 1993 numbers by 5.5-

thereby eliminating all empirical content in his study of 1993 costs, 

and simply recycling a 1974 estimate by an anti-regulatory industry 135 group. 

It is worth noting that James himself had more modest claims for his own 

study, cautioning that his cost calculations were "estimates only ... and not 

measures of actual expenditures.,,136 He emphasized that the rules he studied had been issued in "different time periods" and that "estimates of the 

compliance costs of OSHA do not take into account new rules, changes in 

existing regulations, or old rules no longer aggressively enforced by the 

agency.,,137 None of these cautions reappears in Crain and Crain's wholesale 

adoption of James's estimates.138 

Crain and Crain's estimate for the costs of rules on workplace safety 

and health regulation issued from 2001 to 2008 has the same basic flaw as 

many of their estimates of environmental regulatory costs: the estimate 

132. CRAIN & CRAIN, supra note 6, at 31. 

133. Crain and Crain also are mistaken to say that the figure they report for 0 MB's 

estimates of the costs of OSHA rules run from 2001 to 2008. CRAIN & CRAIN, l'Upra note 6, 

at 30 tbl.5. Actually, the OMB source they cite covers rules from 1998 to 2008. OMB 2009 

REpORT, supra note 112, at 10-11 tbl.1-2. 

134. JAMES, supra note 18. 

135. Ackerman, supra note 87, at 1085-86; see also SHAPIRO ET AL., supra note 12, at 9. 

136. JAMES, supra note 18, at 10. 

137. !d. at 5. 

138. Nonexistent rules make an appearance here, too: Johnson (based on James) includes over $1 billion (in 2009 dollars) in costs for OSHA's air contaminants rule. Johnson, 

l'Upra note 18, at 34 tbl.10. The rule was overturned almost twenty years ago in AFL-CIO v. 

Occupational Safety (3 Health Admin., 965 F.2d 962 (11th Cir. 1992). 
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Spring 20121 The $1.75 Trillion Lie 157 

includes costs that do not exist. 139 To take one example, a good portion-

$327 million out of $470 million-of the costs Crain and Crain report for 

workplace rules from 2001 to 2008 comes from just one rule: OSHA's rule 

setting limits for hexavalent chromium.140 After this rule was issued, the 

parties challenging the rule agreed to significant changes in the rule to 

make it more flexible and less costly.141 But Crain and Crain use the previous version of the rule in their analysis.142 Here, too, Crain and Crain 

report the costs of a rule that does not exist in the form they assume. 

CONCLUSION 

If statistical analysis required a driver's license, Crain and Crain could 

have theirs revoked for reckless and dangerous driving. On economic regulation, their one-equation calculation, worth $1.24 trillion in their fantasy of 

regulatory costs, rests on misunderstanding the definition of their data, 

flunking an elementary question on the normal distribution, padding the 

analysis with seven years of near-identical data, and failing to recognize the 

difference between correlation and causation. Their methods could just as 

easily be read as claiming that economic benefits would result from cutbacks in education as from cutbacks in regulation-yet, no one has argued 

that is a credible position. 

On environmental regulation, Crain and Crain wheel out decades-old 

studies of decades-old rules. The bulk of their estimate rests on the idea 

that voluntary unemployment is the real culprit in today's regulatory environment. The remainder of it is filled to the brim with nonexistent rules 

and other phantoms-as is their flawed estimate of the costs of workplace 

safety and health rules. 

139. Crain and Crain also repeat here the error of double counting the costs of some 

years' regulatory output. Crain and Crain report that their estimates from OMB's annual 

reports cover the years 2001 to 2008. CRAIN & CRAIN, supra note 6, at 30 tbl.5. In fact, those 

reports cover the years 1998 to 2008 and thus overlap for three years with the period covered 

in the James study. OMB 2009 REPORT, supra note 112, at 10 tbl.1-2. 

140. See OMB 2007 REpORT, supra note 119, at 9 tbl.1-4 (reporting a high-end cost 

estimate of $271 million in 2001 dollars for this rule, which works out to approximately $327 

million after adjusting for inflation). 

141. See Settlement Agreement, Surface Finishing Indus. Council v. Occupational 

Safety & Health Admin., No. 06-2272 and Pub. Citizen Health Research Grp. v. Occupational Safety & Health Admin., No. 06-1818 (3d Cir. Oct. 25, 2006), available at http:// 

www.osha.gov/SLTC/hexavalentchromium/elect_sign_steelworkers.html. 

142. Crain and Crain rely on OMB's 2007 estimate of the cost of this rule, which itself 

llsed OSHA's estimate of the cost of the original rule and not the rule as changed after 

settlement. See Occupational Exposure to Hexavalent Chromium, 71 Fed. Reg. 10,100, 

10,263 (Feb. 28, 2006) (reporting a cost estimate of $288 million per year in 2003 dollars, 

which works out to OMB's cost of $271 million when 2001 dollars are used); OMB 2007 

REPORT, supra note 119, at 9 tb1.1-4 (reporting a cost estimate of $271 million). 
77 


LH-40.eps

158 j\IIichigan journal of Environmental (3 Administrative Law rVol.l:l 

It would be bad enough if this were a private study, undertaken with 

private funds, lacking any official imprimatur. Even then, the viral spread 

of the utterly unfounded $1.75 trillion estimate through the public sphere 

would be worrying enough. But this is a study requested, funded, reviewed, 

and edited by a government agency, the SBA's Office of Advocacy.143 

Taxpayers shelled out almost $100,000 for this nonsense.144 More fundamentally, the Office of Advocacy's sponsorship and official embrace of the 

study-running all the way from initially conceiving the study, funding it, 

reviewing it, and editing it, to officially defending the study in testimony 

before Congress even after it had been severely criticized145 -embroils this 

public agency in an unwholesome blend of ineptitude and bias. Before 

funding any more anti-regulatory research that threatens to repeat the 

same sad story/46 the Office of Advocacy should officially, emphatically, 

and loudly disown the methodology and findings of Crain and Crain's 

problematic report. ''Advocacy'' is not an excuse for phony numbers. 

143. CRAIN & CRAIN, supra note 6, at cover page (stating that report was "reviewed and 

edited by officials of the Office of Advocacy;' though hedging as to whether the "final 

conclusions" of the report reflected the views of that office). 

144. $99,500, to be exact. See, e.g., Contract between U.S. Small Bus. Administration, 

Office of Procurement & Grants Mgmt., & Mark Crain for the Impact of Regulatory 

Costs on Small Firms (Sept. 24,2008), http://www.progressivereform.org/articles/Crain%20 

and%20Crain_20Contract. pdf. 

145. See Assessing The Impact Of Greenhouse Gas Regulations On Small Business (Part 2 of 

2) (House Oversight Committee broadcast Apr. 6,2011,1:03:33), available at http://www. 

archive.org/details/gov.house.ogr.ra.20110406.2 (oral testimony by Claudia R. Rodgers, 

Deputy Chief Counsel for Advocacy, SBA Office of Advocacy). Rodgers defends the Office 

of Advocacy's failure to ask Crain and Crain to report on benefits of regulation, stating that 

the Office of Advocacy is "not required to ask for [the underlying] data" when it sponsors 

studies, defends the peer review process for the study, and defends the study as having the 

"exact same methodologies" as previous studies sponsored by the Office of Advocacy. Id. 

146. James Goodwin, On Heels of Debunked Report, SBA's Office of Advocacy Solicits More 

Anti-Regulatory Research, CPRBLOG (Aug. 16, 2011), http://www.progressivereform.org/ 

CPRBlog.cfm ?idBI og~CF8517C8-C94 D-590 E-C7 AD9962D431FBOA. 
78 

Mr. SMITH. Thank you, Professor Heinzerling. 

Mr. Luddy. 

TESTIMONY OF ROBERT L. LUDDY, FOUNDER AND 

PRESIDENT, CAPTIVEAIRE, INC., RALEIGH, NC 

Mr. LUDDY. Thank you, Chairman Smith, and Ranking Member 

Conyers, and distinguished Members of the Committee for the opportunity to be here today. 

I founded CaptiveAire Systems in 1976 with an investment of $1,300. Over the last 35 years, we have become the leading producer of commercial kitchens ventilation in North America. We 

have 80 U.S. sales offices, 5 manufacturing facilities in North Carolina, Iowa, Oklahoma, California, and Pennsylvania, and we employ over 700 people. That feat would be hard to repeat today 

based on modern regulation. 

I am also a member of the Jobs Creators Alliance, a group 

formed by entrepreneurs to give small business a growth, America’s primary growth creators, job creators. 

Regulations disproportionately and adversely impact small businesses. Over the last several decades, the number and scope of 

Federal regulations has expanded exponentially, stunning job creation, economic growth, and placing an undue burden on entrepreneurial America. 

The commercial kitchen ventilation industry has a myriad of current regulations for performance, safety, and energy savings. Beginning with the industry group, ASHRAE, which develops energy 

and design standards, which are the best in the world, and adopted 

into the codes. Mechanical codes, such as IMC, UMC, NFPA 96, et 

cetera, are the national codes, but these codes are further modified 

by virtually every State, and then further modified by cities and 

counties and local authorities having jurisdiction. 

Also within our industry, we have groups, such as UL, ASTN, 

and AMCA, which develops testing standards and have made the 

American product the best in the entire world. Those were also 

eventually adopted into the codes over time. 

As regulation increases, more cost and development time has to 

be shifted to deal with this regulation as opposed to working in innovative products, which is really what drives business. If you look 

at government intervention in the kitchen ventilation business, it 

goes back to 1950, and essentially what happened is they mandated very high exhaust flow rates in restaurants, which is the 

bane of energy efficiency. 

Beginning in 1970, with the help of UL, new standards were developed, eventually approved by the code, which reduced exhaust 

flow rates and saved energy. But we still have areas, like the City 

of Chicago that has not adopted modern codes, and, therefore, energy savings are not possible there. 

Now we have the U.S. Department of Energy that wants to regulate exhaust fans and blowers. Fans and blowers in a commercial 

restaurant comprise less than 2 percent of the energy used. And 

fans are very efficient because we have a fiercely competitive industry. They are in the range of 50 to 70 percent efficiency versus 

a nuclear power plant that is about 36 percent efficient. So we are 

in a very good industry. 

79 

Private sector innovation to save energy is making dramatic 

progress in our industries. I will give you a few examples. Demand 

ventilation, which allows us to modulate fans up, down, and off 

when they are not needed is now becoming commonplace in the 

market. Electronically-controlled motors are 80 percent efficient, 

and as the cost is driven down, become more prevalent in the market. And the real opportunity for savings are solid state controls. 

Next year, we will introduce control systems that report to the 

web and have the opportunity to save up to 20 percent of all HVAC 

energy within a restaurant. They will also report on a real-time 

basis data to owners and users so that they can better manage a 

restaurant and design restaurants better in the future. 

The best way to empower entrepreneurs and encourage small 

business owners is to establish a moratorium on new regulation. 

The pros of any regulation impacts industry in many ways. It really stifles initiative within the industry, it creates barriers for entry, 

and potentially causes the loss of U.S. jobs because small manufacturers will not be able to meet these regulations. 

The creative genius of free market entrepreneurs cannot be stifled, but it can be slowed down by regulation, and that is exactly 

what happens. Products that we have introduced into the market 

have streamlined the cost and production of kitchen hoods that are 

much energy efficient. Control systems for indirect fired heaters, 

and we have introduced a revolutionary new fire protection product, which eventually we think will be the standard of the world. 

Further regulation by government will hurt small business, impede innovation, stunt growth, reduce exports, reduce job creation, 

and essentially trample on entrepreneurial America. 

Thank you very much for the opportunity to testify, and I look 

forward to your questions. 

[The prepared statement of Mr. Luddy follows:] 

80 


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Creators Business Leaders for 

Alliance Job Growth in America 

TESTIrv'O~Y OF 

ROBERT L. LJJDDY 

PRESIDE~T 

CAPTIVEAIRE SYSTEMS, INC 

RALEIGH. ~ORTH CAROLINA 

"Regulation Nation: The Obama Administration's 

Regulatory Expansion vs. Jobs and Economic Recovery" 

Committee on the Judiciary 

U.S. House of Representatives 

10:00 AM 

September 20, 20 I 2 

Room 2141 

Rayburn House Office Building 
81 


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Introduction 

Chairman Smith, Ranking Member Conyers and distinguished 

Members of the Committee, thank you for extending to me the 

opportunity to testify before you today, 

My name is Robert L. Luddy and I am the Founder, President and 

CEO of CaptivcAire Systems, the nation's leading manufacturer of 

commercial kitchen ventilation systems, based in Raleigh, North Carolina. 

CaptivcAire's integrated kitchen ventilation packages include hoods, 

exhaust fans, electrical controls, direct-~red heaters, UL listed grease duct 

systems, ~re suppression systems, grease hlters and utility distribution 

systems. We provide commercial cooking ventilation to Independent 

operators and national restaurant chains, as well as other public and private 

institutions. I founded CaptiveAire as a one-room facility with just $ I 300 in 

1976. Today, CaptiveAire maintains a network of over 80 sales offices in 

the United States and Canada as well as five manufacturing plants in North 

Carolina, Iowa, Oklahoma, California and Pennsylvania. We now employ 

700 employees and are projected Lo grow to more than 1000 employees 

by 2016. We are consistently recognized as "best-in-class" in our industry, 

and we are one of the largest and fastest-growing private companies in 

North Carolina. 

Job Crc]\ors Alliance I 

J~3 Creators 

Alliance 
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I am also a Job Crealors Alliance UCA) member. JCA was formed by 

entrcprencurs to give voice to small business - the engine of American job 

creation. We olfer practical solutions for job creation rooted in real-world 

experience rather than political Ideology. We want to promote and shape 

policies that will encourage investment, stop the migration of jobs 

overseas, empower small businesses to hire and facilitate the upwal-d 

mobility of our middle class. 

The pace of regulations and policies coming out of Washington is 

stunting job creation and economic growth, The undue burden being 

placed on businesses IS stining Entrepreneurial America. My hope and aim 

today is to illuminate the real issues thal regulallon can cause for job 

creators like myself, and how, with the right kind of reforms, we could help 

grow the economy and usher in another era of American prosperity and 

job creation. 

Job Creators Alliance Position on Regulations 

Over the last several decades, the number, scope and burden of 

Federal regulations have expanded exponentially. Multiple sludies have 

shown that America's regulatory Infrastructure costs the U.s. economy 

anywhere from hundreds of billions of dollars to over $1 trillion. 

Job Creators Alliance I 2 
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Federal regulators issued nearly 25,000 pages of final rules ,n 20 I 0,1 To 

put that into perspective, it would take mOI'e than 50 days of reading 

around the clock to keep up with the 3,573 ~nal rules issued. Churning out 

this steady fiow of regulations will require an estimated 291,676 full-time 

federal workers this year alone, doubling the number of federal regulators 

employed in 1980 

On top of that. we have seen hundreds of new significant rules and 

major regulations issued by this Administration in 20 I I and 2012 - an 

unprecedented onslaught of regulations from Washington. 

In 2008, the World Economic Forum ranked the U.s. as the world's 

most competitive economy. Since that point. for four years in a row, the 

position of the United States has declined - it is now the world's seventh 

most competitive economy and falling. Four years later, the United States is 

ranked 47'" (out of 144) in the number of procedures to start a business, 

68th in the extent and effect of taxation and 76'h in both wastefulness of 

government spending and burden of government regulation.' This is a 

scary slide - especially for the entrepreneurs in this country who are relied 

upon for job creation. If America is to remain competitive, addressing the 

Job Creators AIIic1ilCC I 

TI' 

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Creators 

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regulatory burden the U.s. govemment places on businesses - especially 

small businesses, which create two-thirds of all news Jobs In Lhis nation - IS 

an urgent prionty. 

Greater attention must be drawn to the bUl'den thaL regulation is 

placing on economic growth and Job creation. Pollcymakers should better 

weigh the potential benefits of new regulatory initiatives against their cosLs. 

Over the years, Presidents. Congress and this Committee have issued 

executive orders, enacted laws and passed legislation in an attempt to 

reduce the burden of regulations on businesses. 1 hese Include the 

Regulatory FleXibility Improvements Act of 20 I I, the REINS Act, the Red 

Tape Reduction Act and the Small Business Jobs Act, Just to name a few. 

While these efforts led by the US House of Representatives have yielded 

some progress, the regulatory burden for small businesses continues to 

grow3 The speed and complexiLy with which new rules are handed down 

have had a chilling effect in the private sector, as businesses are unable to 

adequately plan for the future; they simply do not know what these 

regulations will cost them in time, money and energy. ThiS Committee 

demonstrated leadership when it called for a moratorium on substantial 

3 SBA Office of Advocacy, "20 I 0 Regulatory Flexibil,ly Acl Reporl," February 20 I I. 

Job Creators Alliance I 4 
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regulations until the economy had recovered to an unemployment rate of 

60% or below. This was, and IS still, a good idea 

As this Committee has recognized, we need better cost accounting 

when it comes to passing and enacting new regulations. Before laws are 

passed, greater emphasis should be placed on analyzing the potential costs 

of regulatory initiatives. The Congressional Budget Office estimates the 

budget impact of all legislation. A similar process for scoring the economic 

costs of regulations should be established as well. Better disclosure will 

hold lawmakers responsible for the burdens new regulations place on Job 

creators. 

As new rules are added, old regulations are often left on the books and 

forgotten. Various provisions intended to reduce regulatory burdens often 

overlap, wasting valuable resources on unnecessary paperwork and 

creating confusion. Congress should place a sunset date on most 

regulations, after which the agency must Justify the continuation of the 

regulation and re-open the rule for comment. This Committee, again, has 

led on these efforts, but more needs to be done. 

Underlying this entire discussion, and the reason for JCA's existence, is 

the reality that regulations have a disproportionately adverse impact on 

small businesses than large ones. As this Committee has accurately pOinted 

Job C;ccltors /\llanCf'; I 
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out, small businesses pay 36% more regulatory costs per employee than 

large businesses and Federal regulations that impact small businesses have 

risen 14% since 2009. Large companies With big accounting, legal and 

compliance departments have the resources to deal with new regulations -

small bUSinesses do not. This gives a significant advantage to large, mature 

firms, who are creating few, if any, jobs against small, entrepreneurial firms 

that generate the vast maJonty of new Jobs. This IS why small business 

owners routinely name regulations, and the uncertainty surrounding them, 

as the biggest problem facing them today. A highly-regulated state makes it 

difficult to Innovate, to invest and to grow a business. 

Impact of Regulations on CaptiveAire Systems. Inc. 

Current regulations for the Commercial Kitchen Ventilation industry are 

vast and cover all aspects of the product. ASH RAE (American Society of 

Heating, Refrigerating and Air-conditioning Engineers) develops standards to 

define acceptable performance. Five widely applied to our industry are as 

follows: 

Standard 154 - Ventilation for Commercial Cooking Operations 

Standard 90 - Energy Standard for Buildings except Low-Rise Residential 

Standard 189 - Standard for the Design of High Performance Green 

Buildings 

fII 

Creators 

Alliance 
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Stondord 62 I - Ventilation and Acceptable Indoor Air Quality 

Stondord 62.2 - Ventilation and Acceptable Indoor Air Quality in Low-Rise 

Resldentlol Buildings 

Mechanical Codes and Commercial Kitchen Ventilation Standards that 

apply to our industry include the following listed below. State and local 

Jurisdictions can adopt their own mechanical codes, which can add another 

layer of regulations. 

International Mechanical Code (fMC) 

Uniform Mechanical Code (UMC) 

11 

w 

Creators 

Alliance 

Notional Fire Protection AssoCiation Bulletin 96 (NFPA96-2008) - Standard 

for Ventilation Control ond Fire Protection of Commerciol Cooking 

Operations 

Life Safety Code 

International Fuel and Gas Code (IFGC) 

International Energy Conservation Code (IECC) 

Each product we sell is listed to and evaluated according to the applicable 

UL Standard. Testing is done through a certified testing agency and VISits to 

our manufacturing sites are required semi-annually or annually to evaluate the 

manufacturing process Lo ensure conformity. See examples below of 

applicable safety standards for a portion of our pmducts: 

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UndelWriters Laborotories, UL Standard 7 I 0 - Exhaust Hoods {or 

Commercial Cooking EqUipment 

UndelWriters Laboratones, UL Standard 1046 - Greose Filters for Exhaust 

Ducts 

UndelWnters Laborotones, UL Standard 705 - Power Ventilators 

UndelWriters Laborotones, UL Standard 762 - Power Roo{Ventilators {or 

Restaurant Exhaust Appliances 

Performance Standards for some products are also documented via 

American Society of Testing and Materials (ASTM). The products are then 

tested to the applicable pelformance standard. See examples below: 

ASTM-F25 I 9-05 (20 I I) - Stondard Test Methods for Grease Particle 

Capture EffiClencv of Commercial Kitchen Filters ond Extractors 

ASTM-F 1701-09 - Stondard Test Methods for Copture and Containment 

Performance of CommerclCJI Kitchen Exhoust Ventilation Systems 

ASTM-F2474-09 - Standard Test Method for Heat Gain to Space 

Performance of Commercial Kitchen Ventilation/Appliance Systems 

J 

ttl 

Creators 

Alliance 

Our fan line must also be evaluated to standards and testing developed by 

Air Movement and Control Association International, Inc (AMCA). Sec some 

examples below: 

AMCA 205 Energy Efficiency C/asslfiCCJtIOn 

Job Credtors Allianc(2 
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AMCA 2 I I - Certified Ratings Program - Product Rotlng Monuol for 

Fon Air Performonce 

AMCA 3 I I -- Certified Rotings Program - Product Rotlng Monuol for Fon 

Sound Performance 

In 20 I 0, the Energy Independence and Security Act (EISA) mandated a 

standard for Premium Efficiency Motors. EISA and its related regulations 

til 

Creators 

Alliance 

proVide specific definitions for "electric motors" and apply to two subtypes of 

motors. Each subtype is subject to different energy effiCiency standards, but 

affect 1-500 horsepower range of motors. The mandated move to Premium 

Efficiency motors included a 20-25% increase In price for the manufacturer 

which was in turn passed on to the consumer. 

Now, the Department of Energy is looking to regulate commercial and 

industrial fans and blowers. First, it must be said that the fans comprise a small 

fraction ofthe energy consumed in commercial and Industrial buildings. The 

fan construction is a small part of system performance. The size, installation, 

operation and how the fan is controlled all playa large role in fan efficiency. 

Controlling these infiuences would have better efficiency gains than the 

marginal impact of increasing the fan alone. If a ventilation manufacturer 

spends development time on meel:ing the new fan regulation, then less time 

Will be spent on new technologies and finding opportunities to save energy. 

Job Ceoalors Aillacce I 
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Private Sector Innovation for Kitchen Ventilation Industry, in regards to 

energy savings, has increased. Three examples of this innovation can be seen 

In Demand Ventilation, the use of Electronically Commutated (ECM) Motors 

and the increase of solid state controls. 

Demand ventilation is an older, but quickly growing concept, where 

variable frequency drives (VFD) are used to decrease or increase fan speed 

based on actual cooking conditions. The use of vanable speed fans to reduce 

off-peak energy loads has Increased within our company. By reducing fan 

speeds by 20%, a savings of up to 48% of fan energy can be saved. Our 

consumers understand this technology and our sales of demand ventilation 

have increased by 20% each year for the last 5 years (2007-2012). 

The use of ECM (Electronically Commutated) motors is also Increasing In 

the Industry and being specified more frequently. Standard fraction 

horsepower motors are 65-75% efficient, whereas ECM motors are 80% plus 

efficient. 

Solid state controls focus on overall building monitoring; Individual pieces 

of equipment can be monitored and controlled, as well as points like 

temperature and humidity are recorded. Data is reported via a browser 

capable deVice such as an IPhone or personal computer'. By viewing the 

Job Creators hllkinCe 10 
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overall building and analyzing data, this will allow greater reduction In 

energy consumpLlon 

Given Lhat the cost of fan energy is relatively small and given that 

manufacturers are using known technologies to gain efGciency - IS this I'eally 

an area that the Federal Government should regulate? We are on the cusp of 

major innovations and increased regulations will stunt this progress. This is JUst 

one example of how, too often, the Federal Government inserts itself Into 

areas where the industry is already busy innovating. Innovation means better 

execution, satisfied customers and ulLimately a more robust economy. 

Conclusion 

The best way to empower c;ntrepreneurs and encourage small business 

owners is to establish a moratorium on new regulation. Ultimately, it is my 

belief that the American Dream ,a Dream that I have been fortunate to 

live is predicated on the free enterprise system. 

Codes and regulations in the Commercial Kitchen Ventilation Industry 

have impeded energy saving technologies. Many manufacturers compete 

on the baSIS of performance, energy savings and lower cost. Some areas of 

the country, such as the City of Chicago, refuse to modernize by reducing 

exhaust Aow for commercial hoods; a concept of listed hoods and lower 

awfows is now accepted by most code authorities. 

II 
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The creative genius of free market entrepreneurs and their hard 

working employees has solved enot'mous challenges over the past 150 

years and IS the greatest single force for innovation, which produces safe, 

enet'gy efficient technologies, This process bolsters America's 

competitiveness In the world, increases exports, our GOP and creates the 

Jobs of the future. Thank you, and I look forward to your questions. 

lob C'CdtOrs Alliance I 

"'* Creators 

Alliance 

12 

RLL2-1.eps

Testimony of Bob Luddy 

Founder and President 

CaptiveAire Systems, Inc. 

Raleigh, f\Jorth Carolina 

U.S. House of Representatives 

Committee on the Judiciary 

Subject: Regulation Nation: The Obama Administration's 

Regulatory 

Expansion vs. Jobs and 

Economic Recovery 

Date: Thursda

y, September 20, 2011 

Location: Room 2141 , Rayburn 

House Office Building 

RLL2-2.eps

CaptiveAire Systems, Inc. 

Manufacturer of Commercial Kitchen Ventilation Systems 

• 1976 - Bob Luddy founded with $1 ,300 

• 1984 - Changed focus to Kitchen Ventilation 

System (KVS), 51 employees 

• 2000 - Largest manufacturer of Kitchen 

Ventilation in US, 400 employees 

• 2012 - Five plants in the US, Major 

investment in new technologies and energy 

reduction, 700 employees 

• 2016 - Projection of 8 plants total and 1000+ 

employees, Estimate 10% of sales for expor

RLL2-3.eps

Proposed Fan Regulations 

• DOE pending regulation of commercial

industrial fans and blowers 

• Fan Efficiency: 

- Small fraction of the energy consume

in commercial and industrial buildings 

- Size, Installation, Operation and How 

the Fan is Controlled 

- greater 

influences than the attempt to increas

the efficiency of the fan alone 

RLL2-4.eps

Existing Regulations 

• Premium Efficiency Motors: 

- Energy Policy Act (EPAct) 1992 released, 

updated in 2005 

-

, Energy Independence and Security ,A,ct 

(EISA) passed in 2007 - move to Premium 

Efficiency mandated by 2010 

- Premium Motors are 20-25% higher in price

passed on to the customer with upgrade 

• Small AC Motor Efficiency Regulation - DOE 

ruled in 2010 to regulate general purpose 

small motors, will go into effect 2015 

• Most motors are imported 

RLL2-5.eps

Current Code Requirements 

• ASHRAE Energy and Design Standards: 

- Standard 154, 90.1, 189, 62.1 and 62.2 

• Mechanical Codes: 

- International Mechanical (IMC), Uniform 

Mechanical (UMC), NFPA 96, International Ener

Conservation (IECC), International Gas & Fuel 

(IGFC), Individual State and Local Codes 

• Product Safety Standards: 

- Standard UL 1995, 507, 705 and 762 

• Air Movement & Control Association (AMCA): 

- AMCA 205, 210, 211 , 260, 300 and 311 

Significant Amount of Codes to Meet Currently 
98 


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RLL2-7.eps

Private Sector Innovation 

• Demand Ventilation: 

Use of variable speed fans to reduce off-peak energy 

loads 

Older con

cept but emerging quickly: 20% increase pe

year from 2007-201 2 in sales for our company 

Save up to 48% of fan energy by reducing fan speed 

by 20% 

• ECM (Electronically Commutated) Motors: 

Standard fraction horsepower motors are 65-75% 

efficient, whereas ECM motors are 80

%+ 

• Solid State Controls: 

Data reporting via browser capable device (iPhone, Droid, personal computer) 

- Overall building monitoring - allows reduction in energ

consumption 
100 

Mr. SMITH. Thank you, Mr. Luddy. 

I will recognize myself to ask questions. But first I want to put 

into the record, without objection, a study that was just released 

yesterday. 

[The information referred to follows:] 


RLL2-8.eps
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President Obama's $488 Billion Regulatory Burden 

President Obama's $488 Billion 

Regulatory Burden 

Wed, 2012-09-19 04:261 Regulation 1 Sam Batkins [1] 

12] 

The Administration has created $70 Billion in Regulations in 2012 Alone 

Pagelof4 

As the mountain of regulations has grown so has the focus on the regulatory state, its 

impact on employment 13], investment [4], and "uncertainty [5]." President Obama and his 

former regulatory advisor, Cass Sunstein, have of course defended the Administration's 

record. The President has even authored four executive orders on regulatory reform and 

retrospective review. After nearly four years in office, the President's record on 

regulations is up for review. 

Based on data from the Government Accountability Office (GAO) and regulations 

published in the Federal Register, the Administration has published more than $488 billion 

in regulatory costs since January 20,2009 -- $70 billion in 2012 alone. 

Ignoring all non-"major" rules with costs in 2009, the regulatory tally still surpassed $61 

billion. In 2010, counting only "major" rules, the regulatory bill rose to $160 billion in 

lifetime costs. 

AAF began tracking every proposed and final rule in 2011. That year alone the 

Administration published more than $231 billion 16] in regulatory costs. AAF reviewed 

6,705 regulations in 2011 and has tracked more thanA,700 regulations to date in 2012. 

For each entry, AAF determined if a proposal contained a private-sector cost, a burden on 

state or local governments, or paperwork reporting requirements. Generally, Federal 

Regisierentries contain annualized or one-time compliance costs. For larger regulatory 

overhauls, however, where compliance takes several years, AAF recorded the total 

programmatic costs, if the agency provided those figures. 

For example, the Regulatory Impact Analysis for EPA's model year 2017 to 2025 fuel 

efficiency standards stated that the lifetime costs of the regulation would eclipse $156 

billion. 

The White House routinely responds to charges of "overregulation" by touting its efforts to 

reduce regulatory burdens and produce net benefits. There are 59 executive-level and 

independent agencies thai submit regulatory plans to the White House. Many of the costs 

and benefits are never quantified - in other words, the full impact of the Administration's 

regulatory burden is not yet fully appreciated. 

http://americanactionforum.org/print/topic/president-obama%E2%80%99s-488-billion-rcg... 9/20/2012 
102 


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President Obama's $488 Billion Regulatory Burden 

For example, the Consumer Financial Protection Bureau's (CFPB) first rule established 

new requirements under Dodd-Frank for remittance transfers. CFPB estimated that the 

rule would impose more than 7.6 million paperwork burden hours, affecting banks large 

and small. The stated costs for these burdens: $0. As an independent agency, CFPB is 

not legally required to monetize all possible burdens on private entities and states, but it is 

safe to say that there will be a cost greater than $0. 

These paperwork burdens are real, often ignored, and continue to grow. According to 

White House data, there were 8.8 billion hours of federal paperwork in FY 2010. The 

implementation of Dodd-Frank and the Affordable Care Act has driven this figure to 10.38 

billion [7], an increase of 1.5 billion hours. To put this increase in perspective, assuming a 

2,OOO-hour work year it, would lake 771,999 full-time equivalent employees simply to fill 

out red tape. Or, during the same amount of time, workers could construct 220 Empire 

State Buildings [OJ. 

This quantifiable spike in regulatory burdens is likely one reason that the White House has 

issued four executive orders on regulatory reform. In 2012, agencies followed through on 

the orders and rescinded $2.4 billion in regulatory costs. 

Unfortunately new policy initiatives have largely erased these savings. The Affordable 

Care Act has already imposed $27.9 billion [91 in lifetime burdens, and the law won't be 

fully implemented until 2014. Dodd-Frank has imposed more than $14.2 billion [9] in costs, 

with countless regulations evading quantified cost-benefit analyses. 

~onclusion 

The estimated $488 billion is not a ceiling, but a floor of the Administration's regulatory 

record. Independent cost estimates routinely report higher figures [3] than initial 

government estimates. All of these numbers are from the government's own estimates 

and the 2009 and 2010 numbers exclude non-"major" rules. As a cost floor, $488 billion is 

still a tremendous burden on private entities and local governments. It is more than U.S. 

GOP growth from the past three quarters ($442 billion). 

Based on this data, the current regulatory burden is undoubtedly higher than it was in 

2009. If this were untrue, there would be little need for executive orders and countless 

informal memos begging agencies to cut burdens. The Administration admits reform is 

needed, but after $488 billion in new costs, the results have been entirely illusory. 

Top 5 2012 Regulations By Costs 

Final EPA Utility MACT Regulations $10 Billion 

Final DOJ Prison Reform Standards $6.9 Billion 

http://americanactionforum.org/print/topic/president -obama %E2%80%<J 9s-4 8 8-billion-reg... 9/20/2012 
103 


76032B-3.eps

President Obama's $488 Billion Regulatory Burden Page 3 of 4 

Final CMS Community First Choice Option Implementation $5.7 Billion 

~ __ C~"_~_. __ ,,~ ~~,~_~~ __ " 

Proposed Department of Energy Distribution Transformer $5.2 Billion 

Standards 

~-... -. ~-.. ---.-~-.---.. "~--.--~,-, ~-~~,~, -.~-~~ 

Final SEC Conflict Minerals Rule $4.7 Billion 

-

To(:! 5 2012 Regulations B~ Pa(:!erwork Burden 

--,---_.-

CMS Medicaid Expansion Under PPACA 21.3 Million Hours 

Implementation 

.~-.--~-- -~----

Final FCC Lifeline and Link Up Implementation 21.1 Million Hours 

--------.--.------~~,-----"-,-~~~-~-,."---,~~~-~~ 

Final CFTC Swap Data RecordkeepinglReporting 19.4 Million Hours 

Requirements 

f--------- -----,-I---~ .. ---.--.--

Final OSHA Hazard Communication Standards 11.3 Million Hours 

-

CFPB Electronic Transfer Fund Regulations 7.7 Million Hours 

._.-

Tot! 5 Agencies B~ Costs in 2012 

---------.-.--"---.. ---.-.-.--.------~~,,-,~~,--,-- .-,-,.,~~'" ~~--~-.-.~~~-~.~ 

Health and Human Services $16.7 Billion , 

Environmental Protection Agency $12.1 Billion 

------"----- .--- _. --"._._-- .. _.- ... -----~-~~ 

Department of Energy $10.6 Billion 

1----------------- ---------

Department of Justice $6.9 Billion 

________ .. _~ _____ .. ___ w._""'~_. __ .. _ +-.----.--.. ~ .. --

http://americanactionforum.org/print/topic/president-obama%E2%80%99s-488-billion-reg... 9/20/2012 
104 

Mr. SMITH. And this was a study that was done by a former CBO 

director, and let me read a sentence out for all of us. ‘‘Based on 

data from the Government Accountability Office, GAO, and regulaVerDate Aug 31 2005 17:09 Dec 06, 2012 Jkt 000000 PO 00000 Frm 00108 Fmt 6633 Sfmt 6601 H:\WORK\FULL\092012\76032.000 HJUD1 PsN: 76032

76032B-4.eps

President Obama's $488 Billion Regulatory Burden Page 4 of 4 

$6.2 BilliO~J 

Methodology 

AAF derived these figures from GAO "Major Rule Reports" and the Federal Register. 

Under the Congressional Review Act, all departments, including independent agencies, 

must submit reports to GAO and Congress if a rule is "major," defined as a regulation 

likely to result in: "an annual effect on the economy of $1 00 million or more; a major 

increase in costs or prices for consumers ... or significant adverse effects on competition, 

employment, investment, productivity, [or] innovation." 

Source URL: http://?mericanactionforum:2':gLtopiclpres!9.'illl::9bam~~E:2%8Q°d&~.:1!l§_-billion-reaulatory: 

burden 

links: 

[1] http://americanactionforum.org/experts/sam-batkins 

[2] http://twitter.comlshare 

[3] http://americanactionforum.org/topiciamerican-energy-companies-report-over-three-times-higher-ulililymact-comp!iance-costs-epa-pro 

[4] http://americanactionforum.org/contentinet-neulrality-job-killing-zombie 

[5] http://americanactionforum.org/topic/analysis-finds-obamacare-already-missed-nearly-half-ils-regulatorydeadlines 

[6] http://americanactionforum.orgltopic/2011-year-regulation-executive-summary 

[7] http://www.regin/o.govlpublicidoIPRAReport?operation=11 

[8] http://wl!o/W.history.comlthis-day-in-hislory/herbert-hoover-dedicates-empire-state-building 

19] hUp:l/americanactionforum.orgJrodeo-database 

http://americanactionforum.org/printitopic/president-obama%E2%80%99s-488-billion-reg... 9/2012012 
105 

tions published in the Federal Register, the Administration has 

published more than $488 billion in regulatory costs since January 

20, 2009, $70 billion in 2012 alone,’’ which of course has not yet 

ended. That just confirms of course what many of us have been 

saying. And again, this is a former CBO director relying upon data 

from the Government Accountability Office. 

Professor Taylor, let me direct my first question toward you, but 

you have actually done a good job of answering my question. I was 

going to ask you what the impact of the record number of regulations and the atmosphere of uncertainty they have created for business has been on the economy. You gave a lot of statistics I think 

pointing that out. 

Is there anything you want to add more generally about the impact on the economy, or how the economy might have performed if 

we had not have had these stifling regulations imposed on businesses? 

Mr. TAYLOR. I think I could add one—— 

Mr. SMITH. Turn on your mic, if you will. 

Mr. TAYLOR. Other recent study by some researchers at the Federal Reserve Bank of San Francisco that tried to quantify the policy uncertainty as well that corroborates some of the research I referred to. 

It is always difficult to judge what would have been had there 

not been what I consider this expansion of regulatory activity in 

the last few years. And to me, the best thing you can do is look 

at history, and I think Mr. Gray and I both referred to the expansion in the early 1980’s. And this is ’83, ’84, ’85. And it was a good 

expansion. Growth, 5.7 percent on average during that period compared to 2.2 percent now. 

And if you look at the regulatory part of that, it is quite striking. 

That was a period where it was a reaction to the excesses in the 

70’s. This should not be partisan. It began to be addressed at the 

end of the Carter administration, and regulations were adjusted, 

and the number of Federal workers came down involved in this activity. And the number of pages in the Federal Register came 

down. 

And that was part of the reason—not the whole reason that was 

part of the reason why that expansion was so strong I think. And 

more recently you have the opposite, and this expansion is slow. 

And it is not just the regulatory activity of government. I think it 

is other aspects of government as well. I would mention the uncertainty about the tax policy, the fiscal cliff, the uncertainty about 

these stimulus packages—Cash for Clunkers. It all adds up, I 

think, to be quite remarkable when you look at history. And I think 

it is a big factor. 

Mr. SMITH. Okay. Thank you, Professor Taylor. 

Ambassador Gray, you mentioned in your testimony the various 

pieces of legislation that this Committee has approved that have 

also passed the House floor. Had those bills been enacted, what impact do you think they would have had on the regulatory atmosphere or the uncertainty that businesses face in regard to regulations? 

Mr. GRAY. I think they would have had a very beneficial impact 

on what we now see. It is again difficult to quantify, but we do 

106 

have these examples from the Reagan period, from Europe, fairly 

recently in Germany. We have the now unified west by the European business community to work out arrangements that would 

codify much of what you have already or this House and this Committee in this House has already adopted in terms of providing 

clear guidance to regulators to eliminate their unbridled discretion, 

to make sure that benefits exceed costs. 

It is not to eliminate regulation, but it is to make it something 

that a businessman, an investor, small or medium or large, can 

predict in trying to determine how to create jobs. 

Mr. SMITH. Okay. Thank you, Ambassador Gray. 

Mr. Luddy, thank you for the practical experience you bring to 

the table today. I am tempted to call Mr. Entrepreneur. You and 

your colleagues or other business owners, and operators, and 

founders have been the mainstay of our economy ever since the 

founding of our country. 

My question for you is basically, how much more difficult have 

the implemented regulations and the proposed regulations made it 

for individual entrepreneurs to start a business in America today 

compared to before these regulations went into effect? 

Mr. LUDDY. Substantially more difficult and very frustrating because, first of all, it is hard to determine what the regulation 

means on the ground, because in terms of code authorities, you 

have the written code, you have approval of the code, and then you 

have a local authority having jurisdiction making a final decision 

at inspection. 

So what happens is everybody focuses on trying to please these 

people rather than saying how can we produce the best possible 

system in the world. It takes away from the innovative focus. For 

smaller companies to meet these requirements without a substantial amount of money and expertise, it just really cannot be done. 

Mr. SMITH. Okay. Thank you, Mr. Luddy. That concludes my 

time. And the gentleman from Michigan, Mr. Conyers, is recognized for his questioning. 

Mr. CONYERS. Thank you, Chairman Smith. Professor 

Heinzerling, could you help Mr. Luddy, who we praise for his inventiveness and ingenuity, feel a little better about the regulatory 

process and how he thinks it has curtailed the inventive spirit here 

in this country? 

Ms. HEINZERLING. I hope so. 

Mr. CONYERS. Give it a try. 

Ms. HEINZERLING. I think that one piece of advice I would have 

in that spirit would be as I said at the outset, to focus on the good 

things that regulation does. Regulation is aimed at, in large part, 

economic problems and problems that even though not, strictly 

speaking, are economic. They are aimed at cleaner air, cleaner 

water, things that I think entrepreneurs even find satisfactory and 

good. And so it seems to me that there is not a necessary inconsistency between that kind of spirit and the spirit of regulation. 

I will also say that having spent 2 years at EPA, I will say that 

there is an entrepreneurial spirit there as overregulation well. And 

it often gets overlooked in these debates, but what I saw every day 

were people trying to make regulations as creative, as flexible as 

they could. And that those two things combined—the regulatory 

107 

benefits, the aims of regulations, and I think the spirit among the 

agencies of trying to help unleash flexibility, but within the constraints of protecting people against harm—seem to me may be a 

little hopeful. 

Mr. CONYERS. Thank you so much. I wanted to compliment Mr. 

Gray, who very specifically said that this is not a hearing against 

all regulations per se. It is a matter of reasonableness in regulations, and that some regulations are necessary and important. And 

I thought that that was a good way to frame the basis of your remarks. 

Now could I ask you, Professor, another question about what 

triggered the depression of ’29 and the current great recession? 

And was there any role of a regulation or non-regulation involved 

in these two great disasters in American economic history? 

Ms. HEINZERLING. I will say I am a law professor. I am not an 

economist. But what I understand is that some de-regulation preceded both economic crises, or at least a lack of regulation preceded 

both. And what we saw in the period following the ’29 crash and 

the following depression is a wave of regulatory activity that was 

we called a New Deal, that was intended to correct for the economic problems that had occurred, and so that it would not be surprising at all to see what we are seeing today, which is an effort 

to correct for the lack of oversight and a lack of regulation that 

helped, in part at least, get us where we are today. 

And it always surprising to me to hear testimony that sounds 

like it is suggesting that the way to get out of our current crisis 

is to return to the conditions that immediately preceded it. 

Mr. CONYERS. Thank you. I want to ask this question and invite 

any of our distinguished witnesses to respond, even more than one 

if they care to. And it concerns the former Federal Reserve chairman Alan Greenspan’s remarks. He opposed regulation of the practices that allowed subprime mortgages to be bundled into larger securities and sold to investors. 

He later testified, ‘‘I made a mistake in presuming that the selfinterests of organizations, specifically banks, and others were such 

as that they were best capable of protecting their own shareholders 

and their equity in the firms.’’ 

Do any of you concur with Chairman Greenspan’s change of 

heart in the aftermath of the great economic downturn that we recently experienced? 

Mr. LUDDY. All industries make mistakes, sometimes terrible 

mistakes. But they correct for those mistakes. If the government 

passes a new law every time we make a mistake, and eventually 

we will not make any more mistakes because we cannot do anything. 

Mr. CONYERS. Anyone else have a response? Yes, sir, Mr. Taylor. 

Mr. TAYLOR. In my testimony, I refer quite extensively to Mr. 

Greenspan’s views of the recent regulatory changes in the financial 

area. And I think that is important to add to what you say. He is 

very concerned that there are so many rules that have to be written now by the regulatory agencies that it is really a major interference in the financial system. And he speaks from experience. 

When he was chairman, he would have to write 3 or 4 rules a year. 

108 

And now they have 200 or more to write. So it is a massive undertaking. 

And I think the problem here is, of course we should regulate. 

Of course we should regulate. But we have gotten to the point 

where we so much micromanaging in the regulation that we are 

interfering with how businesses operate. So there are alternatives 

to do this. And with respect to financial institutions, more capital 

requirements and adequacy rather than so many rules being written. 

So I think that is important to add, sir. 

Mr. CONYERS. Thank you. Mr. Gray? 

Mr. GRAY. I am not sure that Mr. Greenspan really was taking 

the full picture into account. The fact of the matter is that Fannie 

Mae and Freddie Mac and some of the U.S. policies were so welcoming to these subprime mortgage package deals—Countrywide 

was a favorite partner of Fannie Mae and Freddie Mac—could not 

have done what they did without the encouragement and partnership of Fannie Mae and Freddie Mac, which was, of course, a government supported entity. 

And they invited the banks in, and I am not sure I really blame 

the banks for taking the invitation to this government largesse, 

complicated by the fact that the rating agencies, another government monopoly, without competition, were rating these packages 

as triple A when they were clearly not. 

I think that Dodd-Frank would have been much more responsive 

had it dealt directly with the Fannie Mae problem and not dealt 

with a lot of other issues that had nothing to do with the crisis 

itself. 

Mr. CONYERS. Thank you, Mr. Gray. The last word goes to Professor Heinzerling, if you would like to comment, ma’am. 

Ms. HEINZERLING. I think that kind of turnabout and change of 

heart is worth paying attention to. 

Mr. CONYERS. Thank you very much. Thank you, Mr. Chairman. 

Mr. COBLE. [Presiding.] Thank you, Mr. Conyers. I apologize for 

my belated arrival. I had 2 other hearings to go to. I would remiss 

if I did not especially welcome the entire panel, but particularly 2 

North Carolinians. Good to have you both here. Good to have all 

4 of you here. 

I will delay my questioning until later, and will recognize the distinguished gentleman from Arizona for 5 minutes. 

Mr. FRANKS. Well, thank you, Mr. Chairman. Thank all of you 

for being here. 

Mr. Luddy, my first question is first to you. I was very impressed 

with your record as a small businessperson and the jobs you have 

created, the way that you done things. I happen to have come from 

the same kind of background. I did not create quite as many jobs 

as you did, but it was something that gives me a sense of the challenges that you faced. 

And I know what it is like to be up against a Federal Government that is mostly comprised of folks who have not had to walk 

in your shoes. They have not had to be accountable to regulators 

or even to employees. They have not had to make payroll. The existing head of state I do not think has ever had to make payroll 

in his life before entering the White House. 

109 

The regulators seem to consider regulation sometimes in a vacuum and with no consideration for the uncertainty that regulations 

create. And while regulators are generally required to consider the 

cost of their regulations, it is the cost that are obvious and quantifiable. The larger costs to people like you or me or the American 

worker may be intangible, unquantified costs of uncertainty. 

Where there is uncertainty, a small businessman or woman cannot plan for the future, as you know. It is impossible really to know 

if you can afford to expand operations or hire employees or if you 

simply do not. 

So my question is, have you found this to be true? What is the 

impact of this uncertainty in your line of business or among small 

businesses across the country, this uncertainty factor? How much 

do you emphasize that, and how does regulation bring that about, 

and how much does it affect you in your small business? 

Mr. LUDDY. Well, it is absolutely huge when you think about 

when we design jobs all over North America. Almost down to the 

zip code, we have to determine what that code official is going to 

expect for a particular job. So if you, an engineer, are designing for 

national chains, he has got to be up to speed on every one of those, 

and he is not going to be right all the time. So it is a formidable 

challenge. 

To give you an example on environmental permits to build a simple building, which used to cost about $10,000 in engineering now 

costs between $100 and $150,000. I think the engineering community loves it because obviously they are taking in a huge amount 

of revenue. But for a building owner, a lot of buildings are stocked 

in the tracks right there because a small businessperson does not 

have that kind of money. That promulgates to HR, building codes, 

et cetera. 

So the challenge are formidable. And you have to also remember 

that the challenges of running a business without all the regulation 

are formidable to begin with. As you lop on more and more regulation, for the average person it becomes very hard to build a large 

business. 

Mr. FRANKS. Yeah. Well, I wish more people had your perspective and could understand the challenges you face, and that you 

are the core building block of this economy. And I certainly appreciate your testimony today. 

I will shift my questions to Professor Taylor. You wrote in a recent Wall Street Journal op-ed that the solutions to our economic 

problems are, to use your quote, ‘‘blindingly obvious.’’ I happen to 

agree with you. But do those solutions in your mind include the 

regulatory reform legislation that this Committee has passed? 

Could that be part of that? 

Mr. TAYLOR. Yes, sir. I think looking through the actions, as I 

mentioned in my testimony. They are focused on accountability, 

transparency, emphasizing what good economics is, cost benefit 

analysis. And, in addition, calling for the best data possible. So it 

seems to me that is really, in terms of the regulatory area, what 

we need. 

And of course when we say ‘‘cost benefit,’’ we emphasize the benefits, too. But the point here is when there is so little accountability 

110 

or there is not emphasis on this, we are leading, I think, to the excesses that are a big factor in the slow recovery we have. 

Mr. FRANKS. Well, let me follow up a little more on that. You 

know, President Clinton claimed that no President could have repaired all the damage of the recession in his 4 years. But my memory says that Ronald Reagan repaired similarly severe damage in 

much less time. And was regulatory reform not a big part of how 

President Reagan was able to repair that damage? And could regulatory reform like this Committee has passed not be a big part of 

repairing the damage in this economy? 

Mr. TAYLOR. Yes, I believe so. I think the regulatory reform 

should be viewed as another way to have a stronger economy and 

create more jobs. And if you look at the period you are referring 

to, the recovery from a very deep, serious recession in the early 

80’s, part of that was a period of reducing the regulatory excesses 

in the 70’s where they grew dramatically. And so it was an offset 

to that. 

And there is data that show what happened in terms of regulatory activity. It is remarkable. And we had a strong recovery. We 

cannot prove that is the reason. I think it is a big factor. There are 

other factors, too. And now we have a weak recovery, and we are, 

if you like, re-regulating. All the measures we have show a greater 

degree of regulation, and I think that should be a real concern. 

And so in my testimony, when I mentioned efforts to block regulatory reform, to me, to be candid, are efforts to block job creation 

bills. And I think that is the way it should be examined. 

Mr. FRANKS. Well, thank you. And thank you, Mr. Chairman. 

Thank you all for being here. 

Mr. COBLE. I thank the gentleman. Professor Taylor, I am told 

you that you have a flight to catch, so I would ask Members if we 

could to confine our questioning to 5 minutes if that can be done 

to get you in the air in a timely way. 

The distinguished gentleman from Virginia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. Professor Heinzerling, 

what would be the consequences to public health and safety if one 

or more of the regulatory bills mentioned by your fellow witnesses 

were actually to be enacted? 

Ms. HEINZERLING. I think they would be bad the consequences 

for public health and safety. These bills, if you read them end to 

end, they are incredible in their imposition of further analytical requirements on agencies. As I said, agencies are already overburdened with their requirements. 

Each of these bills or many of them favor cost benefit analysis, 

which is uniquely equipped to make the benefits of environmental 

regulation look small and make costs look larger than they are. 

And I have written about this in a book called Priceless. But it is 

skewed against regulation. 

To the extent that you further entrench that methodology in 

judging regulation, I think that the consequences for health and 

safety regulation will be dire. 

Mr. SCOTT. And what is the problem with letting the private 

marketplace protect our health and safety? 

Ms. HEINZERLING. I think that you can look all around you and 

see the consequences of that in unsafe products, in food safety 

111 

scares, real problems. You can see that in the pollution that we endure. You can see that every time we are told that we should not 

go outside because the pollution is too bad in the summer. 

There are many different ways in which these problems exists 

and cry out for an answer. And almost by definition, the market 

will not take care of them because the market does not encourage 

entities that are responsible for the problems to take into account 

those kinds of social consequences. 

Mr. SCOTT. How does the present regulatory process differentiate 

good, cost-effective regulations that protect health and safety from 

unnecessary regulations that destroy jobs and do nothing to protect 

health and safety? 

Ms. HEINZERLING. There are many, many safeguards built into 

the current system. Again, I think there are more safeguards than 

there need to be. If you look at the number of different analyses 

that are necessary for any rule to come out, it is a wonder that 

anything gets done. 

But the safeguards that are built in are analytical requirements. 

This White House, I am happy to hear about the benefits of the 

Reagan regulatory reform plan because that is essentially what the 

Obama administration has done with respect to regulation is to impose a cost benefit framework on regulation. And so that to me, the 

current system has many safeguards in place against unnecessary 

regulation, against ineffective regulation. It has many encouragements of more cost effective regulation as well. 

Mr. SCOTT. What would happen if we allowed, as some of the 

bills would do, any private party ‘‘affected by potential regulatory 

action’’ intervene in a lawsuit? 

Ms. HEINZERLING. You know, that is a striking proposition to me. 

If you just step back and think about what these lawsuits are, they 

are aimed at agencies that have deadlines, deadlines set by Congress. Congress has set those deadlines. 

And when the agency decides to settle one of those lawsuits, 

what it basically is thinking is we do not really have a good defense 

to delay action forever. And so they try to come up with a schedule 

for regulating. If you allow intervention, you just complicate the 

process. 

One of the things that is striking to me is if you talk about uncertainty, in many cases that is really just a byword or a substitute 

for de-regulation. The kind of uncertainty that is talked about here 

really cuts only in one direction. We like it when it leads to less 

regulation and not when it leads to more. 

Mr. SCOTT. Thank you, Mr. Chairman. I yield back. 

Mr. COBLE. I thank the gentleman from Virginia. 

The distinguished gentleman from Iowa. Did you hear what I 

said about Professor Taylor, Steve? He has a flight to catch, so we 

will try to move it along. 

Mr. KING. Okay. Thank you, Mr. Chairman, and I will do my 

best to do that. 

I would first point out that as I have watched the—— 

Mr. COBLE. If I can suspend for a moment, we will keep the 

record open for 5 days in any event, but proceed. 

Mr. KING. Thank you, Mr. Chairman. I have watched this regulation grow and the burden of regulation grow. I started a business 

112 

in 1975. I found out some years later that there were 43 different 

government agencies regulating my trade. It was impossible for me 

to know all of those regulations. 

I would point out that there is probably not a single company in 

the United States of America that has a little banner on their 

website that says ‘‘Notice we are in compliance with all Federal 

regulations.’’ The reason for that is because if they did so, Federal 

regulators would go in and prove them wrong. It is not a very good 

cost benefit and return to do such a thing. 

And so we have brought some things that incrementally addressed the regulation and the overregulation of the Federal Government. But I sometimes like to take a look at what would be the 

optimum that we can do? How would you get this to perfection, and 

then how do you move in that direction so that we have got a target? 

And it looks to me like this, that Congress has handed over the 

rulemaking to the agencies because they did not want to deal with 

all of the components of that. It was too burdensome. And so we 

have regulations that go on in perpetuity that are not challenged 

again, and the only way you really do that is to mount a national 

movement to try to get the votes here on the floor to nullify a rule. 

I actually have brought one of those nullifying pieces on capping 

the calories of our kids in school just here within the last few 

weeks. 

But what is optimum? And I want to pose this and ask the witnesses down on the panel for your reaction, and that is my legislation, which is the Sunset Act does this: it sunsets incrementally all 

Federal regulations over a period of 10 years, asking the agencies 

directing them to offer up 10 percent of their rules per year for a 

period of 10 years where Congress could reauthorize them, all on 

en bloc, or a Member can separate a rule out and have a separate 

vote on that rule, or amend that rule. 

I think it does 2 things: it gets a lot of the overregulation out of 

the books, and it makes the bureaucrats then listen to the people 

who are affected by those rules before they write them, because 

they know that those people that are the subject of the rules can 

then come back to a Member of Congress and ask them to bring 

that rule out and pull it out separately for a separate vote. 

I mean, that is a big concept to toss out here, and I know that 

I have not made it available to any of you. But I would like to 

start, if I could, on my left, Professor Taylor, and if I could ask the 

witnesses to comment on such a concept to try to clean this up so 

the voice of the people is better heard within our regulators. 

Mr. TAYLOR. Well, from what you said, it seems to me it is making a good effort to deal with this real difficult problem of the Congress stating in broad terms what should be done and delegating 

to the agencies the details. And that is always a problem. 

I think in the case of the recent financial legislation, it is just 

so obvious that too much has been delegated, if you like. Hundreds 

of rules have been asked to be written very quickly. 

So I think a suggestion like that makes sense. I would have to 

look at the details before us, but it really gives the Congress back 

the responsibility to considering the rules in a kind of a regular, 

sensible basis. 

113 

Mr. KING. Thank you, Professor. Mr. Gray. 

Mr. GRAY. I agree with that answer. I would add that reviewing 

old regulations, whether it is at the agency or Congress, may be 

better to have the regulation come up in here in Congress. It would 

be very salutary. Regulations attract, like a ship does barnacles, 

certain special interests, and they favor special interests over small 

businesses who want to get into the business. And rules really 

should be reviewed by Congress on a periodic basis. 

Mr. KING. Thank you, Mr. Gray. Professor Heinzerling? 

Ms. HEINZERLING. I would like to say 2 things. One is that 

the—— 

Mr. COBLE. Professor, pull your mic a little closer. Professor? 

Ms. HEINZERLING. Yes? 

Mr. COBLE. If you would, pull the mic a little closer to you. 

Ms. HEINZERLING. I cannot. It is stuck. 

Mr. COBLE. Oh, I am so sorry. Okay. 

Ms. HEINZERLING. But now it is on. 

Mr. KING. That helps. I can hear you. 

Ms. HEINZERLING. The power rests with you. You do not need a 

new statute in order to take back the authority that you have. You 

have that authority. And so with any regulation that you do not 

like, you always can overturn it. That is within your power. I think 

Congress should act more. We should have more of a debate about 

exactly what regulations should do and what it should not do rather than this debate. 

The first thing is without that statute, you have that power. The 

second thing, if you are worried about uncertainty, I would think 

that you would be worried about a statute like that that will take 

effect with unpredictable consequences on existing regulation, that 

people have already spent money getting up to speed on. And so 

you will have some people up to speed, some people not. People 

who are up to speed may feel unfairly treated if it is pulled back. 

It just seems if uncertainty is the concern, I am not sure it is 

the best fit. 

Mr. KING. Thank you. Mr. Luddy? 

Mr. LUDDY. The pace of innovation is so quick today that I agree 

with your idea. Ten years to me is a long time because innovation 

is so rapid. If you look at the case I cited, City Chicago has 1950 

ventilation rules. We are 60 yeas down line from then, so a 10-year 

statute might have corrected that problem. 

We lobby with these groups to update their codes, but it is not 

an easy thing to do for any small business, or even a big business. 

Mr. KING. Thank you, Mr. Luddy. And, Mr. Chairman, that is 

H.R. 6333, the Sunset Act. I thank the witnesses and you, and 

yield back the balance of my time. 

Mr. COBLE. Thank the gentleman from Iowa. 

The distinguished lady from Texas, Ms. Jackson Lee. 

Ms. JACKSON LEE. Thank you very much. I thank the Chairman 

and the Ranking Member for this hearing, and I thank all the witnesses for their presentation today, and express always an interest 

in creating opportunities, Mr. Luddy, for small businesses. I imagine that most Members would consider themselves champions of 

small businesses. In fact, for the record, I consider them the ecoVerDate Aug 31 2005 17:09 Dec 06, 2012 Jkt 000000 PO 00000 Frm 00117 Fmt 6633 Sfmt 6601 H:\WORK\FULL\092012\76032.000 HJUD1 PsN: 76032
114 

nomic engine of this country, and the potential job creators going 

into the 21st century. 

I think at that point we may have a difference of opinion in 

terms of framework. I truly believe that the concerns of small 

businesspersons as the regulatory scheme is structured should be 

responded to and it should be monitored. 

And I would just ask you this brief question: would it be responsive that as the huge Federal Government regulates and passes 

regulations, and as the comment period that goes along with the 

regulatory structure, would it also be of help to have a more rapid 

response to the concerns of small businesses when they note that 

the regulatory structure in place intended for good may have a negative impact? Do you also see the issue of response time that could 

be improved? 

Mr. LUDDY. Certainly it could. But keep in mind that a small 

businessperson, it is almost impossible for them to deal with the 

Federal Government. It is too vast. They do not have the resources. 

They do not have the time. They are literally just hoping to survive 

another day, another week, and another month. So to have them 

part of that process is extraordinarily challenging. Yes, improved 

response would be very helpful. 

Ms. JACKSON LEE. My point would be, and I think every time I 

have seen a small business issue, most times I have seen large associations, which they can be a member of. Certainly the individual 

in their house with a computer and a desk might be a little challenging. But what I am suggesting is that most times, for example, 

if you see a McDonald’s, you know that they are part of a franchise, 

though that may be an individually-owned McDonald’s. You know 

that McDonald’s speaks for those owners here in Washington. So 

I do think there are lines of communication. 

And the point I am just making is that if there is anything that 

I think would be important out of this hearing would be the fact 

that a listening ear to the issues being raised after there is the recognition that there is a negative impact. 

I do not agree with the premise of this hearing that the regulatory scheme hinders, if you will, the economic opportunities of 

Americans. And I raise as the point of contention is whether or not 

we could look at the landscape of Spain and Greece and Italy and 

suggest that their economy has been totally related to the lack of 

the over excessive regulatory scheme. Or in the alternative, you 

could look at developing Nations who are attempting to establish 

OSHA rules, i.e., safety rules as I have traveled internationally and 

seen clean water rules, regulations for food, to make them more of 

a developed Nation. 

So the regulatory structure from my perspective is valuable. So 

let me just add for the record, if I could put into the record ‘‘Regulatory Nonsense.’’ Mr. Chairman, I ask unanimous consent to put 

this article into the record. Can I put this into the record? 

Mr. COBLE. Without objection, it will be entered into the record. 

[The information referred to follows:] 

115 


76032C-1.eps

,., 

Regulatory Nonsense 

Seven Must-Read Articles Debunking Conservatives' 

Antiregulatory Agenda 

Pf~dent ~rado ObI"'> ~~n ab<>uttoug/le, regulallan< Dn bonks "'01 lOOuld U..,lt 

the .'n ond cDmplexity Df la~~ Hnand.lln,ri\ution •. Co...erv.tIve, .re CU,",NIV 

pushln, an ondre"d.lory 08"ndo thatl,'ntellectually bankrupt. economlc.ollv 

""n"'''''tal. .nd unert~ wltho>ut ~0I," 

IIy I(rl.ri<la Colla .nd MI<huJ llnden I '1ovembe< 11. 20n 

CDn",,,,atlve. are _ 'nl.,nu.d tM dDck II' convince Ame~c.n, thl! fIOV"rnme.1 

,.,ul.1ion I, ot f.ult fo, the oIew poce 1'1 dome""')c>b [fealiM" lhey"ve <ott up thl. 

OIraw mon to d,OI.,.<\ .nonllan ffom the f.ct thai thev dDn't h~ 0 c<edlble 1'10. tD 

.ctuallY boost emplol""ent, lInd thll thev 1'1'''''''' the Ame<iun leb. Act, which 

Independe.t ewnD"';$I, ~V "'II ~ote as many •• 1.9 milllDn )c>b •. 

But the mD'. conse"'orives P" w th l.lln~ " the .,'"'' ""'tiny It"' gettina. The '""'~. 

aren'l p,. tty" o.er Ihe p .. t •• v .... 1 weel«, numerous ",pons "",I'''' thl. 

o;\'tI2II121 OI ~ 
116 


76032C-2.eps

an~l"tory "8""do kI' n:I.ctly w~ot It t~lIect~illly n~r~pt , eu,"on~",,11y 

n<>nr.en>lcol, .nd ~tle'ly wl!~oyt b",i ~ 

Theoe ~. tome 1m", • wide ,ange of .owree .. In<ludlo, o/fitial "",om"'''''1 

aget>tle .. noop.fti»o n~ link .. ~nd .. "" nation.1 IM<II. outl et' , ~ w~'I'< til" 

IlUlh .bo~1 'OoWVlltwl!'>' rell'll~tory bOfl'!vrn. n1I1er.'. your ",q~ ",d ... dln8I101. 

• 8loomberg: fewer n"w ffl"l. non, .,nd.rOb" ",a 110,," "nOt< Bu ," 

• I'ht Wo>.IoI"I1fOn Pasr: E<j>noml$tU"y '8'oI l1io~ <I".".'t , • ., •• JOlI io,,", tvM In 

IIIBh1>01I~tio1 lndu'lrle. 

• u.s. O'P.rtment oI Tre .. :;ury: Up""' th ~u~alnIVCOMI'II 

• Economic PoII<v In,tItul." ""lIUlaliDn I •• , od ~ ... ttns The",a l p.rnbl_I. 

demand 

• rh. /kw 1'<><* nm •• Ecof,oml. Slog: ubtlcan . h."" 3 pmbl-, " "Y' H,",," 

80nlen 

• 8"'.0" of t.lbo, Stlllf>l il:" m~ ol"!f1 .. yregul.I\'," dOl!, nul """r.ejob io .. "., 

• SI.le M~g'''ln e: Sm I'L ''' 8~lal>Ol'o' m,«er 10 <ommunIHn'K' .... Am. nc. 

""publican, . nd con . ...... IM, lnleresl group, com"laln .boola "'ppo",d ",,!Ide In 

~" numbe, of rl!SUI.tions 'P"",.tG In th e Oba .... , dmlnlstrntion, but ~oId tn l 

8aradObom. ha, .pp'o .... d 5 perce"t It .... ''''8ulaHoMth.nG''''rge W. Su~ h.dby 

k~ "'m~ d'l~ III Itl. " .. >l o.ncv. I<cordlnl to an Ott""", .nalysl. bV Blooml>e". 

Mo."" ..... ', the < .. mul. """ eO .... I "'1I'1. o;Ion. opp",..d bV ~e Obom. 

~m nlst",tion a,e stUI below the 1I'1Ci11 ~ ... , 1992 pe.k .thle'o'td by George H. W, 

B"Sh. [""" If \~e hi "1 cosl e5llrnat .. 01 Oi>om8-fiO ,ellUl.lIons •• e COffK!, the 

10lal '" 01 ",ost Ih.ee one·hufld,<!dllo. of 1 pertenl ollhe K''''''my. 

KOY"IIo lu 

"01>''''0'' White Ho~'" hi' approved '-'" .... SU I.lSon. 1Io0n III. p,tGK .. sorGeo'll' 

W, Bush I t '~I j »",e "olnt In th eir tenu .... , .nd Ihe PStimated coot< althO«'- .ul .. 

h . ..... ·1 , e.rned th e onn".1 p e.~ ~ll" 1I.u1 veil' 1992 under BlIsh'. ,"Ihl r •• 0:0,d l" 8 

~ gon ,","."1 data , . ....... d! bv B~mb.fI N ...... * 

~h. O"".rt",eot of 10Ierl ....... "'" thot 0 .... arnlrol. ~n deep ..... I .. 011 d~mnB ... lIt 

coQ IIot In"u!ltV $180 mlllll",: one """II blOWOUt could cost $16.3 bU llon." 

Tu Wo""nQl'cln Po.sf: £<""",,,,(,\.1 ~ """I.tion doesn'l a"," joI:r I ...... , "'"" 3t 

hfeh..pollutinc Ind"ottln 

1i'9f1ll' 21:11: f M 
117 


76032C-3.eps

.ft, l~nn Von. conclulles t/'I~, HO",,,,\I,,. w,"o ,c' ."1'( ""dy '~I. 00IV r~,\ 8~1 .lion 

h., no dl"emlbl. net ~ <,n blg-plctu,e employment I .. I CI •• " Industrv. T~. 

,epO"O' cit ... Ith.<d MOfI"',,'em, fo, .umpl •• wlla wo,~.<1 In tn. (n.lronmwt.1 

Protection Ageney ""rln8 th. """liln .dml"I"'~lIon, II "". autllo, of. ",alo, _"u<lV 

an,!v>lnS ,h. elf.e! of ,ellUlallons On fou , Indullr1es Ih. , p",duc. I&h 1 ••• 1. of 

pollution. Mo<genu,"", ond t,l. co-o ulho .. found Ihalln""'. ~ In lnduUry 'pendlo& 

In <><de' 10 comply wllh envi,on",. ,,1lI1 ,egul.,ory ".nd."Is dl<l nOI CIU .. 

"I1plftcanl ct..nle" I .. Indu! ",.mplovm. ~ 

In ,h~ Y"'" WQ</Ilng,,,,, /'rut .rtSde, AEP. one 0/ th o .. ollon·, blSll"l1 coII·flrnd urillty 

comp.nle .. ~Y' II hn be.n r"'ro~mn8 lOme power planlS, do"n, Oljoe", and 

oplnl08 n.w, tlune' ... , "flIl ..... plonll, . 1110 wmply with dun II, 'ol\ll.no..,. "We 

h ... 10 hi,. plumb.", el.CUI ti.n" p.lnt .... 101'" who do !ha! kind or _ric "'h"" ~o~ '@lmfl.oplon,:s.ov.AEI'CEO Mj"'Mo"I'. ln(O""""'It.,OIIIo.a w II·fl",d AEP 

po_' pian! hi ,ed """.tIl"",, ,houYnd temporaf'/ _,k",,!o build. "ouubb' ''l0 

mo., .mj,ojon'>londard. an <I then hl",d 40 Peffll"nenl omplOVl!fl' '0 ",onl'or ~nd 

",alnlaln !~ @"ew ~ .. Ipmen'. 

"Economl<ts who h;we >I"dl,,1 tile ",,,.~.,.say !h •• "'e,el. 1I"le e"l donee !h., 

",&ul~tIon. Cilu," "' ......... Jot. I"" In Ihe KOno",.,.. and Ih.t .olllni !hom bod< wo"ld 

nol Iud 10 I boom In job U<!.lria n." 

'1IIIelUl3l0f'/ "potU say"'"" vI'"""' "1 " rule <Diely ,ilroug/l ~ole" , of wl\flhet i, will 

coR lob. mi ..... Ih. polnL' 

u.s. Oe~rlm ... ! of Tr ... .....,: blo",lnc !he "nceoulnl"f' unl«l 

So ma~b. the numbo, of ,"sulanon. II .. o·! ,pl~ed "nde, Ihe 0100"'0 Idmlni""'tIon. 

,nil nuybe <Dme IMu>l", lu d~a .. ad~pM810 ~ri(te, .ndl<d,~b"' ... rely the 

oft-d!ed "douD of unu""lntv: I .... ! amlnou. blo! "" Out ""lion', KOno .. ,lc /o,u,", 

II", _ lied bu.ou<e Dr new '.gul.rian .. NOI so, "'1'$ O,.I"n Eberly ... oImn\ oecre!lrv 

10. economic poIlC'f"1 the Tt.,.,,,,,, Oe pl mneol, 

Eberlv poln" out ,h., II ,"",I.tion. ~ , •• llv "dMlfOvlnl Jobs'" 0, ' lappln. 

b"oIn . .... hom hlnn& lion. would bo ..,.;dence of n.gaM th.nge..ln "one 0' mo ... 

of , h. followlnr. buojn ..... profit<: !_d, ln !h. worlclo",e. t:o ~"1"\' .. ull~rian, and 

bustn .. ,IMOnmen\: dllfe,,,,cM b.lw •• n Ind".t/1M unde'goln,sI&",lflc.n! 

",,,,I.!ory "'.nll'!' .nd tho ... thll .'. not: IIlff.,_"c •• wee" the Un!!ecl S~'e. 

ond olh.t counUI .. !nat . ,. "o! unde""ln« !~ • • am. cMnps: 0, "' ..... 1" of bu.I" ... 

own~ .. Ind """,,,oml>l"" 

lhl\'5 • 10\ or posolble pl3CM 1o ~nd Indlcarian, or .",ulatory "nutlalnt\l. fkIl "O! • 

oI ngie one .... ul, onv ind,co!ion Ih al ",gul.lion, .,e IIoldinE !he W"n!ry back. 

CO'l'Oral. orofi .. h ... almo~1 ,uct.~d ,hOlf p*'e«solon Sh.,. 01 VOl> domestk 
118 


76032C-4.eps

Pro<iuCl, Ihe bm. dest m"SU re <>f loral "",noml •• ctSlllty. h~ln~~' .~n·t 

Incr".$In8 work hou" for . >l:mr.! ."'ploy ...... bUllhey .... In<nUln! In,est""'nl ln 

equlp""'''1 .nd softwa .... bolil <>f wklc:k .... I"",nslnen, ¥<llh ",ncorn •• bou! Iulure 

regUlatlon,. "nd In dependenl .. rveys 01 buslnen o ..... ~" and K<>nornln. po,nl '0 

welk demand, not"'gUlalion •• s Iho blU.n Impod~ntto hiring mo ... wotloers. 

"II ",sul. lion WJ~' sI\lI1I~""n, dr'80n buslne'o< todlY, we would expKl lo..,e p",ftu 

"" .. ".Ined .ft., ..... nt ""ul'tory relo,m. "'.,,', p .. <e<llnlo I. "" 110w ..... r, ",'po le 

pm~ts II' .sII.,. of VO" dorr>e<ri< I""'me MOl! abOul ~(M!~ Ihelr prf -<T<fult>n 

pe.l:, .nd u mln&< pe, .h .... In I"dustri., """,atlKlo<! by recent ",sul.tory 

<honlf>' .uch .. "n",BY .nd lIulln g •• , h .... omong Ih . highest •• mlns. per ,;1, ... 

OrlM .. ln IheS&PSOO," 

"1/ "'SUI'fOIY .. "te"alnw _ .... h""I". , significant Impa<t on busi"." perlormance, 

we wooJld e>q>ed thl. 10 be .. n.cted In gpllli n'I.I'I;.I .. lio ..... er. fi"and.ll"di<;lIo" 

do nol p",.lde any .... dffl« In la_ of 11110 hypolhe.h,· 

The no" partb.n «onomic Pulity In$!ilut" ' el .... d • maJo, .. port and. pithy bioi 

post on S<!otemb., 27 calling ,egulatory uncon.low I "ohonv ~ol.nnlon· 10, hllll 

u~e"'Qlovm..,t. U~e Dr, Eb .... lv. EPI p ... sldent ~wn!"<e Mlshel p<>inl$ '0 p~v .. e· 

sectOf bUllnO!1$ln,estm,wl lind WO'" houri, I mOn& Olhtr IndlcalOr1, 10 .how Ihilln. 

"onomy Is lulf~rln. ",lgIInt<, from diminiSh'" d~m nd. 

MI"' ~I runh~' <it~s surYel'$ ~ f busl nes< o",,,etllnd Konomlru. whldl <Onll$lently 

~Ie lid of <ustome" ind Io'N d"",.nd .. Ihe bl&lfll problem, ,"d"Slhe KOno"'lI. 

"Wh.llnt lleovily pollticl.ed I .. d • •• >O<1.&n, In W •• lltnll\Dn,"",e .. ~tnll doe. not 

to .... spand '0 .11 . .... 1 thalle ~!" fad~8 ""In I.". and ..... 11 .... "nM .... • MI .... I 

wrlle •. 

"1"IIUd 01 uf!<erulnty abou, "'JIIllarion •. tlo e<el, >1ronll oIIIdeno;e tJ,atlheoab ..... <. of lob ....,.Iion ... ftKl, tho ",ntiMo<! unw!ndlnl of \he fl""nd.1 <011."", "nd the 

"''''''IIondln81.<k 01 demo" d. _. The oprim~1 "'POn.., 10 "',..n~~n dom.nd wilen 

Inlete$' rafel ..... slow " 'htV ,"n SO and hou<eMlds .nd HilliS are <\III nal 

<j>",dln,;' far &QVemmt nll" <tep In 10 ' "8J'I'"'" demond." 

You 'no", vour 're:UrMnll.on sII.l .... IfOUnd when one of you, own "1' "', 8nJco 

B." len I, on "",no,.,1st who held ...,10' polley po.ltiof,. In the dminl"~lion' of 

R"".ld ~ •• ~n .nd GeotgeH.W llusll. ln.n O<:!ob .... a>iumn lor ~N_ Mrt Tim" 

£"'ooml. blo," ~rtlen wrM. 11111 the <on\ol''''.tfye dalm thl\ d.' .... I.t\O n willl •• d 
119 


76032C-5.eps

'"' 

1top:1I1',,"' ...... ,;_ ..... ~ ... ..,ntJI I'11111 

to Job lI"''''th Is 'j ,,",~I~ w," of .... !I!>eI1 op .... rtonj"", nOI' ","ou. effort 10 de.1 

wl ~ ~rgh unemplo....,.. "I.· 

· R. oublla n. hove. problem. """"ole.,,, In<,,, .. ln~y cotOtemed .bout 

"nfmploymenl. but R.I>"bli<~1\S to"". ""llI lng 10 off~, Ihem. 1"10. G.O.P. OppOIES 

. ddllkmo' p .mm"", ",eno ln 8 fo, lob. pl0St""" Ind. In loti. f.oors blS <uto In 

. pendlng !lllI would be li~.I~ to Iud \0 'urth., I.volt> "' ,U level, of """,",menl ~ 

"III my opinion. rellulolo<,/ "nt.n.lnl'll, ... nord In."" I" by RI!Jl"bliton, lhol 

.lIoW$ I100m 10 .. '" Wn'enl p(onomlc p",bl .. m. 10 p .. "". In .gendl lUppart<ld bv 

lIo~b""n ... comm .. nll~ yel' In Ind V'" ou,; 

Bu,u u of I.lIbor suti,Ucs; (""ploy ...... y ,qul.lion doe. MIl <.0 .... Job los ... 

1Ie[o", you ,un .",und 10Wn ,:.111", somelhing, "job.Jr.III.,; It _uld J>rt)blbly be • 

JIKId Ide. \0 leak "' some dOlII . Fortunately. the Bu~." of !.lIbor St.t\ItIC, ,pr<lfttolly 

uk< componlH thal lay off worle." In • riven qUI".' \0 expil in why thev ho .... do"" 

...,. In .11 01 2010. I .. " 0.3 P.n:'~1 Olll!"!", _'" Ih' "' .... It ol "SO.emmen. 

,"!ulationi/lnl""'ontion; On Ihe Alp lid., ~ l1li1 47 p.n;lorl1 of _~ wtlo 10lt th.'r 

lobo In .he mo" ~nl quort", -.-.. .hown th. doo, beto ... 01 dlmlnl"'" demond . 

"Rusln"« d.ml nd ~.o" o~o~n'ed for 47 pRrunl 01 I~.,m~" I' VOff] heM' and 

"".Ied "'p .... rIon.1n Iho pmllie nonf.rm ..aordu"ngthelhlnj ~u.rt e, <>f2011." 

SI.le Map.]n.; Sman ,,,,,lulCHI' motter 10 comm~nlUes .<fOSS "'me, lr.o 

J\cconjlnB 10 Fo. N ....... chief ''<>II"' "'ile>. there.re le"CHI' ol., •• ",m"~' "",plo~ 

wtoo "sl\ In the ba .. _n. and di'llw up ~8"I.tIo"' 10 tr-; to ,uln you, lile.' ... more fll' 

Ind bal. nte<! .K~PtKIn wo'Jld 1>0 Iho, "".rt "'Bulol1ono p,o'r<t,he hoahh and ,,"'W ol l.mill.o ,II """''' Ill e «,untry_.nd • 10"" ol ... eII "'CUI'l1on can be 

huo<"dou,. 

TI~e\h. G, I.mo"" of Ch.n".e, ll.an", •• ,. ",111 of ""I.<f~rlbtd «'n",,,,"live 

Rep"bllton,. Atconjlnl'o Ihi o p""","ullrnda In 51.1., Ihev ••• on • ml .. lon III ~nd 

oul II .he nurny Ash Grove <_en, plonll. poT"'nl"S lIo~r town of 9,000. The plan. 

In qu .. tion I.n·, being "'NMI.ed [0, ,"olltlng Ihe Cle.n "'1, ... ct be","se olon 

... mpilon for temenl kilns Ihll bum h ••• ,dous wa" •• , fu.1. 

"The llw 1110 ... (I". c.mem pl. nil to ernll lI'eOl" omou n .. ol so"," ' oxi< chemicol. 
120 


76032C-6.eps

. ., 

OI O Ihe 'I,!kln Ihe h, .. "'ou$-w .. tt inc,"e'ito"'~Willvdesl,ned 10 bumlhe WfV 

$iMf cnomkAll-lncl.u!ln. Industl'\.1 ",1""nU, all.mln_opt,.1 w'''', . nd olh.., 

to"'''' Id~o.e" from tke prodl,mon 01 ch.",kol., ~h.'m.coutlcol., .nd 011," 

The ,ul quenlon< to au .bo>UI ,,,,,,I. don. 

The <ol"e""~lIe a ... /0, feaul.tion. U Job- kill." 'w .. , I",.,.. """.k. But no ... the,. 

""uld be no conlu.lon. Eve'yone fr<>m !nde~endent ... ~..,.. 10 _Jol medl. oulielO, 

JOVemmenl 'sonele. 10 /om,.., R .... p" offid. l, h.,~ «Ime to the $ime «Inclusion, 

Reg\llition • • .en'l to bI.me fo, ou' oconomic <hlll.nl!<". 

Con ... ",.tiv ... ,., 'lcIoI .bou~ 01'1' thins. I. II lu$I ... !ed bV the Chanut. co ... : 

Regul.l"'" I, . complic:oted t ,,,"n ... , Some eomple><hv. of CDUfS<!, i, In 

und",,'.nd,ble and ..... d tIIenl. We II,e In , large: country with ad", nced ~""'nolollY 

and di"""" Indu"n ... BUI .11 100 olu".. fetpJt.IOIV comple.<lty Is ,n .rtitld. 1 olde 

.fleel 01 determin ed a mp,lll/" b~ 10bb~I"1 fo, corpOrate ",.all inlete>l" 

"The,., "e bu"ne«fi u.lt ,""n .ffu,d 10 ""'~.Ih" .,~I. OI"/ -W.\1:elll mo ... "'mpl~ I<> 

~~I, own benefi!.." rM Wo"""""'" Po>(, !il!rv Khlmm I>Olnl> oul. Thol', • 

ptoblem-uut ifs not one Ih .tl ctoss·!h-bo,rd d~ ... gul.tion I. soln, 10 solve. Or OS 

Ilo&tr Noll, • S\ilnro.d Un"""ty KOnoml<. 1"0",,",,', Mtts. "Wh~"e, a 'p£"la~OfII • 

• BOOd 0' bod Idea IS not. fu ncrion 01 "",,,lol"'I.nl In the Ind ... tty b.in! ... ~Ialed , 

The rlcIol que,don 1$: 0.. .l~nc. , doe, 0'" «>c1~ y benefitr 

Cl!tf thlnB II <ettal,,: Th~ ... J,. lJ.9 mlillen uoetl1ploved /lmmelnl WIIO aren', 

ben"fltinl from "",.eMtNe'~ .... Ioriul ,I.llhl-<>f·hond on the role of ""ulollOns In 

oU'KOnamy. 

M_ UIldm it Oi_toro! 'rot and IltJd~ Poll", at 1M c."re, ftx Am. riClIn Prog, .... 

(.uri"" COote 'f a 'P«ial ~''''n! w/I~ the Dol"" WI1a, \\.\:vb projtcl 0' !he Cf",~' 

TIl .p ea~ wltll ..... e>rperll< 0" thl' topl<, pl . ... contact: 

P, lnt; Kane Pete"IKOnomv, .du..,nan, .nd " •• 10. .. ,.) 

201.741.628S or kpl!1c"l@.'mefICilnpfOll'C>$.olg 

Print: Chrlmna OIPnqu.le (Io,.,ign po~cy and se-cunIV, tne'IV) 

20L481.8181 0, (dl~.lItu.l ".nlf!"",nP"' (Vf"' Ofl; 

PrllII: laura Pere~" (ethnlt 111\11111 •. mmI8ra~on) 

lOl,141 62~B 0.lp.If"f" ,~, 'ne'i c.onp"' ~'''',O' 8 

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'd9'!OI11 0~ PM 
121 

Ms. JACKSON LEE. Thank you so very much. So let me proceed 

with my questions. I do want to thank Mr. Gray. I have seen him 

often. Thank him for his service to the Nation and others. 

There was a quote made that ‘‘Companies went through bankruptcy. Now they are back on their feet. That was the right course. 

It was the course that I fought for.’’ Do you know who made that 

comment, Mr. Gray? That was the presidential candidate, Mr. Mitt 

Romney. I think it is the gentleman who offers that he does not 

represent 47 percent. 


76032C-7.eps
122 

And the reason why I have raised that is because these are kinds 

of, I think, destructive comments that play into, if you will, the not 

seeing as an even playing field, that regulations have their role. 

And what I believe we should be addressing is that whenever we 

pass legislation, a bipartisan Congress should respond to Mr. 

Luddy. It should respond to smaller community banks under the 

Dodd-Frank bill that argues about the regulatory impact on their 

ability to have a greater role in giving access to credit. I am willing 

to listen to that, but I cannot tolerate any idea to suggest that regulations are the main factor in undermining our economy. 

So I am going to go first to Professor Heinzerling and just say, 

what would we be—right now we are fighting the West Nile epidemic. We just fought E.coli. Where would we be without a strong 

regulatory structure of oversight to enhance the quality of life of 

Americans? 

Ms. HEINZERLING. Well, I think that we would be in trouble. 

That what we would see are more polluted waters, more polluted 

air, more unsafe products, less safe food, less safe drugs, along the 

whole range of human activity and market activity. I think that we 

would see what we have seen in any period that precedes a regulatory intervention, which is harm—harm to humans, harms to the 

environment, harm to the economy from those things. 

And so I think that you see when you have unconstrained behavior by humans, what you will end up seeing is harm. 

Ms. JACKSON LEE. And harm to children. 

Ms. HEINZERLING. Yes. 

Ms. JACKSON LEE. Right. Do you see any impact on small businesses in terms of if you are weighing, is it so drastic that it is not 

something that could be fixed within the regulatory scheme? 

Ms. HEINZERLING. No, I think it can be fixed. I think a lot of the, 

for example, the report that I cited earlier on that talks about the 

cost of regulation per year, uses those same flawed statistics I mentioned to try to derive an estimate of the cost of regulation per 

firm, and from that then per small business. And from that says, 

well, these burdens are very great. 

But you cannot pile nonsense on nonsense and get a sensible result. And so the statistics that, again, try to show that these costs 

are excessive are not credible. 

Ms. JACKSON LEE. I yield back, Mr. Chairman. Thank you for 

your courtesy. 

Mr. COBLE. I thank the gentlelady. 

The distinguished gentleman from Pennsylvania. 

Mr. MARINO. Thank you, Mr. Chairman. Good morning to folks. 

It is a pleasure to be here with you. 

Professor, I tried to take down some notes, and I want to make 

sure what I think you said you said. And I would like you to respond to my question on that, please. 

I think it was a few minutes ago you said that, and I am just 

taking hand notes here, some of the regulatory reform bills that we 

have passed in the House would be bad for agencies because they 

impose, and I think the important term here is ‘‘new requirements 

and burdens on the agencies.’’ And I find it a bit ironic that on one 

hand you say that we should not burden the agencies with requirements, but agencies are burdening small business with excessive 

123 

regulation that has not seemed to be reviewed. I mean, how do you 

think the people in my district in eastern Pennsylvania, which is 

mostly farmers and small business, respond to that? Let us let unfettered rulemaking take place in the agencies, and not respond to 

what negative effects it has on the small business owner and the 

farmer? Do you want to clarify that a little bit, please? 

Ms. HEINZERLING. Absolutely. I think I would explain the apparent tension that you see in these two things by saying that the 

agencies are there actually for the same people you are discussing. 

That it is not because I am worried about agencies being burdened 

that I worry about these bills. It is that I am worried about agencies not being able to do work for the American people. That is 

what they are there for. That is what you all have put them there 

for. 

Mr. MARINO. Well, that is what they are supposed to be there for, 

but I can give you some primary examples. For example, the roofing industry in my area has come to see me on numerous occasions. 

There has been vast changes concerning harnesses and restraints 

concerning roofers, anywhere from 6 to 8 to 10 to 12 feet. I have 

had several roofers in my district who have been fined over $50,000 

because of apparatus that they are supposed to have now, which 

proves to be, at least from the people in my district, even more hazardous because there are more ropes and more lines crossing one 

another where those roofers are tripping over those ropes and lines, 

even though it is only 8 feet off the ground on a flat roof. 

So do you not think the agencies have a responsibility to come 

back and review that legislation and rules and regulations to actually talk to—I mean, I have been out on the sites with my people. 

I have been on the roofs, and I have been at the farms. And I see 

what regulation does. I live out in the country, and I love to see 

the bear and the deer come through my yard. I am on a well, and 

I want clean water, and I do not want anybody messing with it. 

But I think we should think in terms of once something is implemented, then we have to see what the results, are they efficient 

and effective. And you can respond to my comment if you would 

like to. 

Ms. HEINZERLING. Yes, I would like to. You have the power. You 

have the power to undo any rule you want to undo. 

Mr. MARINO. And as a freshman, I am taking advantage of that. 

Ms. HEINZERLING. And you can step in right now. It is not the 

agencies. The agencies exist because Congress has given them the 

power and has given them certain missions. Any time you want 

you can take that away. 

Mr. MARINO. I understand that, and I know the process by which 

we can take that away. But other comments have been made to 

people in my district when questioning the OSHA inspector that 

comes by, or the EPA individual, and trying to ask them questions 

as to, okay, what do you see here that I should be doing that I do 

not know that I should be doing, the individual says, well, I cannot 

answer that question. I am just told to find as many, as much as 

possible. 

Ms. HEINZERLING. I would not be surprised, maybe not in your 

district, but in other districts in the country, I would not be surprised if there are other stories to be told about businesses where 

124 

there were no inspectors, and people were hurt or killed on the job, 

and they wish that actually somebody had been there to prevent. 

Mr. MARINO. Oh, I am sure you can come up with those as well. 

But I think there are far less than what regulatory agencies have 

done to this country. And one of my colleagues who just left wanted 

to find it appropriate to throw in a quote from Governor Romney, 

but I will throw you a quote out from Mr. Obama that I just read. 

And I usually verify these, but I will go back and do that. He was 

questioned that I have coal mines and coal producing electric companies in my district. And the President was asked about such regulation on coal mining and the use of coal. And his comment was 

what appeared to be in a somewhat arrogant way, I am not trying 

to shut down the coal industry. They can create as many mines 

and as many electrical plants that run on coal as they want. But 

they are going to go bankrupt doing it because of regulation. So 

with that, I hear—— 

Mr. COBLE. The gentleman’s time has expired. 

Mr. MARINO. I yield back. 

Mr. COBLE. Thank the gentleman. The gentlelady from California 

is recognized for 5 minutes. 

Ms. CHU. Thank you, Mr. Chair. Well, before I begin, I would 

like to take a moment to express my disappointment with today’s 

hearing. We are using our full last full Judiciary Committee hearing before long recess to discuss the Obama administration’s regulations when we have had already 16 hearings in this Committee 

to discuss regulations. And here again we are wasting time and 

money rehashing on these partisan issues that have already been 

discussed at great length. I think we should be using our time 

more wisely tackling the issues that are very key and critical to our 

constituents. 

Well, I would like to talk first about one area and ask Ms. 

Heinzerling a question. I am a strong supporter of the Clean Air 

Act of 1970, and the benefits of this Act have far exceeded the costs 

associated with it by a factor of 30 to 1. Not only has this Act been 

proven to have resulted in a 1.5 percent increase in GDP in 2010, 

but it has also resulted in preventing 9,000 premature deaths every 

year, generating more productive workers, and creating a better 

environment. 

Ms. Heinzerling, as an expert on environmental administrative 

law, can you explain to me how such an act, how environmental 

regulations could save lives? 

Ms. HEINZERLING. Well, without the regulation, one would have 

likely uncontrolled pollution. The more we know about pollution, it 

seems like the more harmful it becomes in our eyes. And so that 

without that, we would have uncontrolled pollution. 

As you just cited, a number of statistics from the EPA about both 

the monetary benefits and the benefits in terms of lives saved from 

the Clean Air Act. And without it, I think that we would have the 

reverse would be true; that is, we would have many more people 

sick, many people die earlier, many more economic harms than we 

have with the presence of that statute. 

Ms. CHU. Thank you. And on small business, I know that in the 

small community—I am Member of the House Small Business 

Committee—that the issue of regulations is always debated. But I 

125 

note that there is one regulation that helps small businesses greatly, and that is the set aside of 23 percent for Federal contracts to 

be put there for small business. 

You know, we have a substantial amount of dollars in Federal 

contracts—$535 billion. So the fact that small business can get 23 

percent gives it a fair shake. And, in fact, I am part of a bipartisan 

bill that has increased the regulation to go from 23 to 25 percent 

so that they can even get a greater fair shake. 

Can you explain how such regulations actually could help small 

businesses? 

Mr. LUDDY. In my opinion, it is always challenging to deal with 

any governmental entity. And it is especially challenging for small 

businesses. So for those businesses that choose to specialize in governmental contracts that very well may help them, in terms of the 

general business, the amount of time required, we think it is generally not worth it. 

Mr. CHU. So you would actually not have any set asides for small 

business. 

Mr. LUDDY. I would not. 

Ms. CHU. That is really a shocking statement. Five hundred and 

thirty-five billion dollars, and you would not give small business a 

fair shake. 

Mr. LUDDY. I am a free market—— 

Ms. CHU. I am going to move on to another question, which is 

how different regulations can help consumers save money. The 

rules issued in the last 20 years by the Department of Energy set 

efficiency standards for household appliances, and it would save 

consumers over $100 billion by 2030. 

Ms. Heinzerling, can you speak about one efficiency standard of 

the Department of Energy which would save consumers millions of 

dollars, and what would happen if the standard was not in place? 

Ms. HEINZERLING. Yeah, and if I may, I would even expand the 

category to include things like the fuel efficiency standards that the 

Obama administration has put in place. These kinds of standards— 

the Department of Energy efficiency standards, the fuel efficiency 

standards set by EPA and the Department of Transportation—all 

save consumers money by either eliminating or limiting the 

amount of electricity they use or eliminating the amount of fuel 

that they use. 

And so it really puts money in the pockets of consumers rather 

than takes money out as we have been hearing about on the other 

side this morning. 

Ms. CHU. Well, let us go the opposite way. Can you give an example of when consumers have lost money in the absence of a regulation? 

Ms. HEINZERLING. Well, in a way you would have—there are 2 

examples—one, your example about efficiency. To the extent that 

consumers do not know about the benefits of efficiency, have short 

time frames that they think over, then the regulation helps them 

save money. They would lose money in the absence of a nudge from 

government to save them money. 

Other things are a little bit more direct. There are a lot of regulations that are aimed at fraud and misrepresentation by various 

126 

entities that save consumers money because they prevent those 

kinds of activities and behaviors. 

Ms. CHU. Thank you. I yield back. 

Mr. COBLE. Thank the gentlelady. Without objection, I want to 

introduce my opening statement and letters from trade associations 

into the record. And so moved. 

[The prepared statement of Mr. Coble follows:] 


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127 

Mr. COBLE. Thank you again for being here. Professor Taylor, I 

am determined to get you on that flight, and I think we can do it. 

It is my belief, folks, that—well, strike that. Let me say it in a 

different way. I am not averse to regulations that are sound and 

efficient. We have too many that are neither sound nor efficient. I 

think regulatory shackles can impede the flow of commerce, particularly as far as small businesses are concerned. 

Let me put this question both to Mr. Gray and to Professor Taylor. If this Committee’s bills had already been introduced or enVerDate Aug 31 2005 17:09 Dec 06, 2012 Jkt 000000 PO 00000 Frm 00131 Fmt 6633 Sfmt 6601 H:\WORK\FULL\092012\76032.000 HJUD1 PsN: 76032

76032D1-2.eps
128 

acted, would there be any need for regulations still have been able 

to achieve needed benefits? 

Mr. GRAY. Would there be any need for? 

Mr. COBLE. I did not state the question artfully. If this Committee’s bills had already been enacted, would any needed regulation 

still have been able to achieve needed benefits? 

Mr. GRAY. Well, sure. There is no question that needed regulation could have done, could do, would be able to do, what is necessary to achieve the benefits that are being sought. I will just give 

one example. There is no reason really in the world why the EPA 

could not do more with economic incentives that I think were authorized by the 1990 amendment. 

Now it may be that because of court rulings there are some statutory inhibitions, but there never has really been an effort by the 

current Administration or by EPA that I know of to seek the statutory fix which I think Congress would be willing to provide that 

would allow the use of the incentives that bills that have already 

been adopted by this body would have encouraged. 

So I think that the needed benefits could have been provided, 

could be provided, under every single bill that this House has 

adopted. 

Mr. COBLE. Thank you, Mr. Gray. Mr. Taylor, I will get with you 

in just a second. 

For those who share my view in opposing inefficient and unsound 

regs, oftentimes we are accused of opposing all regs. And that is 

indeed unfortunate because some regs are in order, but the unsound ones and inefficient ones are not in order. 

Professor, do you want to add to that? 

Mr. TAYLOR. Well, I understand the question is we are not talking about, and these bills are not talking about, stopping regulation 

or ignoring the benefits. In fact, on the contrary, they have emphasized more cost-benefits, for example, SEC, CFTC. They have emphasized transparency, so for example, the cost of the unfunded 

mandates would be reported. 

So it seems to me it is really a straw man or straw woman to 

put out ideas that this is eliminating the benefits of regulation. 

They are basically making the regulatory process work better, more 

efficient, and it seems to me that is what the goal should be, especially in this environment where job growth is so abysmal. 

Mr. COBLE. Again, thank you all for your participation and input 

today. And I am going to yield the gavel and the floor to the distinguished gentleman from Arkansas. 

Mr. GRIFFIN. [Presiding.] Thank you all. Thank you, Mr. Coble. 

I am going to keep this short. I was told that somebody on the 

panel has a flight to catch. 

I want to just to quickly make a few points, and then maybe ask 

a question or two. I have a 2-year-old and a 5-year-old, and I want 

them to have clean air, and I want them to have clean water. The 

idea that people on this side of the aisle are anti-regulations per 

se is just nonsense. That is a straw man drawn up for the purposes 

of demagoguery. 

I am for reasonable regulations. I am for regulations that make 

sense. I am for regulations that do not crush businesses in the 

name of covering a hypothetical that may never happen. It is the 

129 

excessive and overly burdensome regulation that we are concerned 

with. 

I will give you an example. And let me just say this: with all due 

respect to all the occupations of everybody, I am glad to see that 

people are working regardless of what they do. And, you know, I 

was a lawyer and apologize for that. But when I want to know 

what regulations do to job creators, I ask them, like this gentleman 

here. They, not people who work in bureaucracies up here, are the 

experts on how they are impacted by regulations because they live 

it every single day. 

And I just left a room full of 13 bankers—community bankers, 

small town bankers—from Arkansas that are dealing with a nightmare of Dodd-Frank. It is a disaster. They are being punished for 

something they never did. They were crossing the Ts and dotting 

the Is, no matter what was going on on Wall Street. And now they 

have to hire people to comply with a bunch of regulations that control almost every decision they make. It is unbelievable. And, you 

know, I still hear people trying to say that regulations do not have 

an impact on business. It is unbelievable. 

I went and toured a fledgling business in Little Rock, and it is 

in an old industrial site. And I walked out on their loading dock, 

and they had a 50-foot ramp for wheelchairs. We are all for disabled folks having access to whatever building they need to access. 

I am for that. But it struck me as odd that a wheelchair ramp 

would go to a loading dock where no one ever enters the building. 

Funny the people that own the business had the same concern. 

I said, why do you have a 50-foot wheelchair ramp going to your 

loading dock? Would you ever use that? Well, we were required to 

build that—$5,000 that they did not have. Why? Because the Federal Government wants to regulate for every contingency that 

might ever happen, even if it only happens once in 100 years. They 

want you to spend money to make it right. What a crock. It is unbelievable. 

And my constituents back in Arkansas and all over this country 

are spending money on that type of nonsense that is promulgated 

up here in this city. And for people to deny that that has an impact 

is outrageous. Ask the job creators. 

I had a conference at the Clinton Library with Democrats and 

Republicans. I invited business leaders—big business, small business, you name it. The number one problem they said that was 

serving as an obstacle to job creation was economic uncertainty created by overregulation from Washington. Period. Now that is not 

a question. 

You know where I stand on this, but I will just tell you, I am 

so sick and tired of hearing people say that regulations are job creators. I understand that regulations are needed in some areas, and 

I am for common sense regulations. But that is not what we are 

talking about. We are talking about a tsunami of nonsense coming 

out of this city. 

Let me ask you this. What is the question, the answer to which 

is, we need another Federal agency to regulate the financial industry? What is the question? Someone was sitting a room and said, 

we do not have enough bureaucracy. We do not have enough regulation. We must create another multibillion dollar entity and hire 

130 

a bunch of new people, because we just cannot make the 10 other 

ones that already regulate them work. 

It is a joke. It is an absolute joke. And I do not guess I have any 

questions. I appreciate you all coming to testify, and I am glad I 

got to Chair this hearing. 

I would like to thank our witnesses for their testimonies today. 

Without objection, all Members will have 5 legislative days to 

submit additional written questions for the witnesses or additional 

materials for the record. 

This hearing is adjourned. 

[Whereupon, at 11:44 a.m., the Committee was adjourned.] 

(131) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD


76032E-1.eps
132 


76032E-2.eps

Today's hearing is premised on certain 

assumptions that are simply false. 

First, the I\1ajority Inakes the false assumption 

that regulations inhibit job creation even though 

there is absolutely no credible evidence establishing 

the fact that regulations have any substantive impact 

on job creation. 

And, that is not just me saying this. Bruce 

Bartlett, a senior policy analyst in the Reagan and 

George H.W. Bush Administrations, explains: 

Republicans have a problenl. People are 

increasingly concerned about 

unemployment, but Republicans have 

nothing to ofTer them. The G.O.P. opposes 

additional government spending for jobs 

programs and, in fact, favors big cuts in 

spending that would be likely to lead to 

further layoffs at all levels of governnlent[.] 

2 
133 


76032E-3.eps

These constraints have led Republicans 

to embrace the idea that government 

regulation is the principal factor holding 

back employment. They assert that Barack 

Obama has unleashed a tidal wave of new 

regulations, which has created uncertainty 

anlong businesses and prevents theln from 

investing and hiring. 

No hard evidence is offered for this 

claim; it is simply asserted as self-evident 

and repeated endlessly throughout the 

conservative echo chamber. 

The Majority's own witness clearly debunked 

the myth that regulations stYlnie job creation at a 

legislative hearing held last year. 

3 
134 


76032E-4.eps

Christopher DeMuth, with the American 

Enterprise Institute (a conservative think tank), 

stated in his prepared testiInony that the "focus on 

jobs . .. can lead to COf{[usion in regulatory debates" 

and that "the employment effects of regulation, vvhile 

important, are indeterminate." 

Another unsubstantiated claim that the Majority 

makes in support of its anti-regulatory agenda is that 

'regulatory uncertainty is hurting the business 

community. ' 

Once again, Bruce Bartlett, the senior economic 

official from the Reagan and Bush Administrations, 

responds: 

4 
135 


76032E-5.eps

[RJ egulatory uncertainty is a canard 

invented by Republicans that allows them to 

use current economic problems to pursue an 

agenda supported by the business 

community year in and year out. In other 

words, it is a simple case of political 

opportunism, not a serious effort to deal 

with high unemployment. 

So make no mistake, today's hearing is yet 

another exmnple of that political opportunism 

recognized by Mr. Bartlett. 

And, perhaps the biggest canard in the 

Majority's arguments for so-called regulatory reform 

is the purported $1.75 trillion cost of regulations 

based on a single study_ 

5 
136 


76032E-6.eps

This figure is utterly unreliable and meaningless. 

Again, don't take Illy word for this. 

The nonpartisan Congressional Research Service 

conducted an extensive examination of the study and 

found much of its methodology to be flawed. 

Moreover, CRS noted that the study's authors 

thelllselves acknowledged that their analysis was 

"not llleant to be a decision-making tool for 

lawmakers or Federal regulatory agencies to use in 

choosing the 'right' level of regulation." 

Professor Lisa Heinzerling, the Minority witness 

for today's hearing, has just published a wellresearched acadelllic analysis of this study which 

outlines the numerous methodological flaws in that 

study. 

6 
137 


76032E-7.eps

I hope my colleagues on both sides of the aisle 

will Hsten very closely to her testimony. 

Another reason to reject this meaningless figure: 

it completely and blatantly ignores the 

overwhehning benefits of regulations. 

According to the Office of Management and 

Budget, the net benefits of regulations through the 

third fiscal year of the Obama Administration 

exceeded $91 billion, which is 25 times more than 

the net benefits during the first three years of the 

George W. Bush Administration. 

OMB also reports that for fiscal year 2010, 

federal regulations cost between $6.5 billion and 

$12.5 billion, but generated between $18.8 billion 

and $86.1 billion in benefits. 

7 
138 


76032E-8.eps

Another concern that I have about this 

hearing is that it is the 16th time that the 

Committee has considered what is essentially the 

same topic: federal agencies and rulemaking. 

I know regulations playa major role in ensuring 

the safety of the food we eat, the cars we drive, the 

air we breathe, and the medicine we consume. 

And that the Nation's Great Recession was the 

result of too little, not too much regulation. 

Maj or financial distress in American history has 

often been triggered by a regulatory failure of some 

type. The Great Depression largely resulted from 

the failure of severely undercapitalized banks that 

engaged in hnprudent lending practices and other 

speculative activities. 
139 


76032E-9.eps

The current Great Recession was largely fueled 

by an unregulated home mortgage industry and 

securitization market. 

But come on now. During the 112th Congress, 

this Committee has not held a single hearing on: 

.. the ongoing foreclosure crisis and its crippling 

effect on the Nation's ability to recover its 

financial stability as well as that of millions of 

Americans in communities across the Nation; 

.. the nearly lifelong peonage that millions of 

young Americans must endure to repay private 

student loan debt, that even bankruptcy will not 

alleviate; and 

9 
140 


76032E-10.eps

.. the extremely deleterious effects of mandatory 

IniniInums and the resultant overincarceration 

paIiicularly has on African Americans in our 

Nation. 

I could go on and on listing the critical issues 

that this Committee - over the past 20 months - has 

failed to consider. 

Finally, if we were really serious about creating 

jobs, then we should be focusing on those measures 

that will actually result in creating jobs. 

Just over a year ago, President Obama addressed 

a joint session of Congress at which he presented his 

American Jobs Act, a comprehensive bill that would 

have: 

10 
141 


76032E-11.eps

.. cut payroll taxes for qualifying employers, 

.. fund a work program to provide employment 

opportunities for low-income youths and adults; 

.. fund various infrastructure construction projects, 

including the modernization of public schools; 

and 

.. start a program to rehabilitate and refurbishing 

hundreds of thousands of foreclosed homes and 

businesses. 

Unfortunately, Congress chose to ignore this 

wOlihy initiative. 

II 
142 


76032E-12.eps

As many of you know, I have a measure - H.R. 

4277, the "Humphrey-Hawkins 21 st Century Fun 

Employment and Training Act" - which aims to 

provide ajob to any American who seeks work. 

My bill would create a funding mechanism to 

pay for job creation and training programs. 

These jobs would be located in the public sector, 

comlnunity not-for-profit organizations, and small 

businesses that provide community benefits. 

But, like the President's proposal, my legislation 

has not received any consideration during this 

Congress, which is unfortunate because both of 

these measures would have, in fact, created jobs and 

helped our Nation's econOlnic recovery. 

12 
143 

f 


76032E-13.eps

It's time we legislate based on facts, not 

rhetoric. Unfortunately, I fear today's hearing will 

not enable us to accomplish that goal. 

13 
144 

Material submitted by the Honorable Howard Coble, a Representative in 

Congress from the State of North Carolina, and Member, Committee on 

the Judiciary, on behalf of the Honorable Lamar Smith, a Representative 

in Congress from the State of Texas, and Chairman, Committee on the Judiciary 


76032D2-1.eps
145 


76032D2-2.eps

stakeholders a vastly improved picture of agencies' plans before regulations are fuBy devel0pi:d, It w:ll also include 

greater :stakehokk~r inplJt, along with mpxulat01), public hearings on the most costly regulatory proposrus, 

for the first time, agendes will be required to look at potential indrrect alld cumulative economic impacts (ir.cluding 

the impact on jobs and the economy). Agencies will be held m.:countablc if thi: dat..1. or analyses used to write 

regulat:ons are defk:ient or unsound. Finally, agencies will be required to adopt the le&i burd..:msome regulatory option 

-unbs~ it can provIde a !>trong reason ot1.erwise----to ensure only the most necessary burde:ls are imposed on 

businesses and the pUblic. 

Regulatory Flexibility Improvements Aet of2011(H.R. 527): 

Small businesses arc the backbone of O',lr nation's economy, and their ability to opeTate efficiently and free of 

urmeccssary regulatory burdens is critical for our c('luntry's economic. recovelY, Proposed a..'1d existing regulations need 

to be thoroughly examined from cost standpoints to enSllTe they do not encumber our country's primary job creators, 

TIll" legislation rt:quires :cderal agencies to more closely examine regulatory impacts on small businesses. II gives the 

Small Bllsincss Administration's (SBA) Oftlce of Advocacy additior.al authority and requires the office to establish 

more in-depth "regulatory- flexibilitf' analyses during the federal mlemaking process. In addition, the legislation's 

provisions on periodic review of rule." are in line \Vith Prt':sident Obama's Executive Order 13563, vv'hich requires 

agencies to condcct a retrospective analysis (If existing rules to identifY and modifY rules in need of reform. 

Midnight Rule Relief Act onOJ2 (H.R. 4078, Titl. II): 

Fer d~t . .'ades, outgoing administrations from beth parties have engaged in the practice of issning 50-called ';'midnigh~" 

regulations-rules) guidance and other po1id~s that are often too controversial or problematic to be implemented 

earlier 1n l~e presidential tenn. Many soon-to-be pro?osed and finalmles rrom a multitude of federal agencies are 

cum:ntly lvvaiting pubHeation. Political ami policy experts are in general agreement that the Obama administration is 

holding rn2.I1y ofthe~"e back in order to issue them with Citht'T a new election mandate or during the "lame duck" period 

after an election defeat, but prior to leaving tn.e \Vhile House. 

This legislation prohibits any future lame-duck administration from issuing midnight regulations \\'ith economic 

impacts of $100 miHl(m morc in the transition period between Election Day and Inau811ration Day, This would 

ensure that businesses are not slammed with a totTent of c.ostly, bu~-den.some regulations ea.ch time control of the 

ExeGutive Branch cha.'1ges, 

SUllshine for Regulatory Decrees 2nd Settlement. Act of2012 (IUt4IJ7S, Tille Ill): 

'The of regulation through litigation (or Hsue and settle" a<; it is sometime!' described) is used and often 

by <1dvocacy groups in order to L-r1itiate rulcmakings when t:,cy feel federal agencies are not Gloving quickly 

encugh to draft and issu~ these poEdes. Organizations roufnely file lawsuits against fzdeml agencies claiming t.hey 

have not satisfied particular regulatOly requirements, at whk::-: point agencies can opt to settle_ When settlements are 

agreed upon, they often mandate that mlemakings go foruard and fTequently estabiish arbitrary time.frame~ tor 

completion-without stakeholder review or public comment. These settlements are agreed to behind dosed doors 

and their details are kept confidential, Agencies release such rulema1.ing proposals for public comment only after the 

settlement has been agreed upon, \vhich is often too late for adequate) meaningful feedback. 

This legislation promotes enhanced openness and transparency in the regulatory process by requiri:Jg early 

disclosure of proposed consent decrees and regulatory settlements, In addit[onj this bill would require agencies to 

seEdt public comme~t prior to entering into consent decrees v'I1th courts, which would provide affected ,,')a!1:ies 

prope,r notice of proposed regulatory settlement" ann make it possible for aftectcd industries to pa.1:icipate in the 

act1.:,al settlement negotiations, 
146 


76032D2-3.eps

At a time. when the oonstruction industry faces an unempio),ment rate· greater than 11 percent, the need to create, jobs 1s 

imperative, and so is the need for regulatOlY refmm. We applaud the committee for addressing these regulations and 

the environment ofunccrtamty they create for America's job builders. 

Sincerely, 

Kristen Swearingen 

Senior Direc.tofo Legislative Affairs 
147 


76032D3-1.eps

B~ Business 

Roundtable" 

-_ ~ .... ~ 

-n..Dow~c-, .- -~ 

---

Tho _._ -'=-

---

--- -----

--- ---

September 19, 2012 

The HonOf,bte urn., Smith 

OII!,...,.n 

.. 

-~ _--- -~-

The Honofllble JoM Conyef5, Jr. 

R.n~lnl Member 

House Commltln on the Ju ld~ 

Washington. DC 20515 

HO<IJe COmmittee on t he Ju~lcIa rv 

WMllIn&tO<l. DC 20515 

Dear Chillrman Smith Ind /lilnklfll Mlfmb .... Con.,..-s. 

8 uslness ~oumtll le , ,n ilssoclatlon of chief f~Kutlv,- officers of leiMflnl U.S, 

eompanlf$, Is ....,.llln8ln rlllird to the hurlnlon September 20, 2012, 

entitled "1I1111'1.Oon N.tlon: The Obamil Admlnltlrltlon'$ Regulatory 

Exp. nsIon "'. Jobs Ind ~((I nomlc RKovery.- We reque.sl thilt this lettlr be 

made part of the he.rinl record. 

TII.ee 'fI!11'S after Ihe end of one of ttle WOOl fec;essions In its hl5lory I~ U.s, 

emnomy rem.tn5 mired In I fragile, unrnfl Ind IIMerti'ln rKOll'!'ry. Gros.s 

clomHIi<: product l rowth hll6Ye<lIlI'd jIIst 2.2 .,ercent. yu. slnee th, 

economy hit bottom, about hl lflhe norm.1 economic crowth rltt followln. 

I recession. The unemployment ntte r<!"mllr" fluc:k Itt more thin 

B percenl ~nd only IDout half of the 8.4 ml"lon wOlkers who lost Ihelr jobs 

during the ,ecession are well" work. Simply Put. Amena's economy Is 

underperiormlnlAmid this bKkdrop of un,ccept~bty low economic. srowth and un,«ept.bly 

high une!Tl9lovm-ent. poUcym.J<ers h_ ,n obilptlQn to identify and addlesS 

'KlO(s thatcontlnllt to 'mp~ir u .s. economlcarowth and job creation. 

Althotllh . v" lelY of 'Klo" mlVenh'nee Of inhibit " ustalned economic 

recovery, business Ind pollc'lluders .. e InClus.lnglyconcerned about Ih. 

del'ee to whlctll. gulalory burden and unclr'lalnty Is mped~1 growth tn the 

private sectOf". 

These amcelnslenect the'KI thit, for bener or for worse, ~ nltlon's 

rtgUl"ory fYJtlm hIS' sl8nlflunt Imp,td: on the OYerllt budneS$ 

enVIronment. On Ihe one hind, smart reBUUollons mit d.ult'f the - niles of 

the lOOld" and ,H,n wllh broid sodetll v.lulS oYer multiple el«tlon cycles 

an provide In enllironmentofstablnty, In$plre buslneu confidence ~nd 

iI«elentte Investment. On me other hand, regulations thill erNie 

uncertainty and reflee! shortsighted polltlc.,llntlrests can Impose 
148 


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September 19, 2012 

Page 2 

unproductive cost burdens on businesses and consumers, undermine confidence and delay 

Investment. The key obJective, therefore, Is not to increase or decrease regulation but to 

ensure that regulations adopted are effective and efficient and strike an appropriate balance 

between costs and benefits. 

The importance of achieving smarter regulation Is heightened by the reality oftoday's 

hyper-competitive global economy. The rise of global supply chains and unprecedented capital 

mobility have greatly expanded the geographic scope of Investment opportunities, allowing 

business to direct capital toward those jurisdictions that offer the most favorable conditions in 

terms of input costs and operational efficiencies. In a globalized world, even moderate 

increases in regulatory burden and uncertainty can be a decisive factor in a company's decision 

to invest in the U.S. economy. 

Federal regulation of business has a profound impact on the public, on business investment and 

on U.S. competitiveness. Regulatory costs operate like hidden taxes: not apparent but 

nevertheless significant in their impact on businesses, consumers and workers. While exact 

estimates vary, the total costs of regulation can be measured In the hundreds of billions of 

dollars per year. 1 

In response to increased regulatory costs, businesses are often forced to raise prices, reduce 

production, eliminate jobs, cut research and development or even go out of business entirely. 

The resulting negative impact on economic growth and job creation can be significant. For 

instance, a recent study released by the Manufacturers Alliance for Productivity and Innovation 

(MAPI) estimates that the growing regulatory burden will reduce manufacturing output by 2 to 

6 percent over the next decade and could potentially reduce manufacturing exports by up to 17 

percent this year alone? 

Although the direct costs of regulation are typically Imposed on businesses and governments, 

they are ultimately passed on to the American consumer through higher prices, diminished 

wages, reduced quality or availability of products and services and Increased taxes. The same 

MAPI study estimates that the regulatory burden will ultimately cost each U.S. household 

between $1,800 and $5,000 in lost purchasing power in 2012. 3 

The current regulatory environment not only Imposes direct compliance costs but also creates 

significant uncertainty which undermines investment, growth and job creation. If companies 

1 Greenstone, Michael (2011). "Improving Regulatory Performance: lessons from the United Kingdom." 

Testimony before the Senate Budget Committee Task Force on Government Performance. November 16, 201l. 

'NERA Consulting (2012). 'Macroeconomic Impacts of Federal Regulation of the Manufacturing Sector." 

Prepared for Manufacturers Alliance for Productivity and Innovation. 

'Ibid. 
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September 19, 2012 

Page 3 

cannot anticipate the regulations they will face, they are understandably reluctant to undertake 

costly investment. As explained In a 2010 statement by Richard W. Fisher, President of the 

Federal Reserve Bank of Dallas, uncertainty regarding the "rules of the game" can have 

significant negative impact on Investment spending, payrolls, and the economy at large: 

Operating a bUSiness under conditions of excessive uncertainty is like playing a 

game when you don't know the rules. Without rules, It Is impossible to develop a 

strategy or playbook, Business leaders are forced to calla time-out: They remove 

their players from the field and anxiouslV wait on the sidelines until they have a 

better Idea how to play the game, Too much uncertainty con create economic 

stasis as more and more decisions get delayed, retarding commitments to 

expansion of payrolls and c(lp/tal expenditures and slowing the entire economy,' 

The notion that regulatory uncertainty has a negative impact on business Investment is not 

theoretical - recent studies have confirmed the effect on firms' behavior, For example, a 2011 

study by Randall Billingsley and Carl Ullrich examined the Impact of electricity market 

deregulation on corporate investment behavior in the 19905 and early 2000s. The authors 

concluded that uncertainty surrounding plans for industry deregulation caused firms to reduce 

or delay their capital investment decisions and that this effect was even stronger for green 

technologies.s Similarly, a 2012 study by Klra Fabrizio focused on the pattern of renewable 

generation assets in the electricity industry following states' adoption of Renewable Portfolio 

Standards (RPS), The author found that firms invested less in new renewable generation assets 

in states in which the perception of regulatory instability was greater." 

Nevertheless, there is still significant political debate regarding the extent to which regulations 

affect the economy. As both a theoretical and empirical matter, however, the direction of this 

Impact seems dear - regulatory burden and uncertainty harm economic growth and job 

creation. Even if one believes that the ultimate impact is likely to be relatively small, prudence 

dictates that policymakers should proceed cautiously when promulgating new regulations 

during periods of economic weakness and widespread joblessness, Equally as important, 

measures that reduce regulatory burden and uncertainty can have a positive effect on the 

economy - unlocking new domestic Investment, accelerating innovation and enhanCing 

productivity, 

Government regulation can and must be Improved, Although some regulations have been 

beneficial, there is a great need-and much room-for a smarter, more cost-effective approach 

4 Fisher, Richard W. (2010), Remarks before the Greater San Antonio Chamber of Commerce, July 29, 2010. 

'Billingsley, Randall S. and Carl J. Ullrich (2011), "Regulatory Uncertainty, Corporate Expectations, and the 

Postponement of Investmenl; The case of Electricity Market Deregulation." SSRN No. 1944217, 

6 Fabrizio, Klro R. (2012). "The Effect of Resulatory Uncertainty on Investment; Evidence from Renewable Ener8\! 

Generation.'" Journal o[ LawF Economics, and Organization. 
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September 19, 2012 

Page 4 

to regulation. Accordingly, Business Roundtable supports legislative efforts to advance smarter 

regulation (for example, the Regulatory Accountability Act (H.R. 3010)). Ultimately, Business 

Roundtable believes that through smarter regulation the nation can sustain our commitments 

to public health, safety and environmental quality without compromising our ability to grow the 

economy and put Americans back to work. 
151 


76032D4-1.eps

w,~" •• ~ ~o •• ' 

.... ~. ~". Po .. ~.~. 

'_',h"~"'. T" "" .. ", .• • uc ••• ~ •• ~""" 

1m, Hononblt; l.anur Snutll 

Chomm" Camm>".., Qn the Jud.o.ofJ' 

Vill,i'd 5 .. ~. House of Repr~~uti ... e. 

Wll5Iungwn. PC 20515 

Re: URrguhniDn Nation: Adonlnillrstion'. Regulatory El<panlion VI. Job •• nd 

Ec:nnomi~ ~c~ry" 

Th. U.s. Chamber orCnm.nlcn:c II plcu"d thu )'OO ... holW", Ihlllw:lnng tim 

.dd"'. Sf:1 thr ,mpat, of .cgubllO'" on JOb.. A~ YO" know the Ch:lmht-. h ... grell ,,,,=., 

." Ih. rub)..:!. LIlt ,enw, publill:led ow otudy ""rol •• ' No I',oltcl'" .. ·hich durnbtJ JSI 

f"'OICCU wI ""' .. unoble to h.,,,,,, conuNCtion due 10 I cum~ .. 1<1 complu 

<quill.,.,. "mens. If built d,"f .... oukl ha ... :added S 1.1 mIlioo \0"'" cconott\y ond III 

milbon ,obIlnn ... Uy. AI pt<'O(Qdy adnuntlttmllhcrqulallX)' rmcoo: 

1. Impo:>..:: •• >groficant cQlnpb.1>te CI>III which dI'ICI'l rcSOU1CU ~'"1 f.om oWn 

1''''''''8 n«th; 2. Reduce. the. growth of lnd It ~ <'Yen d,nun .. c, ",d/v.du.l indullnrs; ond 

.1. lmpo"'. luch wmplcllll)' 1.Iu, It dilroungn bus ... en ~p.noion In.! j6b aatlQ<t. 

SIna: the rub,et:U""U" of J'O'U ,,"nnll;1 of JIIch ~Ioon<e'" 10 the Qumber,_ 

ur rubnalUnl IlK . ,nchod Sbh:,nml for ,he rtt;()I'd wluch ducuuc:, how die tTgUlalQl)' 

procell 'mpKlI JObs.nd CCQlWJmoc fUO'ICf)'. 

Sincerdy. 

Altachmtn, 

LOll Ytlm StlndUlI Up to( Amrnun Entr.pnse 
152 


76032D4-2.eps

100 Years Standing Up for Amencan Enterprise 

U.S. CHAMBER OF COMMERCE 

Statement 

of the 

U.S. Chamber 

of Commerce 

ON: REGULATION NATION: THE OBAMA 

ADMINISTRATION'S REGULATORY EXPANSION VS. 

JOBS AND ECONOMIC RECOVERY 

TO: HOUSE COMMITTEE ON THE JUDICIARY 

BY: WILLIAM L. KOVACS, 

SENIOR VICE PRESIDENT, ENVIRONMENT, 

TECHNOLOGY & REGULATORY AFFAIRS 

DATE: SEPTEMBER 20, 2012 

n", l"h",nht<·, ~"~~'A ;~ ~J ,.1 ... ," ~y,,,,,,, """",OOOIIKoot;h "" ..... " ..... 

.... 1;1j(:,) .,J .''';'llllj,l~, ~ ... 1n<J...wu.1 f~. 

;''''''''''''''-In,.; .. ''<.''''''''"'"~I) ..... rtOiro_hlll 
153 


76032D4-3.eps

BEFORE THE COMMITTEE ON THE JUDICIARY OF THE U.S. HOUSE OF 

REPRESENT A TIVES 

"Regulation Nation: Tile Obama Administration's Regulatory Expansion vs. Jobs 

alld Ecollomic Recovery" 

Tcstimony of William L. Kovacs 

Senior Vice President, Environment, Technology & Regulatory Affairs 

U.S. Chamber of Commcrce 

September 20, 2012 

Chairman Smith, Ranking Member Conyers and distinguished Members of the 

Committee, my name is William 1. Kovacs and I am senior vice president for 

Environment, Technology and Regulatory Affairs at the u.s. Chamber of Commerce. 

This statement describes the Chamber's perspective on the question of how regulations 

can affect people's ability to get and keep jobs, and the resulting impact on the quality of 

their lives. I want to emphasize at the outset that the Chamber recognizes that regulations 

are an essential part of a complex society such as ours. Over the decades, well-designed 

regulations have clearly made Americans and American workers healthier and safer. Yet 

the scope and pace of federal rulcmakings have increased dramatically in the past few 

years. Hastily-written regulations issued in the health care, environmental, labor and 

employment and financial arenas have been written with little apparent regard for the 

dramatic effect they have on employers and employees and on the ability of businesses to 

grow and to hire more employees. 

According to a study conducted for the Small Business Administration's Office of 

Advocacy, the tolal annual cost to comply with federal regulations was $1.75 trillion in 

2008.: Regulations finalized since 2008 further increase these compliance costs. While 

the Crain and Crain study has generated some criticism because it did not examine the 

detailed costs of each individual regulation, it remains the unly comprehensive estimate 

of the impact of federal rules on the U.S. economy. Moreover, since 2008, the number of 

new rules each year that impose compliance costs of a billion dollars or more has 

increased.2 The combined effect of the already-large existing regulatory footprint and the 

1 Crain, Nkole V. and Crain. W. Mark, The Impaci of Regula/DIY Costs 10 Small Firms. Office of 

Advocacy, U.S. Small Business Administration (Sept. 2010) available at 

http://al'chlvc.sba.RQv/aJvo/l'cscarchlrs37Iwl.n.Q.f. 

2 In 2011 alone, federal agencies developed .,even rules that would each impose over a billion dollars in 

new compliance costs. See Letter from President Rarack Obama to Speaker John Boehner, August 30, 

2011. 
154 


76032D4-4.eps

quickening pace of major new rulemakings are hobbling the economy and inhibiting job 

creation, 

Regulations impact jobs in three ways: they impose significant compliance costs 

that divert resources away from other needs; they can cripple or even destroy industries; 

and they can impose such complexity that they discourage business expansion and job 

creation, To bring manufacturing back to this country, we must understand the impacts 

of excessive regulations, Even before the creation of the Environmental Protection 

Agency (EPA). Congress recognized that environmental regulations will impose costs 

and at times make industries uneompetitive but that (he nation needed to address its 

environmental problems, Congress, however, wa, also very conscious of the impacts on 

industry, communities and the people impacted and demanded that the agencies charged 

with cleaning up the environment, primarily EPA, undeltake a continuing evaluation of 

the potential losses and shifts in employment. The agencies charged forward with over 

45,000 pages of regulations, but to this day EPA ignored the eOlTcsponding mandate to 

keep Congress apprised of the costs, potential job loss or shifts in employment due to 

regulation. 

A. Regulations Impact Job Creation 

1. Regulations Impose Significant Compliance Costs, Diverting Resources 

Away From Other Needs. 

When resources are expended to comply with new regulatory requirements, those 

resources often have to be diverted from other competing needs. Even larger companies 

often must secure financing to pay for technology and equipment that is required by 

regulations, The cost of regulatory compliance can have a dramatic impact on a 

company's bottom line-and its ability to grow and hire. 

For example, the Clean Air Act Maximum Achievable Control Technology 

(MACT) Rule3 for cement plants issued by this Administration, imposes extremely 

stringent new emission standards for air emissions from U,S, cement plants. This rule 

requires cement companies to install very costly new control equIpment As written, the 

cement MACT rule was expected to cost more than $3 billion to implement and result in 

the closure of at least 18 oflhe 100 cement plants across the U,S,4 As a result, domestic 

cement production is expected to fall and the price of cement will rise, The cement 

1 ;-{ational Emissions Standards for lIazardous Air Pollutants [rom the Portland Cement Manufacturing 

Industry, 75 Fed, Reg, 54,970 (September 9,2010) (Final Rule), 

<1. Portland Cement Association, 2011 estimate. 

2 
155 


76032D4-5.eps

]I,'1ACT rule, together with other recent EPA rules, could add as much as $20 to $36 to the 

cost of every ton of cement thai small concrete Ready-Mix companies must purchase.5 

This represents as much as a 33 percent price increase for these small concrete 

companies' most critical manufacturing components. When you consider that a 

difference of as little as $1 per ton of concrete can determine whether a company wins or 

loses its bid for a particular project, a cost increase of this magnitude can be disastrous, 

especially for small businesses. Companies hit with these kinds of costs will have to 

struggle harder simply to survive, and will not be in a position to hire new employees or 

upgrade their equipment. 

At a minimum, virtually all new regulations directly impose some degree of new 

costs on regulated businesses, as well as indirect costs on supply chains and customers. 

For many businesses, confronting a new regulatory cost usually means choosing \.vhat 

competing need or project will not be funded so that the regulatory cost can be paid. 

2. Regulations Can Cripple--or Even Destroy-Individual Industries. 

In some cases, entire industries have been harmed-and even deslroyed--by an 

overreaching regulation or combination of regulations. 

Forestry in Washington and Oregon In the wake of the 1994 Northwest Forest 

Plan, which was designed to preserve spotted owl habitat, logging activities in the federal 

timberlands of Oregon and Washington came to a virtual halt. The regulatory 

requirements of the Plan made it nearly impossible to harvest timber from the formerly 

highly-productive federally-owned lands in the western portions of those states. As a 

result, employment in the forestry sector, traditionally a major driver of the regional 

economy, plummeted in the Pacific Northwest from 1995 onward. The number of 

forestry and logging jobs in Oregon and Washington fel! from 27,656 in 1990 to 16,298 

in 2009, a 41 percent decline (compared to a 14.6 percent decline in the rest of the U.S.).6 

Together with other impacted industries in the region (e.g., fishing), the downturn in the 

forestry industry caused Ort:gon and Washington to lead the nation in unemployment by 

2002. Ironically, the spotted owl has continued to have difficulties, not because of lost 

habitat but because of a rival owl species that competes more successfully. 

Forest Products The fate of the Pacific Northwest forestry industry has been 

shared by other industries in recent years. The forest products industry has been heavily 

5 Portland Cement Association, 2011 estimate. 

5 U.S, Department of Commerce, Bureau of Economic Analysis) \\Annual State Personal Income and 

Employment." 

3 
156 


76032D4-6.eps

impacted nationwide by high regulatory costs that have impacted its ability to operate 

pulp and paper plants, sawmills, and manufactured wood products facilities. A variety of 

requirements affecting the operation of boilers, the use of solvents and adhesives in 

building products, and biomass fuels have resulted in the loss of over 100,000 jobs in the 

industry in 2010 alone. 7 

Furniture Afanujacturers Furniture manufacturers in many states have been hit 

hard by increasing regulatory costs, at the same time. they must contend with intense 

foreign competition and rising labor costs. Regulations such as boiler MACT, the NonHazardous Solid Waste definition rule, restrictions on formaldehyde, and Lacey Act 

requirements have caused furniture makers to scale down their operations or shut down. 

According to Bureau of Labor Statistics data, total employment in the U.S. furniture 

industry declined from over 600,000 in 2002 to 350,000 in 2011. 8 North Carolina alone 

lost 113 of its workers in the industry from 1996 to 2006, and more have been lost in 

recent years. 

Coal All segments ofthe coal industry have recently been hit with crippling new 

regulations: a combination of final and proposed rules affect coal mining methods, the 

combustion of coal in industrial and utility boilers, the disposal of coal ash, and 

potentially, the shipment of coal overseas. Clean Air Act rules such as the Utility MACT 

mle and the proposed New Source Performance Standards for greenhouse gases from 

utility boilers would make future coal-fired power plants infeasible, if not impossible. 

According to the U.S. Energy Information Administration, the percentage of coal 

providing electricity to the U. S. has fallen over the past four years from nearly 50 percent 

of all fuels to about 40 percent. The federal etlort to curtail coal use has taken a toll on 

jobs in the coal mining industry, as well as on jobs that depend on coal combustion. in 

West Virginia, tor example, about 2,000 coal mining jobs were lost in May-June 2012.9 

Alpha Natural Resources, which is the biggest coal producer in Appalachia, is planning 

on cutting about nine percent of its workforce. While Alpha acknowledged a 

combination of factors for the layoffs, it noted the regulatory effort to curtail coal, "And 

we're also dealing with a regulatory regime that is determined to constrain the production 

and use of coal.,,10 

Many other industries have not been wiped out by regulation, but they have been 

hurt and forced to scale back. These industries include medical device manufacturers, 

7 Estimate from the American Forest & Paper Association 

, Bureau of LabOi' Statistics, """"""""&U~~=":u'"'~,'""",,,,,c,~~,,,,",===,,,,±!,''''-'''''',L-:Cc:,",~. 9 West Virginia CoaJ Association estimate 

10 See Kris Maher, "Alpha Natural to shut coal mines, shed 9.2% of jobs," The WaU Street Journal, 

September 18,2012 and Steven Mu[son, "Alpha Natural Resources closing eight mines, cutting hundreds 

of job,," The Washington Post, Septemhcl' 18,2012. 

4 
157 


76032D4-7.eps

who have largely left the U.S. because of restrictions on the use of halogenated solvenls 

used for cleaning/sterilizing the devices after they are made. Other heavily affected 

industries include iron and steel manufacturing, smelting, foundries, brick manufacturing, 

paint and coatings, dry cleaning, and metals mining. In total, these induslries-and 

others-have lost hundreds of thousands of workers over the past 15 years, in part 

because of wave after wave of new federal regulations. 

3. Regulations Impose Complexity That Discourages Business Expansion. 

A study by the Swedish Agency for Gro\'ith Policy Analysis compared the 

regulatory burdens across nations and the effects of regulations on economic growth and 

vitality. The study found that higher regulatory burdens not only raised the costs of 

business operations, but also made capital financing more expensive and harder to 

obtain. The study also found that increased regulations acted as a barrier to entry for new 

firms, resulting in less competition and less ability to innovate and to adapt to new 

economic conditions or new technologies. Countries with relatively morc regulations 

were found to be less entrepreneurial and to experience significantly slower growth of per 

capita income. In sum, too much regulation results in a stagnant, ossified economy and 

an overail standard of living that is lower than that tound in countries with similar 

resourc·es but less burdensome regulations. I I 

Besides raising costs and harming individual industries, regulations also increase 

the complexity of the business environment, which can discourage investment and 

business expansion. This complexity often arises in the context of uncertainty about 

obtaining necessary permits or authorizations to undertake expansion or new projects. 

The large cumulative number of regulatory requirements can make it much more difficult 

to obtain project approvals in a timely manner, and pr~ject sponsors often walk away 

after years of costly delays. In 2009, the Chamber unveiled Project No Prqjecl, an 

initiative that assesses the broad range of energy projects that are being stalled, stopped, 

or outright killed nationwide due to a broken permitting process and a system that allows 

nearly limitless opportunities for opponents of development to raise challenge atter 

challenge. Results of the study are compiled onto the Project No Project website 

bllQ://www.projectnoproject.com. The purpose of the Project No Project study was to 

understand potential impacts of serious project impediments on our nation's economic 

development prospects, and it was the first-ever attempt to catalogue the wide array of 

energy projects being delayed nationwide. 

II Swedish Agency for Growth Policy Analy.is, "The Economic Effects of tile Regulatory Burden." Rep0l1 

2010:14. www.gro .. thanulysis.sc. 

5 
158 


76032D4-8.eps

Through Project No Project, the Chamber found consistent and usable 

information for 333 distinct projects. These included 22 nuclear projects, 1 nuclear 

disposal site, 21 transmission projects, 38 gas and platform projects, III coal projects 

and 140 renewable energy projects-notably 89 wind, 4 wave, 10 solar, 7 hydropower, 

29 ethanol/biomass and 1 geothermal project, Since some of the electric transmission 

projecls were multi-state investments and, as such, necessitate approval from more than 

one state, these investments were apportioned among the states, resulting in 351 statelevel projects attributed to 49 states. 

In total, the 351 projects identified in the Project No Project inventory could have 

produced a $1.1 trillion boost to the economy and created 1.9 million jobs annually 

during the projected seven years of construction. Moreover, these facilities, once 

constructed, would have continued to generate jobs, because they would have operated 

for years or even decades. The Chamber recognizes thaI moving forward on all the 

projects is highly unlikely. There simply would not be enough materials or skilled labor 

to construct all 351 projects at the same time, and to do so in a cost-effective manner. 

However, even a subset of the projects would yield major value. The construction of 

only the largest energy project in each slate would generate $449 billion in economic 

value and 572,000 annual jobs. 

n. Congress Malldated Contilluing Evaluation of Potential 1,055 01' Shifts in 

Employment to Determine Impacts of Reguilltions 

Congress has debated whether regulations cause adverse impacts on industry, 

communities and job loss for at least 45 years. The earliest direct discussion of this 

debate is found in the 95 th Congress (1977 - 1978) during debate over the Air Quality 

Act. As part of the debate Congress mandated that the Secretary of Health, Education 

and Wcl!11re undertake a comprehensive study of the economic impacts of air quality 

standards on the nation's industries and communities. Prior to tbe discussion, several 

studies were released by Senator Jennings Randolph in 1969. 12 

In the 1977 debates over the Clean Air Act Amendments of 1977, Congress even 

more directly confronted the issue of the impact of regulations on jobs when it enacted a 

provision which provided that the Secretary of Labor, in consultation with the 

Administrator, conduct a study of potential dislocation of employees due to 

implementation of the laws administered by the Administrator and that the Secretary 

12 Senate Resolution 267, October 16. 1969 and Senate Resolution 369. April 27, 1970. 

6 
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76032D4-9.eps

submit to Congress the results of the study not morc than one year after August 7, 1977. 13 

This provision was codified as section 321(a) of the Clean Air Act and now reads: 

(1I) Continuous evaluation of potential loss of shifts of employment 

The Administrator shall conduct continuing evaluations of potential loss or 

shifts of employment which may result from the administration or 

enforcement of the provision of (his chapter and applicable implementation 

plans, including where appropriate, investigating threatened plant closures, or 

reductions in employment allegedly resulting from such administration or 

enforcement.,,14 

In the 95th Congress the debate over the employment impacts of regulation was 

clear, direct and extensive. The Committee noted: 

Among the issues which have arisen frequently since the enactment of the 1970 

Amendments is the extent to which the Clean Air Act or other factors are 

responsible for plant shutdowns, decisions not to build new plants, and 

consequent losses of employment opportunities. 

On one side of this dispute, it has been argued that many employer statements that 

plants will have to shut down if certain pollution control measures become 

effective constitute "environmental blackmail." Thus, Representative George 

Brown testified in 1975 that "[t]here have already been major instances in which 

plant closings due to non-environmental tactors have been blamed on 

environmental legislation. The effect of such "blackmail" would be to generate 

public pressure for the weakening of environmental standards, and to force labor 

unions into opposing enforcement of environmental laws." 

On the other hand, it has been argued that environmental laws have in fact been 

responsible for significant numbers of plant closings and job losses. 

In any particular case in which a substantial job loss is threatened, ill which a 

plant closing is blamed on Clean Air Act requirements, or possible new 

construction is alleged to have been postponed or prevented hy such requirements, 

the committee recognized the need to determine the truth of these allegations. For 

J] Section 403(e) OfPllblic Law 95-95; West, Federal Environmental Laws 2012, Historical and Statuto,)' 

p.1404. 

Section 321(A) of the Clean Air Act; 42 U.S.C. § 7621; This section became law as part of the 1977 

Amendments to the Clean Air Act. 

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this reason, the committee agreed to section 304 of the bill, which establishes a 

mechanism for dctermining the accuracy of any such allegation, 15 

The Committee went on to state: 

Section 304 of the committee bill is based on a nearly identical provision in the 

Federal Water Pollution Control Act. The bill establishes a new section 319 of the 

act. Under this provision, the Administrator is mandated to undertake an ongoing 

evaluation of job losses and employment shifts due to requirements of the act. 

This evaluation is 10 include investigations of threatened plant closures or 

reductions in employment allegedly due to requirements of the act or any actual 

closures or reductions which are alleged to have occurred because of such 

requirements. 16 

Tn conference, the Senate concurred with the House employment effects provision 

that addressed the EPA Administrator's evaluations and investigations of loss of 

employment and plant closure. 17 

Over the years EPA has simply ignored the Congressional mandate to conduct a 

continuous evaluation of loss or shifts in employment from the implementation of 

environmental statutes, But the debate over the impact~ on jobs duc to regulations 

continued without the information Congress mandated, In Whitman v, American 

Trucking Association, Justice ScaUa writing for a near unanimous court, settled the 

debate, writing: 

In particular, the economic cost of implementing a very stringent standard might 

produce health losses suilicient to offset the health gains achieved in cleaning the 

air - for example, by closing down whole industries and thereby impoverishing 

the workers and consumers dependent upon those industries. That is 

unquestionably true, and Congress was unquestionably aware of it. Thus, 

Congress had commissioned in the Air Quality Act of 1967 (1967 Act) 'a detailed 

estimate of the cost of carrying out the provisions of this Act; a comprehensive 

study of the economic impact of air quality standards on the Nation's industries, 

communities and other contributing sources of pollution.' Sec.2, 81 Stat. 505, 

The 1970 Congress, armed with the results of this study, see The Cost of Clean 

15 95 Cong, House Report 294; CAA77 Leg. Hist. 26 at 227, 

16Id 

1? 95 Congo Conf. Bill n,R. 6161; CAA77 Leg.IIist. 24, 

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Air, So Doco Noo 91 - 40 (1969) not only anticipated compliance costs could 

injure the puhlic health, but provided for that precise exigencyo 18 

Justice Scalia then proceeds to discuss how the EPA can ameliorate the adverse 

impacts of stringent Clean Air Act regulationso 

Then in 2009 when a large number of regulations wcre being issued by EPA six 

UoS. Senators wrote to EPA requesting the results of its continuing Section 321(a) 

evaluation of potential loss or shifts of employment which may result from the suite of 

regulations EPA had proposed or finalized0 19 On October 26, 2009, EPA responded to 

the six Senators stating "EPA has not interpreted CAA section 321 to require EPA to 

conduct employment investigations in taking regulato1'Y actionso" 

Therefore, a debate that started 45 years ago when Congress directly mandated a 

study of the employment effects of regulations so as to determine the truth of conOicting 

allegations about whether regulations adversely impact jobs is still unresolved due to the 

refusal of the agency charged with doing the continuous evaluation of potential loss or 

shifts in employment due to regulations to conduct such evaluatio11o As the next section 

will illustrate, job loss caused by regulations, no matter how beneficial they may be, still 

can be very harmful to the industry, community and person impactedo Avoiding 

knowledge of the harmful effects is not an appropriate way in which to conduct public 

policy. 

C. Job Losses: The Human Dimension 

As Congress recognized for decades there are huge benefits to a cleaner 

environment but many times they come at a cost to industry, communities and peopk 

Moreover, many of these human costs are imposed on those least able to bear themo 

Congress has mandated that agencies study and report back on these costs, but the 

agencies refuseo Agencies, as required by law, need to start providing accurate 

accounting for the shifts in employment and related economic costs imposed on citizens 

by existing and proposed regulations so that Congress has the needed information to 

make sound public policy decisions. 

The table below shows the employment decline in a few of the industries 

significantly affected by EPA rulemaking since 19900 Furniture, steel, sawmills/wood 

preservation and underground coal mining have been particularly hard-hit, each losing 

IS Whitman Yo American Trucking Association, 531 U.So 457 (2001) at 4660 

19 Letter from Senators Vittcr, Riech, Johanns, Inhofe, Ensign and Hatch to EPA Administrator Lisa 

Jackson, October 13,20090 

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over 40 percent of the jobs that existed in 1990. The six industries shown accounted for 

over one million jobs in 1990 and by 2011, job tosses totaled 472,300. This is not an 

exhaustive list. It is merely a list of a few selected industries that have been affected by 

EPA regulations. 

While these job losses were not necessarily solely the result of environmental 

regulations, even in cases where industries were also declining for other reasons, it is 

reasonable to argue that regulatory burdens made matters worse. The important point is 

that EPA has not done the work that Congress repeatedly called for it to do with respect 

to investigating and tracking industries impacted by its regulations (past and proposed) to 

determine the extent to which worker displacement is the result of environmental 

regulations and to consider what steps could be taken by the government to ameliorate 

the burdens of job displacement that government policy decisions impose on working 

families. 

Losses Selected Industries 1990 to 21111 ~---------~~~ ...... ~--------.~-----

Bituminous coal alld lignite surface 

Bituminous coal underground 

anthracite mining 

and wood preservation 

gypsum, and other nonmetallic milleral 16.3 

steel mills and ferroalloy production 93.2 

Furniture and related products 248.9 

Total 472.3 

Source: Bureau of Labor Current 

16.7% 

49.9% 

41.4% 

40.4% 

Even if job growth was spurred in other industries, the reality is that 472,000 

workers and their families were burdened with the economic costs of job loss and the 

necessity to search for and retrain for replacement jobs. In many cases they have faced 

many months of unemployment before finding new jobs. In today's economy, according 

to Bureau of Labor Statistics data, the average job seeker has been looking for work tor 

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39 weeks - over nine months. For workers who have been in their jobs for a long time, 

regulatory-induced job losses are particularly difficult to handle. Long-tenured workers 

have built up skills specific to an industry, and whell regulations destroy job opportunities 

in their industry, they are at a disadvantage because their industry-specific skills may not 

be readily transferable to other industries. 

The most recent Bureau of Labor Statistics' survey of displaced workers, for 

example, found that nearly half of the workers who lost jobs over the last three years 

were long-tenured workers, i.e., those with three or more years experience with the 

cmployer.2o At the time of the survey (January 20]2) 43 percent were still unemployed 

or had dropped out of the labor market, some having hecn jobless for up to three years 

aftcr their job losses. Of those who had been lucky enough to find replacement jobs 

within the thrce years, over half (54 percent) had taken a cut in pay compared to their 

prior jobs. 

The effect of job displacement is particularly hard on older workers, reflecting the 

difficulty of transferring established skills to new jobs. Among long-tenured displaced 

workers age 55 to 64, over half (53 percent) of workers who lost jobs over the three years 

2009-2011 were still without a job in January 2012. Many older workers have been 

forced into early retirement, placing additional strains on the Social Security system and 

prematurely draining their own retirement savings. in the BLS survey, 49 percent of 

lhose age 65 or older had dropped out of the labor force. 

Not all displaced workers have lost their jobs because of regulations, but for those 

that have, the economic (and other) burdens placed on them as the direct result of 

government policy choices must be recognized. EPA and other rulemaking agencies 

have an obligation under these circumstances at least to recognize these impacts and to 

consider how these impacts migbt be mitigated. EPA routinely points to the benefits that 

society gets from a cleaner environment. Congress requires that EPA continuously 

evaluate job displacement caused by regulation. 

In evaluating the larger impact to the economy of the "sue and settle" approach to 

regulation, much more is at stakc than the immediate cost of each new rule an agency 

agrees to issue or the net number of jobs that will be affected by each new rule. The 

immediate reality is that these new regulations will deter investment that creates new jobs 

and dislocate workers from the jobs that they now have. Whatever the future benefits 

may be, EPA's rush to regulate means that today more workers are losing jobs, families 

are losing income, and those least able to afford it are saddled with the burden of job 

20 Bureau of Labor Statistics, Worker Displacement 2009-2011, News Release USDL 12-1719, August 24, 

2012.l:illl:>:11,vww.bls.gov/ncws.reieasemdfYdisp.pcll'. Data was collected January 2012. 

11 
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search, relocation, and retraining. The claim that some new jobs may be created docs not 

lessen the burden and loss that workers who are displaced from their existing jobs 

experience. 

The workers who lose their jobs today because regulation forces the plants where 

they have invested their working lives to shut down typically do not have the skills 

needed to take the new jobs that EPA promises will materialize, and typically new jobs 

whcn they materialize are in different places than the jobs destroyed. For example, the 

basic idea that a job lost today at a power plant in Ohio that shuts down will he replaced 

within a year or two by a new job at an electric vehicle plant in Michigan is little comfort 

for workers who need to feed their families and 10 make their mortgage payments in Ohio 

today. 

The BLS data clearly show that EPA cannot justify ignoring employment 

displacement impacts by assuming that displaced workers quickly find new employment 

at the same wage rate. In short, EPA does not now count the loss of a job as a cost, but 

the government's own survey evidence shows that destroying jobs has long-lasting 

adverse impacts on workers. These are real, human costs that should not be ignored. 

When an agency of the federal government proposes a policy that it knows will result in 

employment dislocation for some citizens, at the very least the costs of job displacement 

should be recognized in the cost benefit analysis that justifies the regulation, and a decent 

respect for the families whose livelihoods are affected should require that the agency 

actively address how the burden of job dislocation will be mitigated. 

Environmental regulations that force the shutdown of coal fueled power plants 

have reverberations down lhe supply chain, reducing the demand for American coal and 

ultimately eliminating jobs for American coal miners and those who transport coal. 

While these changes may also create new job opportunities in natural gas fields or 

alternative industries, the reality is that new jobs are nol here and not now. They are 

generally not in the communities where coal mining jobs are destroyed and they are not 

jobs that former coal miners are generally prepared to filL This means that our national 

policy decision to change the way we generate electricity imposes direct economic 

adjustment burdens on coal miners and others in the coal supply chain, their families and 

their communities. 

From 1990 through 2011, employment in the coal mining industry has falJen by 

over 49,000 - a 36 percent decline. In recent weeks we have heard reports that suggest 

that the loss of jobs for American coal miners is accelerating. Tn West Virginia and 

eastern Kentucky, according to reports by hoth the mine workers' union and the coal 

producers' association, 2,000 mining production jobs were lost in just two months - May 

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and June this year.21 Regulation impact was cited as a major contributor to these job 

losses. Mining job losses at this rate of 1,000 per month could wipe out the entire U.S, 

coal mining industry (2011 employment: 136,000) in a little over 10 years. 

Regardless of potential future job losses, let us look at the potential economic 

losses faced by only those 2,000 Appalachian coal miners who wc know lost their jobs in 

May and June this year. Based on average experience reported in the most recent BLS 

survey of displaced workers, 860 of those 2,000 workers can expect to still be jobless 

(eilher looking for work or given up looking) three years from now, Based on the 

average hourly, pay of production workers in the coal mining industry,22 those 860 

workers and their families can expect each to lose over $151,000 in income tl'om three 

years of joblessness. That amounts to a total economic loss of $ 126 million for those 840 

families over three years and more losses as more years of joblessness accllmulate, 

Income losses of this magnitude translate into real hardship -- decline of families 

from middle class to poverty status, mortgage foreclosures, stresses that tear at the fabric 

of families, stresses that destroy individual health, and children who do not go to college 

or who drop out of high school to work. It is bad enough when families arc faced with 

such burdens because of natural disasters, business cycles, or foreign competition, but 

when such burdens are inflicted on them by the conscious decisions of their own 

government it is intolerable. 

What ofthe other workers, the ones who are !twky enough to find new jobs within 

three years? Based 011 the averages from current average duration of unemployment 

published by BLS, even they will face 39 weeks of unemployment and an income loss of 

$38,313 each during their job search (totaling $36,7 million lor those 1,140 workers and 

their families,) The displaced worker survey data also suggests that 615 of them will 

have to take a significant cut in pay when they do find new work, adding further to the 

burden that they carry from their job displacement. 

The loss of coal mining jobs in West Virginia and eastern Kentucky is of 

particular concern because these are typically among the best paying jobs in the affected 

communities. These jobs anchor the middle class families in their towns and rural 

counties, and loss ofthese jobs has community-wide economic repercussions, 

l~~~~~~~~~i~~~~=~=~~t~~j==:~,and per houl' according to Bureau Employment and Earnings Survey 

data tor May 2011. Weekly and annual earnings do are based on 40 hours pCI' week and do not include 

overtime pay that many miners receive, 

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One of the 2,000 laid off Appalachian coal miners was interviewed for a 

September 17, 2012, news story.23 Allen Black was laid otT on April 29 after working as 

a coal miner for over twenty years. IUs $70,000 annual income enabled his family to 

send a son to major in pre-med at a university, but now Mr. Black's income has been 

reduced to $350 per week in unemployment benefits, and with no new job in sight he has 

begun liquidating his retirement savings to keep his son in college and to pay for food 

and housing for his family. Said Black in the Human Events interview, "There was a 

massive migration out of Appalachia going north to build cars in the j 9605 because there 

were not johs here. Coal is the only industry [lett] and when it fails, we all fail. .. this 

time we have nowhere to migrate to." 

Three new EPA regulations are expected to close 175 coal-fired electric 

generating plants (according to a Senate report quoted by Human Events), but the effects 

of these rules and the inflexible schedule adopted for their implementation extend far 

bcyond the directly affected plants and into the homes and communities of coal mining 

workers across the nation. 

Significantly, EPA did not include any of these real, human cost burdens imposed 

on coal mining families in their calculations of the $13 billion in costs for the three new 

rules. They should have to, and be required to, propose ways to mitigate these costs 

whcn they propose new regulations. 

Recent studies discuss the startling human disaster impacts of unemployment. 

For example, the prospects of fe-employment of olde,r workcrs deteriorate sharply the 

longer they are unemployed. A 50 - 61 year old worker unemployed for 17 months has 

only a nine percent chance of securing a job in the next tbree months and workers over 62 

have only a six percent chance of finding a new job.24 Another study finds mid-career 

workers who lose long-held jobs and experience long term unemployment can expect to 

live one and one - half years less than a continuously employed worker.25 According to 

Sullivan and von Wachter: 

These results suggest that events in the labor market shaping workers' 

careers also have long-run effects on health outcomes. The losses in life 

expectancy implied by our estimates shows these effects can be large. A 

worker displaced in mid-career cun expect to live about one and half years 

" "The War on Coal." Human Evenl" Sept. 17,2012. p. 16, 

14 Dean Baker and Kevin Hassett, "The Human Disaster ofUncmp!oyment," Nevv York Times, May 12, 

2012, 

von Wachter, "Job Displacement and Mortality: An Analysis Using 

Administrative Data: Quarterly Journal of Economics, Vol. 124 (2009), number 3 (Aug), pp. 1265-1306 at 

!ill!2JL~oxlo,.diolJma!s,o,.gI,,(mlen1/ 124/31 1265 ,silorl. 

14 
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less than a non-displaced counterpart. The reduction in life expectancy is 

smaller for older workers who experience lower lifetime earnings losses 

and are exposed to increased mortality for a shorter period of time. Our 

results do not speak to the role of non-economic factors such as stress, 

sclfworth, and happiness. Yet, they suggest an important avenue for future 

research would be to examine wht:ther the negative health consequences 

of mass layoffs can be prevented by providing assistance that stabilizes the 

level and variance of earnings.,,26 

Moreover, the rate of suicides for uncmployed workers also increased by up to tcn 

pcrcent,27 These arc real people, and not EPA's computer modeled people. 

EPA needs to consider more than the supposed net impacts of its regulations. 

While EPA's regulations have both benefits and cost~, the reality is that the winners and 

the losers are not the same people and usually not even in the same communities. EPA's 

regulatory decisions create massive shifts in the structure of thc economy, benefiting 

some workers, some communities and some industries and imposing costs or complete 

destruction on others. Even if EPA's redistributive mandates yield a net benefit for 

society as a whole over time, the rapidity of change that EPA mandates and thc 

nationwide scope of change is a tremendous shock to the economic system. EPA needs 

to consider how it can lessen the burdens it is placing on the workers, families and 

communities that it targets for losses. 

EPA could reduce the economic shocks of its mandates by adopting more gradual 

approaches that phase in new standards over longer periods of time and that apply new 

standards only to new facilities, allowing existing facilities and the communities that 

depend on them to live out their natural Jives. New technologies yield net benefits to 

society, but their emdency gains also come with costs as jobs and industries dependent 

Oil old technology are replaced. But in the case of technological c.hange, the typical 

experience is gradual adjustrncnt that cushions the shocks of economic change. EPA 

should endeavor to make its program of environmentvl change resemble more closely the 

successful experience of adoption of technological changc. Tn addition to gradual 

schedules for adoption of new standards, EPA might also feature greater reliance on 

voluntary compliance, demonstrations, and incentive programs. A more gradual 

approach to regulation implementation would yield the added benetit of facilitating 

empirical study of effects to ensure that policies rcally are effective and on the right track. 

" Sullivan and von Wachter, p.1290. 

27 $'upra, note 49, See also Annie Lowery, "Death and Job!e5:mess,~' \Vashington Independent, August 17, 

2010 at mm"c'-\:!Cillj!!l!lll.'~mtj!j,j':P"D"tgj)\ o"i'!,:O£!:~'L!J.~o\l!ll:o~lli!:.~'l)lr~':mt~,~ 0 

15 
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Thank you for the opportunity to submit this testimony. I look fon'lard to 

answering any questions you may have. 

16 
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The Honorable Lamar Smith 

Chainnan 

Comm ittee on the Judiciary 

U.S. House of Representatives 

Washington, D.C. 20515 

I 

The Voice of Small Business'. 

September \9,2012 

The Honorable John Conyers, Jf. 

Ranking Member 

Committee on the Judiciary 

U.S. House of Representatives 

Washington, D.C. 20515 

Dear Chairman Smith and Ranking Member Conyers: 

The National Federation of Independent Business (NFIB) appreciates the opporhmiry to submit this 

letter for the record to the Committee on the Judiciary for the hearing entitled "Regulation Nation: 

The Obama Administration's Regulatory Expansion vs. Jobs and Economic Recovery." NFlB is the 

nation's leading smail bnsiness advocacy organization representing over 350,000 small business 

owners across the country, and we appreciate the opportunity to provide our perspective on how 

regulations affect small businesses. 

Excessive and complex regulatory burdens continue to be a hardship for many small business owners 

across America. In NFill's most recent Small Business Economic Trends, released on September 11, 

"government requirements and red tape" ranked as the second-most frequent amwer when NFIB 

members were asked to identiJY the single-biggest problem facing their small business. More than 

one in five respondents cited regulation as the biggest issue1

• Regulation ranked just behind taxes and 

ahead of poor sales - the latter of which many have claimed as the primary reason why the economy 

has been slow to recover. 

Furthermore, a U.S. Small Business Administration's Office of Advocacy stndy found in 2010 that 

regulatory compliance costs small businesses 36 percent more per employee per year than their larger 

counterparts. 2 

Small businesses operate on thin margins. Mandating that a small business install an expensive piece 

of equipment or take on a burdensome process that makes their company less efficient affects a 

business's ability to either retain or grow jobs. Regulation is indeed necessary, but its impacts need to 

be studied carefully. 

Small businesses frequently find that regulation is too often "one-size-fits-all," and fails to consider 

the nnique challenges that these companies face. Many times, options exist that would provide 

greater compliance flexibility for small businesses that still allow the agency to meet it~ regulatory 

goal. Accordingly, regulatory agencies need to take small business flexibility seriollsly, even when it 

is not legally required. 

I hl!p:i!wwW.1Y[ih.com/Portais/O/PDF!sbet/sbct20120.t!2Q[. pp. 18. 

2 tillQ;i/_Wy'w,sba.gov!8dvo!,.esem'ct!ir~3711()t.nQf 

National ofiindep,mdent Business 

202-WI-Yo,OO *' Fax 202~554-0496 '" y,'V;w NFID com 
170 

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76032D5-2.eps

Small businesses ollen find that when they go through the required steps and processes to comply 

with a rule, the total cost of compliance is significantly higher than what the agency estimated in its 

economic impact annlysis, Agencies need to incorporate realistic cost.s into their analyses, including 

foreseeable indirect costs on industries, As an example, a recent Environmental Protection Agency 

(EPA) rule on mercury emissions from power plants failed to take into account how increased costs 

of energy for small businesses and consumers would affect the economy. These types of estimates 

are critical in order to paint a full and clear picture of a rule's impact 

Tn an etTort to inform the public about the problems excessive regulations can have on small 

businesses and the economy, NFIB formed Small Businesses for Sensible Regulations in 2011, This 

coalition of small businesses has coalesced around five core principles that we believe should guiue 

reform oflhe regulatory process, These principles are: 

L Small businesses deserve a greater voice in the federal regulatory process. 

2, The Administration's t1t'S! focus should be on providing assistance to small businesses before 

assessing penalties. 

3, Every major regulation should undergo rigorous benet1t-cost analysis. 

4. Regulations should he based on objective data and hard science, 

5. The regulatory process requires more transparency and accoulltability. 

Last year, Chairman Smith introduced - and the House of Representatives ultimately passed - the 

Regulatory Flexibility Improvements Act (RR. 527). This important legislation addresses ITIiillyof 

the principles listed above, and its enactment remains NfIB' s top regulatory reform priority. 

Specifically, RR, 527 would strengthen the regulatory process by requiring agencies to thoroughly 

analyze the economic impact their rules have on small businesses, In particular, the legislation would 

expand the Small Business Advocacy Review Panel process, whereby agencies can learn how their 

regulations will practically affect small entities, It would also give the Otlice of Advocacy the 

authority it needs to establish standards for "regulatory flexibility analysis," 

The legislation would also improve the accuracy ofbenefil-cost analysis by requiring agencies to 

consider the indirect impact ofregulations on small business, Finally, the legislation's provisions on 

periodic review ofmles are in line with President Obama's Executive Order 13563, which requires 

agencies to conduct a retrospective analysis of existing rules 10 identifY and modify rules in need of 

reform, 

NFIB appreciates the opportunity to share the views of our members regarding excessive red tape 

and looks forward to working with the Committee to improve the regulatory environment for small 

business owners, 

Sincerely, 

s:~ Susan Eckerly 

Senior Vice President 

Public Policy 

National Federation of Independent Business 1201 F StreetNW • Suttc200 oj< Wa~hington, DC 20004 * 202-554-9000" Fax 202-554-0496 :I< www.NFlB.com