Friday, April 22, 2011

Costs and benefits aren't what they used to be

Contrary to Obama's own executive order, the Department of Transportation didn't do any cost-benefit analysis of its proposed high-speed rail projects.

Of course, the way that the Obama administration counts costs and benefits, it wouldn't matter if they'd done a cost-benefit analysis. That is because the Obama administration has entered Orwell-world in how they figure out that costs are really benefits. Ike Brannon and Sam Batkins report,
For instance, the additional workers that businesses must hire to comply with a new regulation are typically chalked up as a cost in a straightforward economic analysis. This administration, however, suggests that such hiring, although it increases the cost of doing business, is actually a “stimulative effect” that benefits society.

In its recently proposed regulation governing waste incinerators, the Environmental Protection Agency argues that “an increase in labor demand due to regulation may have a stimulative effect that results in a net increase in overall employment.” The EPA didn’t end the nonsense there, going on to opine that “regulated firms demand labor workers to operate and maintain pollution controls within those firms.” This is not an isolated example: In its industrial boiler analysis, the EPA wrote that “environmental regulations create employment in many basic industries.”

According to this bureaucratic ethos, purchasing equipment mandated by the government can be “job creating during the period before firms must comply with the rule.” Under the EPA’s logic, running an industry out of business could also be a boon for bankruptcy lawyers, creating growth in the struggling legal sector.

Arguing that onerous new regulations create jobs is nonsense, of course. If the government makes a business spend more money, that is a cost. The government may or may not have a good reason to make them spend that money. Regardless, what the businesses—and our economy—spend to comply diverts people and capital from other productive uses. To suggest that this is somehow a benefit is duplicitous.
What balderdash! Go ask California if there is no cost for piling on regulations that businesses have to pay. A business might leave one state for another with a more favorable climate. But what do they do if the entire country has an unfavorable climate? You guessed it - leave the country or just not expand its business.

And no matter how the Obama administration counts it, that is a cost. A very real cost.


pumping-irony said...

The "stimulative" effect that all the excess regulations produce is inflation. What if XYZ co made widgets at $1 a piece. Now, the government comes in and demands federal widget inspectors whose cost, directly or indirectly, is borne by XYZ co. And next they demand XYZ co. buy new "green" machinery and buy wind or solar power to drive it. All of this stuff also costs money that XYZ co must supply to stay in business. But their only source of funds is the widgets they sell so they naturally must raise the price of the widgets to pay for government mandated "stimulus". This price increase will echo thru the supply chain as all of XYZ's customers who use widgets will likely raise their prices to pay the increased cost of widgets (not to mention having to deal with the costs of their own government-mandated "stimulus".) Of course, some or all of these effects may be ameliorated - companies may start to buy their widgets from a Chinese company that doesn't have all the government regulations to pay for. Or XYZ co may decide to move its plant offshore where helpful regulators are not a problem. Stimulative effects, indeed.

tfhr said...

Well they didn't do much of a cost-benefit analysis of another even more massive train wreck this administration has spawned: Obamacare. Why should anyone be surprised?

Locomotive Breath said...

Speaking of high cost and no benefits

Stimulus by Fed Is Disappointing, Economists Say
Published: April 24, 2011

WASHINGTON — The Federal Reserve’s experimental effort to spur a recovery by purchasing vast quantities of federal debt has pumped up the stock market, reduced the cost of American exports and allowed companies to borrow money at lower interest rates.

But most Americans are not feeling the difference, in part because those benefits have been surprisingly small. The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs.