The Economist strikes out in its attempt to rehash the corporate anti-regulation wish list

After pouring through a recent edition of The Economist (“Over-regulated America” Feb. 18, 2010), readers might be tempted to look for an ad at the end that said “Paid for by the U.S. Chamber of Commerce.” It would have explained why the magazine decided to publish the same, old corporate wish list for rolling back our nation’s system of vital safeguards in the name of increased profits. Not being able to find such an ad, you have to wonder what exactly The Economist was thinking.

photo by Tom Clifton via flickr

The pushback has been loud and stinging. Rena Steinzor, a professor at the University of Maryland Carey School of Law, and the president of the Center for Progressive Reform, penned a ravaging rebuttal to the magazine which is a must-read for anyone who is interested in protecting our environment, food, financial system, etc. She calls out the magazine for using a roundly-debunked study commissioned by the Small Business Administration (SBA), which was jury-rigged to fit its anti-regulation narrative.

You can almost feel The Economist’s pain: the jobless rate should be a lot higher than it is, if the premise about the costs of regulations is correct. Surely if the regulatory burden were actually 12 percent of GDP – that’s what the SBA numbers say, if you draw them out – things would be far worse than they are. Ideologically unable to consider the obvious alternative – that regulations don’t add $10,585 in costs per employee, The Economist, just, well, “wonders” aloud.

Here’s what The Economist would have found if they’d dug just a little bit: Fully 70 percent of the SBA estimate was actually based on a regression analysis using opinion polling data on perceived regulatory climate across countries (in a strange twist, a separate article in the same issue actually questions the study, briefly). Whole reports have been written on why that number is bogus.

Steinzor on The Economist suggesting the ridiculous idea of requiring that an existing regulation be revoked any time a new one is instituted:

This idea is not new; anti-regulatory guru Chris Demuth of AEI was pushing this idea at least as early as 1980. And it makes no more sense today than it did then. New and existing regulations should be evaluated on their merits, not an arbitrary system that says we have to get rid of the rule on peanut safety if we need to make a new one on cantaloupe safety. We need to be able to address new threats, be they toys from China or BPA in water bottles.

James Lardner at OMB Watch noted two of the articles “lay all the complexity at the door of legislators and regulators. But much of the verbiage in laws like Dodd-Frank is supplied by the regulated; the problem arguably begins with their ability to block the kind of bright-line rules that distinguish Glass-Steagall (37 pages, 1933) from Dodd-Frank (848 pages, 2010). If the banks were not so powerful, we might have gotten a single federal watchdog agency, a cap on bank size, and a reinstatement of the barrier between commercial and investment banking. Health-care reform is a parallel story: it was the insurance industry and its hirelings that ruled out a simpler approach.”

I like to keep reminding people that the financial crisis of 2008 was due to the regulatory failure of the banking industry, deregulation that the industry lobbied for.

Yesterday, we heard from Dr. Jan Eberly, Assistant Secretary of the Treasury for Economic Policy, who wrote a Letter to the Editor to the magazine. She echoes a frustrated sentiment that a lot of us share when we hear about the damning “cost” of regulations, but nary a peep about the benefits.

Your editorial of February 18 on regulation in America contained many of the entertaining anecdotes for which the Economist is well-known and –appreciated. But anecdotes don’t constitute systematic evidence, and the article notably lacks credible facts on the overall costs and benefits of regulation. There is a serious discussion to be had on this topic, but not based on the articles in last week’s issue. There is no attempt to consider the motivating benefits of regulation (– like safety, transparency, environmental protections) and the only quantitative study of the costs that you cite has been widely questioned.

There are some simple truths when it comes to the value of regulations. Standards and safeguards make life in America better. They don’t just help people, they ensure a healthy economy. A strong system of regulatory protections works for the public by making certain wealthy corporate interests behave responsibly. We’ve seen the results when industry is left to police itself. These safeguards put people, not corporations, first.