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Treasury Notes

 Letter to the Editor: Assistant Secretary Eberly Responds to the Economist

By: Erika Gudmundson
2/21/2012

Assistant Secretary for Economic Policy Dr. Jan Eberly submitted to the Economist today the following letter to the editor:


Sirs:
 
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. 
 
Despite later acknowledging (page 28) that “the overall cost of regulation is unknown,” the cover and editorial state that regulation is too costly and growing more so. The only quantitative evidence cited for this claim is a study that, first of all, concludes with data from 2008.  It has nothing to say about regulation during the Obama Administration, though new regulations are one of the editors’ complaints. 
 
However, in defense of earlier Administrations and careful measurement, a closer look at the study shows that it confuses low regulatory quality (as measured by the World Bank) with regulatory stringency.  By this twist of definition, the study implies that Somalia, being virtually lawless, has the most stringent regulations in the world, explaining its poor economic performance, while those with the highest quality regulation, like the Netherlands and Canada, are interpreted to have the loosest regulation. Moreover, the same study implies that primary education is an even worse burden on the U.S. economy than regulation, reducing GDP by more than $3 trillion annually.
 
So what can we learn from the World Bank measure of regulatory quality?  Using their most recent data, from the beginning of the survey in 1996 to 2010, the US index has not strayed from its 95% confidence interval – put simply, it hasn’t changed. Using the underlying data from the article you cite, the regulatory deterioration emphasized by the Economist is simply a non-event.
 
We are sympathetic to the difficulties of measuring and assessing the effectiveness of regulation and its total impact; this is an important issue not to be minimized.  As the articles note, President Obama has moved to reduce and simplify outdated and complex regulations, while retaining and improving protections upon which our citizens rely.  The Administration continues to work with businesses, policy makers, and others to improve the quality and efficiency of the rules that guide and protect our citizens.  This being said, the editors’ blithe conclusions about the cost of regulation are below the standard of evidentiary rigor we have come to expect from the Economist and do not advance the discussion. 

Sincerely,

Dr. Jan Eberly
Assistant Secretary of the Treasury for Economic Policy
 

Erika Gudmundson is New Media Specialist at the Department of the Treasury.

Posted in:  Economic Policy
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