Treasury Department Says the Economist Is Getting It Wrong on Regulation

Moneybox
A blog about business and economics.
Feb. 22 2012 3:51 PM

Treasury Department Says the Economist Is Getting It Wrong on Regulation

I recently noted some problems with the Economist's specific claim that the Obama administration is doing too much to prevent companies from dumping particulate emissions into the atmosphere, and Assistant Treasury Secretary Jan Eberly has penned a blog post taking issue with the general claim that the overall regulatory environment has worsened under Obama. She observes that they relied on a study of "regulatory quality" and then just assumed that quality is identical with stringency of rules:

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 U.S. index has not strayed from its 95 percent 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 nonevent.
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Something I find frustrating about this conversation is the presumption that there's some kind of lump of regulation that's either too strict or not strict enough, too complicated or insufficiently detailed. It's perfectly consistent to think that we overregulate who is allowed to cut hair for money while underregulating air pollution.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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