The $1.75 Trillion Lie

A 2010 study commissioned by 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 fails 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 today’s regulatory environment. The remainder of it is filled with nonexistent rules and other phantoms—as is the flawed 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.