Congressional regulatory reformers recently caught criticism from advocacy groups for introducing legislation that would require federal regulatory agencies to analyze the “indirect effects” of proposed regulations. The only thing I’d criticize the reformers for is poor word choice.
The very term “indirect effects” suggests that they’re talking about something theoretical, inconsequential, and unimportant to the average citizen. But to economists, the indirect effects of a regulation are often the effects that touch the average citizen most directly.
Consider airport security, for example. The Department of Homeland Security (DHS) recently sought public comment on its decision to deploy Advanced Imaging Technology scanners instead of metal detectors at airports. The direct costs of this decision are the extra cost of the new machines, the electricity to run them, and the personnel to staff them – which airline passengers pay for via the taxes and fees on airline tickets. Those are pretty obvious costs, and DHS dutifully toted up these costs in its analysis of its proposed rule.
Less obvious but potentially more important are the other, indirect costs associated with airport security. Passengers who decline to walk through the new machines will receive additional pat-downs. This involves a cost in terms of time (which DHS acknowledges) and potentially diminished privacy and human dignity (which DHS does not discuss). The now-classic phrase “Don’t touch my junk” aptly summarizes one passenger’s reaction to an indirect effect of security regulation that touches passengers quite directly.
But that does not exhaust the list of significant, predictable, indirect effects associated with airport security regulation. The increased delays associated with enhanced, post-9/11 security measures prompted some travelers to substitute driving for flying on short trips. An article by Garrick Blalock, Vrinda Kadiyali, and Daniel H. Simon published in the November 2007 Journal of Law & Economics estimates that post-9/11 security measures cost the airline industry $1.1 billion in lost revenue in the fourth quarter of 2002. Driving is also riskier than flying. Blalock et. al. estimated that the security measures were associated with 129 additional highway deaths in the fourth quarter of 2002.
I’m all for making air travel as safe as possible, but I’d like to see it done smartly, with a minimum of hassle and a maximum of respect for the flying public who pays the bills. A full accounting of the indirect effects of airport security might just prompt policymakers to consider whether they are pursuing regulatory goals in the most sensible way possible.
Unfortunately, airport security is not an isolated example. Data from the Mercatus Center’s Regulatory Report Card reveal that for about 40 percent of the major regulations proposed by executive branch agencies between 2008 and 2012, the agencies failed to conduct any substantial analysis of costs that stem from the proposed regulation’s effects on prices or on human behavior – two classic types of indirect effects.
This won’t do. Telling federal agencies they do not need to understand the indirect effects of regulation is telling them they should proceed in willful ignorance of the effects of their decisions on real people. The reformers have a good idea here – even if it has a misleadingly boring name.