Fox's Attack On Regulations Relies On Widely Discredited Cost Estimate
Published
As part of a weeklong series helping to push an anti-regulatory agenda, Fox News is citing a discredited estimate that regulations cost businesses on average $161,000 each year. The estimate, which comes from a report prepared by outside researchers for the Small Business Administration, has been criticized for using a flawed research design, cherry-picking the highest cost estimates, and relying on “crude” data.
Fox News: Small Business Administration Says That Regulations Cost Businesses Average Of $161K Per Year
FoxNews.com: “The U.S. Small Business Administration Reports That The Average Regulatory Cost Burden On U.S. Firms Of Any Size Was Approximately $161,000.” FoxNews.com cited the Small Business Administration to claim that “the average regulatory cost burden on U.S. firms of any size was approximately $161,000”:
The U.S. Small Business Administration reports that the average regulatory cost burden on U.S. firms of any size was approximately $161,000, not including costs passed on to the consumers for the goods and services rendered.
Manufacturing is the industry hit the hardest by regulatory costs, with per-firm costs at $688,944. But all small businesses pay a steep price -- $10,585 for every employee. [FoxNews.com, 9/12/11]
America's Newsroom: “Yearly Cost To Businesses: $161K.” Fox News anchor Martha MacCallum said that “the average cost to businesses” of regulatory compliance “will be $161,000 a year,” as the following graphic was displayed:
[Fox News, America's Newsroom, 9/12/11]
Fox News' Neil Cavuto: Regulations Cause A "$161,000 Burden On Average Businesses Every Year." Fox News host Neil Cavuto said that “the federal government issues, as I said, at least 10 new regulations a day. Add it up, $161,000 burden on average businesses every year - every year.” [Fox News, Your World with Neil Cavuto, 9/12/11]
Fox's Bret Baier: “According To The Small Business Administration, These Regulations Place A Burden Of $161,000 On The Average Business In America Each Year.” Fox anchor Bret Baier said, “According to the Small Business Administration, these regulations place a burden of $161,000 on the average business in America each year.” [Fox News, Special Report with Bret Baier, 9/12/11]
Fox's David Asman: “Small Firms Bear A Regulatory Cost Of $10,585 Per Employee. This Thing Is Enormously Expensive.” Fox Business host David Asman cited the Small Business Administration study and said that small businesses “bear a regulatory cost of $10,585 per employee. This thing is enormously expensive. Regulations, I would say in some ways, can be more expensive than taxes.” The show also displayed the following graphic:
[Fox Business, America's Nightly Scoreboard, 9/13/11]
But The SBA Made Clear That The Outside Study Was Not Intended To Represent SBA Views
Crain & Crain Study: Average Compliance Cost For Business Is $161,000. The Fox News figures mirror those reported in a 2010 study conducted for the Small Business Administration by Nicole V. Crain and W. Mark Crain of Lafayette College, who argued that “considering all U.S. businesses and all federal regulations, the cost burden on the typical U.S. firm is about $161,000.” Crain and Crain also argued:
The burden on the manufacturing sector ($688,944 per manufacturing firm) exceeds the burden on the second most costly sector (the “other” category at $188,704 per firm) by a factor of 3.6.
[...]
Considering first the aggregate costs for all federal regulations and all business sectors (displayed as the last category in Table 16), regulations cost small firms an estimated $10,585 per employee.40[The Impact of Regulatory Costs on Small Firms, September 2010]
SBA: “The Final Conclusions Of The Report Do Not Necessarily Reflect The Views Of” The Small Business Administration. The SBA Office of Advocacy issued the following disclaimer when releasing the Crain & Crain report:
This report was developed under a contract with the Small Business Administration, Office of Advocacy, and contains information and analysis that was reviewed and edited by officials of the Office of Advocacy. However, the final conclusions of the report do not necessarily reflect the views of the Office of Advocacy. [The Impact of Regulatory Costs on Small Firms, September 2010]
And The Study Has Been Criticized For Its Flawed Methodology And For Cherry-Picking Data
CRS: Critics Demonstrated That Researchers Cherry-Picked Data, Ignored Economic Benefits Of Regulations, And Used “Inherently Flawed” Methodology. The Congressional Research Service analyzed the Crain and Crain study and noted that critics -- including one of the authors whose index was used in the paper -- have pointed out that the study relied on outdated data, did not take into account the economic benefits of regulations, used invalid measures, utilized what OMB called an “inherently flawed” approach, and cherry-picked the highest cost estimates of regulations. Crain and Crain themselves made clear that their report was “not meant to be a decision-making tool for lawmakers or federal regulatory agencies.” [Congressional Research Service, 4/6/11]
CPR: Study Used “Flimsy” And “Crude” Data. The Center for Progressive Reform -- in an analysis cited by the Congressional Research Service -- criticized the study's lack of transparency and condemned Crain and Crain for using “crude” data:
The report's estimate of “economic regulatory” costs--financial regulations, for example--which account for 70 percent of the total regulatory costs, is not based on actual cost estimates. Instead, this estimate is based on the results of public opinion polling concerning the business climate of countries that has been collected in a World Bank report. The authors of the World Bank report warn that its results should not be used for exactly the type of extrapolations made by Crain and Crain, because their underlying data are too crude. Crain and Crain nevertheless enter the World Bank data into a formula, which they appear to have created out of whole cloth, that purports to describe a relationship between a country's regulatory stringency and its Gross Domestic Product (GDP). OMB has repeatedly warned against trying to reduce the complex relationship between these two concepts to such simplistic terms, yet this is precisely what Crain and Crain do. [Center for Progressive Reform, February 2011]
EPI: Report's Methodology Is So Flawed That It “Should Not Be Used” “As A Valid Measure Of The Costs Of Regulation.” The Economic Policy Institute reviewed the Crain and Crain study and concluded that “the original Crain and Crain results are driven by a combination of poor data, and a flawed empirical approach” and that the report's estimated cost of regulations “should not be used either as a valid measure of the costs of regulation or as a guide for policy.” [Economic Policy Institute, 7/19/11]
Fox News Claimed Regulations Are Preventing Businesses From Hiring
Fox Claims “Business Owners Say New Regulations” Are “Hindering” Plans To Hire. The FoxNews.com article also reported:
From financial services to farming, plumbing to computer repair, business owners say new regulations have them so bogged down in compliance that it is hindering their ability to plan and expand for the coming years. [FoxNews.com, 9/12/11]