How Panic Policymaking Can Negatively Impact All Of Us

By John Dunham, John Dunham & Associates   Many government policies are developed and implemented based on little data or understanding of how they impact businesses or consumers. Over the years, my firm has examined hundreds of policy proposals, documenting how they impact not only the economy, but consumers, businesses, and the general public. More often than not, we find that even the most well-intentioned regulations have serious and costly unintended consequences, many of which are far worse than the problem that the regulation was initially supposed to address.   We recently conducted a study on the economic costs and benefits of new rules on the drilling of oil and natural gas wells being proposed by the US Department of the Interior. These rules, while intended to ensure that the environmental impact of drilling oil and natural gas wells would be minimized, are an excellent example of the type of “panic policymaking,” that we often see. In fact, much of the regulatory burden coming out of Washington DC and state capitals is due to panic policymaking, which is defined in the literature as the speedy creation of new laws and regulations or new duties for governmental and private institutions in a situation of sudden, unreasoning, and excessive fear or anger.   The knee-jerk proposal would cost the country between US $1.499 billion and $1.615 billion annually for a redundant federal regulation that’s supposed to address an issue already successfully being handled by state regulators.   Many government policies are put in place based on limited information, research or knowledge. The rule proposed by the federal government would lead to an increase of about $250,000 in the cost of drilling an oil or natural gas well. Most wells are drilled by independent producers, the majority of which are small businesses. Higher costs to independent producers will result in less domestic oil and natural gas production and potentially higher energy costs throughout the economy.   Were there an actual problem being addressed by the proposed rules, then the $250,000 per well cost might be justified; however, in its analysis of the rules, the government could not document any actual level or cases of environmental harm that the new requirements might actually eliminate. In fact, in a cursory analysis of the requirements, the Bureau of Land Management suggested that it would likely be the case that the proposal would have no net social benefit. Rather, than taking the time to understand how oil and natural gas wells are drilled, and how companies already deal with environmental issues, the Bureau of Land Management is engaging in panic policymaking and reacting to unsupported claims and unwarranted hysteria on the part of people who do not even live near the well sites in question.   This is due to the fact that there has been a lot of misinformation presented in the media and popular press that would suggest that the drilling of oil and natural gas wells has led to environmental problems. But these claims simply do not stand up to actual analysis. Unfortunately, policymakers reacting to panic or wishing to err on the side of caution often consider the regulatory process as a costless way to gain support or generate points with a specific interest group. But as our analysis of the actual data shows, uninformed policy decisions impact real people.   Not only will they cost jobs in the energy industry throughout the country, but they will reduce the overall level of domestic oil and natural gas production.   It’s clear from this analysis that from both an economic and practical viewpoint, the draconian rule proposed by the Department of the Interior is not sound public policy. If the rule goes into effect, the general public should prepare to bear the cost.   John Dunham is a partner at John Dunham and Associates, an economic research firm based in Washington, D.C. and Brooklyn, N.Y.