ARSA shares Important Macro Findings about OMB and FAA Micro Analyses which may require Adjustments

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Article: Study Finds Regulations Make America Poorer

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The interplay between economics and safety is a complex calculus. Marginal gains in safety impact the businesses regulated. OMB established and FAA follows the dictates of Circular 94 a thorough methodology which defines how the proposed regulatory action will incur costs. Once calculated, the Benefit versus Cost ratio is used to determine whether the action being considered merits approval. Those micro analyses have been vetted by experts and when reviewed on appeals, the conclusions have been sustained.

The insights that emanate from ARSA are frequently chronicled here. The above linked article comes from Christian Klein, the Association’s Executive Vice President. He relies on an impressive study from the Center for Regulatory Studies and their commentary is based on June 2013 issue of The Journal of Economic Growth titled, “Federal Regulation and Aggregate Economic Growth.” The authors, Dawson and Seater, made the following telling statement:

“Although micro-economists have analyzed both the causes and effects of regulation for decades, macroeconomists have joined the discussion only much      more recently, with a number of empirical studies suggesting that regulation has significant macroeconomic effects.”

The work of these scholars can be reviewed at the CRS site, but the conclusions are well summarized in the below table:

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That is an impressive graphic. The macro lessons must be translated to micro levels in order for OMB and FAA staff to try to be applied on individual assessments. The Dawson and Seater paper makes the case that the conjoint micro analyses have resulted in consequences on a higher economic level. Does that mean, for example, the incremental measurements for an individual case need to be more finely calibrated or should the micro economists need to reassess the models’ projections of their consequences? Are there secondary links within an aviation segment which multiply escalation of costs? Are, for example, records more pernicious sources of costs because they involve allocation of labor expenses and detraction of the individuals from the work the record keeper would otherwise contribute to the company’s safety mission.

Mr. Klein has identified a significant macro economical learning and now that message needs to be widely reviewed. The collective responses should be used to revise the OMB Circular 94 sooner rather than later. The balance between safety and economics is exceedingly fragile.

If the tools used to assess a proposed rule are ignoring impacts which are, as ARSA characterize the study’s conclusions, “fiscally unsustainable,” then the BCA test must be revised.

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