While Congress has the right to legislate out of ignorance, the independent government agencies should not be allowed to do likewise. Yet that is precisely how they operate. Extending the executive branch requirement that independent agencies estimate the costs and benefits of proposed regulations is a common-sense reform that both parties have broached but neither has seen fit to implement. The far-reaching and complex mess that the implementation of Dodd-Frank has become proves to be a great argument for doing precisely that, and imposing a degree of accountability on the branches of government tasked with its enforcement.

Regulatory missteps | The enormity of what Dodd-Frank encompasses has made implementation extremely complex. The law charges 20 different federal agencies with oversight and regulatory authority, which to date have produced 120 regulations with a monetized cost or paperwork burden.

One result of the enormous scope of the legislation is that it has created numerous mistakes that various regulatory authorities had to go back and fix. Regulators have already published 66 corrections to previous regulations.

There have also been numerous missed deadlines during implementation. According to Davis Polk, a law firm that tracks Dodd-Frank implementation, there are 279 rulemaking deadlines in the law. Based on the most recent data, “175 (62.7%) have been missed and 104 (37.3%) have been met with finalized rules … while 128 (32.2%) rulemaking requirements have not yet been proposed.”

Dodd-Frank costs | Without oversight from the Office of Information and Regulatory Affairs, financial regulators have largely hidden or simply omitted the costs of financial reform. There have been some published estimates, but it took the D.C. Circuit Court of Appeals to vacate a Securities and Exchange Commission rule (Business Roundtable v. SEC) for failing to conduct a proper analysis. Other entities, such as the Consumer Financial Protection Bureau (CFPB), still rarely bother to monetize the effects of their rulemakings.

From compiling the relevant data published in the Federal Register, agencies calculated that the explicit societal cost of complying with Dodd-Frank is currently $15.4 billion and growing, with 58.3 million paperwork-burden-hours that employees of various financial services will have to spend to ensure compliance with the law. To provide some perspective, the newly created CFPB has already listed 39.5 million paperwork hours at an associated cost of $842 million, or $21.40 an hour. In previous research, we found that the median cost of complying with one hour of Dodd-Frank was roughly $100, with high-end costs approaching $400 (see “What Does an Hour of Regulatory Compliance Cost?” Summer 2012).

However, Dodd-Frank’s $15.4 billion estimate depends on the assumption that many of its paperwork requirements have no corresponding cost for businesses and consumers, which is obviously nonsense. For example, the Volcker rule would produce an estimated 6.5 million hours of paperwork, but no agency attempted to monetize this figure. Some regulators do engage in a back-of-the-envelope calculation by multiplying an average hourly wage rate and regulatory compliance hours, but many do not, in part because arriving at an acceptable value for an hourly wage rate is no small feat.

Various government agencies issued 42 regulations under Dodd-Frank that create paperwork burdens but did not quantify their cost to the economy. Together, those 42 rules impose 17.3 million hours of paperwork, or 30 percent of the law’s paperwork burden.

It may be difficult to come up with an opportunity cost for an hour of regulatory compliance, but regulators do accomplish this in other instances. If we look across the government regulatory bureaucracy we see that the value placed on an hour spent complying with a government regulation to be somewhere between $40 and $400 an hour. If we merely apply the average hourly compliance cost used by Dodd-Frank regulations that do monetize hours, we get $265 an hour; the upper-end total reflects the fact that wages tend to be higher in the industries most affected by Dodd-Frank. Multiplying that rate by 17.3 million hours gives us an additional $4.5 billion in compliance costs, for a total compliance cost of approximately $20 billion just for regulations already issued.

If that cost isn’t daunting enough, Davis Polk projects that nearly a third of the law is pending without any formal rulemaking yet introduced. Assuming the cost of compliance remains constant throughout the final third of implementation, this would yield “on paper” compliance costs of roughly $30 billion, with 86.1 million paperwork-burden-hours. In other words, financial reform would cost more than the nation of Estonia produces in a year, with a few billion dollars to spare.

Hiding costs | Failing to simply monetize paperwork hours is just one way that regulators conceal Dodd-Frank’s costs. Another tool is to pressure economists to omit relevant cost data. Two separate inspector general reports have highlighted instances in which policy personnel within the SEC and Commodities Futures Trading Commission pressured economists to omit compliance costs. One report concluded with the IG declaring that it was “troubled at the lack of available (and verified) data pertaining to compliance costs borne by the industry, at least at the proposed rulemaking stage.” Little has changed at those two agencies since the IG reports.

However, there are other avenues for determining the impact of major Dodd-Frank provisions than asking government regulators to make a good-faith estimate. Just as regulators fail to disclose cost data, regulated entities are more than willing to report what Dodd-Frank is doing to their bottom line.

We examined the recent 10‑k reports of six major financial companies (Bank of America, Wells Fargo, JPMorgan Chase, US Bancorp, PNC, and MetLife) and found that all of them contained estimated losses from Dodd-Frank compliance. Those six companies alone reported $3.8 billion in Dodd-Frank-related regulatory losses, mainly attributable to the Durbin Amendment’s new price controls on debit cards. The Federal Reserve did not bother with a cost estimate for the debit card regulation, only noting that it would impose 73,000 paperwork hours. While it’s easy to say that the amendment merely transfers money from banks to customers, it’s also worth investigating whether fewer people will be given (or use) debit cards and if we see deadweight losses as a result.

Reform baby steps | There are some nascent regulatory reform efforts afoot in academic circles and on Capitol Hill. Sen. Rob Portman (R‑Ohio) has reintroduced the “Independent Agency Regulatory Analysis Act” (S. 1173), which would require all independent agencies to conduct a comprehensive cost-benefit analysis and “design rules in the most cost-effective manner.” A similar bill was introduced in the Homeland Security and Government Reform Committee last year, but it never received a vote. Senator Portman’s legislation has two cosponsors, including Democrat Mark Warner, but prospects for passage appear remote.

Fortunately, promoters of regulatory transparency received a strong endorsement this summer from the Administrative Conference of the United States (ACUS). The group, which President Obama described as a “public-private partnership designed to make the government work better,” is also considered an independent federal agency tasked with issuing recommendations to federal agencies on how to improve procedures. It recently opined, “Each independent regulatory agency should develop and keep up to date written guidance regarding the preparation of benefit-cost and other types of analysis.”

In a surprise to no one, other independent federal agencies oppose this so-called “paralysis by analysis,” as if there are no competent economists at the SEC or Federal Reserve that could do such analysis. Although ACUS is now a strong ally of cost-benefit analysis (as is the president, ostensibly), Senate Democrats appear almost universally opposed to any new requirements on independent agencies.

Ignorance isn’t bliss | Neither the members of Congress nor the public had much of an idea of the implementation costs of Dodd-Frank when the bill was approaching final passage. The sad reality is that even today, as the regulations emanating from that legislation wind their way through the bureaucracy, we still have no clue what Dodd-Frank will truly cost the economy.

Legislating or governing in ignorance is not only a terrible way of running a government, it’s also unnecessary. Requiring all agencies to provide rigorous cost-benefit analyses of regulations would improve the rulemaking process and force agencies to be more diligent about minimizing their burdens on the economy.