Five Guiding Thoughts for Regulatory Reform in the Next Administration: It's Time to Move Past Vague Platitudes

By Batkins, Sam; Brannon, Ike | Regulation, Winter 2016 | Go to article overview

Five Guiding Thoughts for Regulatory Reform in the Next Administration: It's Time to Move Past Vague Platitudes


Batkins, Sam, Brannon, Ike, Regulation


Political candidates are fond of giving lip service to the idea of fixing the regulatory climate that costs businesses and consumers billions of dollars a year. However, wise campaigns invariably avoid providing any substantive details on how to improve the existing regulatory apparatus beyond reciting a few vague platitudes, most of which sound eminently reasonable but would do nothing to improve the status quo.

Avoiding specifics in this arena (and all other areas of policy arcana for that matter) is probably a wise political move for any presidential campaign, but a lack of specificity means that each new administration has no mandate to reform the regulatory apparatus. What's more, such reform is difficult to do on the fly: after the busy task of issuing and approving regulations has already begun, an administration intent on imposing limits on the regulatory state invariably gets bogged down fighting the daily battles and does not engage in a new war over the issue. Without a reform plan that's ready to go from the beginning, it becomes practically impossible to achieve meaningful changes in how we do regulatory policy in the United States.

And to be sure, we need to reform the system: U.S. regulations impose costs of at least $1 trillion on the U.S. economy and their effects on economic activity are inexorably growing. The power of the executive branch agencies to ignore the express will of Congress and pursue an independent regulatory agenda is a troubling situation, and we need to do more to impose additional checks on the system.

What should the next administration do to improve the issuance and oversight of regulations? We want to provide a few organizing principles upon which a new administration could begin to change the regulatory process.

REPEALING REGULATIONS IS OVERRATED

Many politicians like to frame regulatory reform as consisting of a systematic review of existing regulations to determine which cannot survive an honest cost-benefit review and then repeal those that won't. Although there are myriad regulations currently in place that would not pass such a test, rolling back regulations that companies have already largely complied with will accomplish little.

The problem is one of sunk costs: once companies have spent money to reduce emissions or improve workplace safety, undoing those requirements won't save them much money. In fact, a regulatory rollback likely would make those firms worse off by allowing new competitors to compete against them, operating with a lower cost structure because of the repealed regulations.

For example, during the presidential campaign, Donald Trump declared his intention to shelve the Obama administration's Mercury and Air Toxics rule, one of the costliest regulations issued by the president's Environmental Protection Agency. However, there are minimal savings to be had from its repeal at this stage: companies have already responded to it by dismantling a multitude of coal plants, and those will not return regardless of future regulations. What's more, as long as natural gas remains plentiful, it will continue to be more cost-effective to burn gas rather than coal to produce electricity; even shuttered coal plants that could be turned on tomorrow would likely remain shuttered if the next president were to repeal the rule.

[ILLUSTRATION OMITTED]

There are some exceptions to this. For instance, occupational licensing at the state level has expanded greatly over the last few decades, but many of those requirements do little to improve public safety but much to impede the entrance of potential competitors. The current Council of Economic Advisers has noted that these impediments are a significant cost to society in the form of higher prices for consumers and lower wages for workers not in the protected guilds. Repealing these rules would definitely benefit the economy, but would require preemptive federal deregulation or active state involvement. …

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