“A Regulatory Fresh Start”
By Patrick McLaughlin, Matthew D. Mitchell, and Adam Thierer, courtesy of the Mercatus Center
For government regulations to serve the public good, it is essential that they be reviewed occasionally to ensure they are cost effective and not counterproductive. New legislation introduced in Congress last week proposes a formal way to do just that. It’s exactly the sort of “fresh start” we need to ensure that regulations make sense and serve the public.
The new bill, the Pandemic Preparedness, Response, and Recovery Act (PPRRA), S. 4708, proposes a mechanism to help Congress repeal or modify regulations “that have impeded our nation’s ability to rapidly respond to the coronavirus pandemic and/or that would impede a future response.” The PPRRA creates a commission and a unique legislative process to accomplish this goal.
Time to Get Regulatory Accumulation under Control
The authors of the PPRRA note that regulatory accumulation has become a serious problem in the United States, with the Code of Federal Regulations now weighing in at over 180,000 pages of rules, “many of which may be outdated, no longer needed, or duplicative.” Regulatory scholars have thoroughly documented just how serious this problem is.
A study of US federal regulatory accumulation eloquently articulated the difficulty for analysts and policymakers, noting that “new rules are [placed] on top of existing reporting, accounting, and underwriting requirements,” and that “for each new regulation added to the existing pile, there is a greater possibility for interaction, for inefficient company resource allocation, and for reduced ability to invest in innovation. The negative effect on [the economy] of regulatory accumulation actually compounds on itself for every additional regulation added to the pile.”
Subsequent studies have put some numbers on that compounding negative effect. A study recently published in the Review of Economic Dynamics found that regulatory accumulation slowed economic growth by approximately 0.8 percentage points annually over the roughly three decades covered by their data—with the net effect that the economy was 25 percent smaller at the end of the period studied than it could have been, had regulatory accumulation not occurred.
Research has also shown that the burden of regulatory accumulation is not borne simply by businesses. The costs of regulatory compliance inevitably lead to increases in consumer prices, often falling disproportionately on low-income households. Low-income households tend to spend a larger proportion of their income on those same goods that tend to be highly regulated—goods such as electricity, telephone services, and gasoline. Since those goods are highly regulated, resulting in higher prices for consumers of those goods, regulatory accumulation’s effect on consumer prices resembles a regressive sales tax.
Regulatory accumulation can also increase income inequality. Some regulations, such as licensing or education requirements, can make entry into a market more difficult. These regulations corral lower-skilled workers into lower-paying, less regulated fields or force them to operate illegally and incur the higher costs of doing so. If entry regulations require expensive education, testing, and fees, workers may choose instead to accept jobs that pay less and don’t take full advantage of their skills.
The PPRRA notes that unneeded or inefficient regulation is “particularly problematic as United States employers, workers, and households continue to respond to and seek to recover from” the coronavirus pandemic. Importantly, the bill notes that many such rules were suspended or relaxed following the outbreak. Accordingly, the measure proposes a “timely and prioritized review of existing regulations to identify those that can and should be modified, consolidated, harmonized, or repealed.”
Specifically, the measure proposes a Pandemic Preparedness, Response, and Recovery Commission led by nine experts who will “evaluate and provide recommendations for modification, consolidation, harmonization, or repeal of covered regulations, while reducing compliance costs, encouraging growth and innovation, improving competitiveness, and protecting public health, safety, and welfare.” The bill says that the chair of the commission should be “an individual with expertise and experience in rulemaking, such as past Administrators of the Office of Information and Regulatory Affairs, past chairs of the Administrative Conference of the United States, and other individuals with similar expertise and experience in rulemaking affairs and the administration of regulatory reviews.”
The commission will seek public comment on various rules and also convene expert focus groups to better inform its work. The commission will then “develop a set of covered regulations to modify, consolidate, harmonize, or repeal, with input from each appropriate issuing agency involved, to be submitted to Congress for an up-or-down vote, with the goal of eliminating as many of the impediments described in this section as is reasonably possible.”
Those affected by the commission’s review will be given a chance to provide input into the reform process and defend their positions. The commission’s final report is due to Congress 90 days after the formation of the commission. Congress then has 60 days to consider the measure, and once the measure is up for consideration, no amendments or points of order can be offered.
The Mercatus Model: The Fresh Start Initiative
In many ways, the PPRRA follows the recommendations we laid out in April in “A Fresh Start: How to Address Regulations Suspended during the Coronavirus Crisis.” That report discussed the problem of regulatory accumulation, the roadblocks to reform, and a potential way around these roadblocks, based on the successful Base Realignment and Closure (BRAC) commissions established in the waning days of the Cold War.
The BRAC reforms are instructive because obsolete military spending shares the same political calculus as regulatory accumulation. In both cases, the public at large would benefit from reform, and in both cases, special interests are able to maintain the status quo. Like obsolete military installations, many regulations persist in spite of their public costs because they benefit a small number of highly organized special interests. Being few in number, these interests can more easily organize than the broad public that bears the cost of bad policy. And unlike most members of the public, who have no reason to know about particular policies, these special interests are extremely well informed about the policies from which they benefit.
This simple dynamic of diffuse costs and concentrated benefits allowed parochial interests to block the closure of obsolete bases for decades. This logjam was broken by BRAC. Over the course of five successive rounds of BRAC, 350 obsolete bases were closed. In our brief, we identified four key elements to the reform and how they might apply to regulatory reform:
- In forming the BRAC commission, policymakers were able to cast a conspicuous vote in favor of the general interest. Likewise, in establishing a Fresh Start Initiative, or the commission that would be created by PPRRA, members of Congress would be able to publicly commit to eliminating useless or counterproductive rules.
- The BRAC commission itself decided which particular bases were to be closed. This gave members of Congress some “cover” from the special interests who were surely upset by the removal of their privilege. Similarly, the PPRRA commission itself would study the suspended regulations and decide which should be reinstated, which should be removed, and which should be modified; Congress would not be directly responsible for deciding whether to remove, modify, or maintain any particular regulations, though they would be accountable for the entire package.
- With BRAC, it was difficult for Congress to ignore or countermand the commission’s recommendations. In fact, those recommendations took effect automatically unless Congress and the president acted to override them. Similarly, we believe that successful regulatory reform will be more likely if it is difficult for Congress to countermand the review commission’s recommendations. With PPRRA, Congress must take up the commission’s reform bill without amendment (this is similar to another successful reform, “fast-track trade negotiation”).
- Finally, it is helpful if the institution’s progress toward the general goals is measured and frequently reported to the public. Here, Mercatus’s RegData project can serve as a useful benchmark for the level of regulation.
State-Based Fresh Start Efforts
Regulatory reform should be a bipartisan cause. “Fresh start” efforts aren’t about gutting government but rather about making government more efficient and able to serve the needs of the country. By almost all accounts, the response to the COVID crisis among federal, state, and local agencies has been problematic. Many people, groups, and businesses grew so frustrated with government responses (or lack thereof) that they started actively evading many regulations just to get simple tasks done, such as helping to address shortages of face masks and hand sanitizers.
Policymakers need a process to refresh or reset government rules occasionally, and this process begins by taking steps like those proposed in the PPRRA to reevaluate what works and what doesn’t. The good news is that some states are also expressing interest in taking a fresh look at accumulated regulations that undermine public health and welfare.
For example, in late June, Idaho Gov. Brad Little signed an executive order on Regulatory Relief to Support Economic Recovery meant to address the 150-plus regulations that Idaho state agencies waived in response to the COVID-19 outbreak. The governor’s order eliminates the presumption that the affected rules are in the public interest by stating, “If waiving these regulations was deemed necessary to improve public health and welfare during the declared emergency, there is a rebuttable presumption that the regulations are unnecessary or counterproductive outside of the declared emergency.”
This is the same presumption driving the new federal bill that was just introduced. In both cases, the measures make it clear that if government officials viewed an existing rule as such a hindrance to response efforts during a serious public health emergency that they waived it, then the rule may not be right for normal conditions either. That is the sort of rule that should be up for consideration as part of any “fresh start” effort.
Pennsylvania also has a new bill in the PA House (H.B. 2779) that creates a commission to review regulations suspended or loosened by the state in the wake of the COVID lockdowns and to determine whether those administrative flexibilities should be maintained.
These efforts in both Idaho and Pennsylvania show how “fresh start” efforts can take different forms. The crucial thing is for policymakers to establish a process whereby rules are addressed on a timely basis. Toward that end, another Mercatus publication presents a state-by-state guide to how reforms can be implemented.
There are no silver-bullet solutions that can magically improve the quality of government or the administration of specific programs. Nonetheless, “fresh start” efforts offer a commonsense approach to revisiting and reforming laws and regulations that may undermining public health, consumer choices, or economic opportunity.
Dr. Patrick A. McLaughlin is the Director of Policy Analytics and a Senior Research Fellow at the Mercatus Center at George Mason University. His research focuses primarily on regulations and the regulatory process. Matthew D. Mitchell is a Senior Research Fellow and Director of the Equity Initiative at the Mercatus Center at George Mason University. He is also an adjunct professor of economics at Mason. Adam Thierer is a Senior Research Fellow at the Mercatus Center at George Mason University. He specializes in innovation, entrepreneurialism, Internet, and free-speech issues, with a particular focus on the public policy concerns surrounding emerging technologies.