If we were to design a regulatory framework from scratch, for any sector of a modern economy, it would make no sense to ignore regulatory costs and benefits.
It would make even less sense to implement new rules and regulations and then worry about their impact.
But that’s pretty much what we do in the U.S., where we allow politics to trump common sense.
The 2008 financial crisis is the perfect example. For decades the industry has been as regulated as any on the planet, and some of these rules clearly contributed to the crisis.
But we still allowed politicians to blame the crisis on the free market and then institute more of the same regulations that led to the meltdown. The overall reach of federal regulators goes well beyond the financial sector, though, and nobody should be surprised that the economy is just muddling along.
How bad is the regulatory environment?
The ninth annual Red Tape Rising report gives a great overview; it tracks the volume and, to the extent possible, the cost of federal regulations.
(Two of my colleagues, James Gattuso and Diane Katz hosted a Heritage Foundation event to introduce the report. Anyone can watch online.)
Believe it or not, the federal government doesn’t officially track regulatory costs as it does with things like taxes and spending.
But executive branch agencies that promulgate “major rules”—defined as those expected to cost the economy $100 million or more annually—provide some cost estimates for the rules they issue. These agencies estimated that their major rules from 2014 will cost the economy approximately $80 billion per year.
These are the regulators’ cost figures, though, so they probably underestimate the true cost. Estimates from various independent sources put these costs from hundreds of billions of dollars to over $2 trillion annually.
Still, if we simply stick to the agency provided estimates, the $80 billion during 2014 is more than double the comparable amount during the George W. Bush administration. (And contrary to popular belief, Bush was not a deregulator.)
Regardless, this cost figure is only one aspect of the regulatory burden. The volume of regulations—both on an annual and cumulative basis—adds to the overall complexity and difficulty with obeying federal laws.
And the sheer regulatory volume undoubtedly increased during 2014.
Across all categories, 27 new major rules were promulgated in 2014. These rules pushed the total for the Obama administration’s first six years to 184, more than double the 76 major rules from the first six years of the Bush administration.
In total, according to the Government Accountability Office, federal regulators issued 2,400 new rules during 2014.
The bulk of the rules promulgated during Obama’s tenure are related to the 2010 Dodd-Frank Act, an 850-page bill that targeted every aspect of the financial industry. To date, Dodd-Frank has spawned almost 20,000 pages of regulations, and only about half its required rulemakings were complete by the end of 2014.
In fact, almost 25 percent of Dodd-Frank’s required rules haven’t even been proposed yet.
But it’s not all Dodd-Frank. The Department of Energy ranked second in terms of the most major rules, and it’s hard to find a federal agency that doesn’t issue new regulations.
Here are just a few highlights from 2014.
- The DOE issued six new efficiency mandates that cover residential furnace fans, walk-in coolers and freezers, commercial and industrial electric motors, commercial refrigeration equipment, external power supplies (such as cellphone chargers), and metal halide lamp fixtures.
- The EPA issued new Tier 3 Motor Vehicle Emission and Fuel Standards. These new regulations require, among other directives, that refiners reduce sulfur in gasoline from 30 parts per million to 10 ppm. Over the past decade, the industry has invested roughly $9 billion to reduce the sulfur content from 300 ppm to 30 ppm.
- The National Highway Traffic Safety Administration issued new Motor Vehicle Safety Standards for Rear Visibility. This rule mandates greater rear visibility for all passenger cars, trucks, and other vehicles, and the NHTSA expects this mandate will be met through near-universal use of rear camera video systems.
- The Department of Health and Human Services, jointly with the Food and Drug Administration, issued new food labeling rules for vending machines. All vending machine operators who own/operate 20 or more machines are now required to post labels on the vending machines to show the number of calories in each food item. This rule was implemented even though caloric counts are already required on the food packaging.
The new report explains these and all of the other major rules from 2014, and it’s a great resource for long-term trends in regulation. The report also recommends several ways to improve the current system, such as to require congressional approval for all new major regulations.
As it stands now, Congress passes a law and an independent federal agency implements its own rules. These agencies are not accountable to voters for any sort of results, and the process allows Congress to avoid explicit approval of the regulatory burden.
Congress, not regulators, should make the laws and be accountable to the American people for the results. The Regulations from the Executive in Need of Scrutiny Act, approved by the House in August 2013, is a great example of how we can get much closer to that kind of accountability.
Another sensible reform would be to require economic impact assessments of proposed regulation. It makes no sense for Congress to vote on bills that authorize mandates and restrictions without an actual analysis of the potential costs and benefits, but that’s exactly what they do.
Instead, why not have an independent agency within the legislative branch review major regulatory changes? That’s what the Congressional Budget Office does for spending measures before the bills reach the floor of Congress for a vote.
There’s no reason the CBO, or some other agency, such as the GAO, couldn’t perform the analysis.
It would also be worthwhile to consider following Canada’s recent example. In 2012, following recommendations from the government’s Red Tape Reduction Commission, Canada passed law C-21. The law requires federal agencies and departments to:
- offset the cost of any new administrative burden introduced as a result of a regulatory change by removing an equal amount of administrative burden from the existing regulations; and
- remove an existing regulation each time a new regulation that institutes a new administrative burden is enacted.
In the meantime, we’re stuck with the system we have and there are many more regulations on the way during the last two years of the Obama administration.
Most of the news has focused on the unfinished Dodd-Frank rules and the ever-changing Affordable Care Act regulations, but red tape has been rising across all sectors of our economy for decades.
The latest Red Tape Rising report makes this onslaught clear and explains the key shortcomings of the current regulatory process.
Anyone interested in securing economic freedom and rolling back the ever-growing federal control over our lives should check out the report.
