The (Limited?) Opportunity for Regulatory Renewal

The never-ending debate about government regulations has recently inherited an intriguing level of urgency with the economy stalled and both major political parties targeting regulations as potential impediments to growth.

The Obama administration announced plans to remove regulations that it estimated would save businesses $5 billion over five years. In an all too predictable partisan response, the Chamber of Commerce decried these actions as too little, too late (can it really be too late to save any money?), and House Majority Leader Eric Cantor scoffed calling the actions “underwhelming.” Republicans have their own program to reduce regulations that is now comfortably couched in the language of job creation. In less divisive times, these two efforts would produce the seedlings of compromise and cooperation. With today’s bitter and poisoned political environment, the rhetoric gives the public another spectacle of two sides talking past each other as they ostensibly pursue the same goals.

In the middle of the latest wrangling, I discovered an eye-opening survey that seems to undercut the conventional wisdom that regulations choke American business and cause under-performance. In its latest Economic Policy Survey (August, 2011), the National Association for Business Economics (NABE) found:

“…80 percent of survey respondents felt that the current regulatory environment was ‘good’ for American businesses and the overall economy.”

A skeptic might assume that the 250 NABE member panelists represent a fortuitous collection of (politically) like-minded individuals. However, consider their differences of opinion on fiscal policy:

“Survey respondents split almost evenly on whether current fiscal policy at the time the survey was conducted was too stimulative, too restrictive, or just about right. At the same time, about half of survey respondents indicated they would prefer fiscal policy to be more restrictive over the next two years, while a large majority said it expects fiscal policy to be more restrictive.

Most panelists believe that Congress should attempt to reduce the federal budget deficit through a combination of spending cuts and tax increases. More than half (56.1%) favor reducing the deficit only or mostly through spending cuts rather than only or mostly through tax increases (6.8%). The remaining 37.1% favor equal parts spending cuts and tax increases.”

In other words, these members likely represent a reasonable mix of political persuasions. Yet, somehow, they largely agree in their favorable assessment on the regulatory environment for business. Perhaps this apparent harmony is not so surprising when considering the existing language of Federal regulation. In January of this year, the Obama administration issued an executive order supplementing a related 1993 executive order (12866) that required regulations provide benefits in excess of costs and required regulations only get implemented when other alternatives, like economic incentives, are not available…

“Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science. It must allow for public participation and an open exchange of ideas. It must promote predictability and reduce uncertainty. It must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends. It must take into account benefits and costs, both quantitative and qualitative. It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand. It must measure, and seek to improve, the actual results of regulatory requirements.”
Executive Order 13563 of January 18, 2011: Improving Regulation and Regulatory Review

This Executive Order also seeks to reduce the burden of redundant rules and to preserve public choice:

“Some sectors and industries face a significant number of regulatory requirements, some of which may be redundant, inconsistent, or overlapping. Greater coordination across agencies could reduce these requirements, thus reducing costs and simplifying and harmonizing rules…

…Where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public.”

Taken together, these guidelines sound like uncontroversial principles except that the devil is in the interpretation. For example, the benefits of a regulation may accrue to a party that does not pay the cost of the regulation – which of course implies that before the regulation the balance for benefit/cost was tipped in reverse. Moreover, politicking will always impede the necessary processes to maintain the integrity of these principles.

In general, opposition to regulations comes from three broad camps of people:

  1. Those who fall decidedly on the cost side of the benefit/cost balance.
  2. Those who disagree with the calculations of benefits and costs.
  3. Those who think any and all regulations are bad.

I do not sympathize with the first group where the general public is the primary beneficiary. I do not mind having a debate with those who fall in the second group. I categorically ignore the ideologues in the third group. Politicking asserts itself on behalf of all three groups (and their opponents)…and politicking will certainly distort ensuing efforts to eliminate unnecessary regulatory burdens.

If the NABE’s survey results are indeed generally indicative of the real burdens of regulation for business, the process to roll back regulations will tend to focus on a few, targeted, well-connected beneficiaries. Additionally, folks in the above groups 1 and/or 3 will opportunistically pretend to have a serious reason to play in group 2 and will further slow progress. Folks who benefited from regulations at the high cost to other parties will also put up a strong fight. It will be the ultimate, tragic irony to expend so much time and energy on so little in the name of savings and growth. After all, the ideals for “good” regulation have been in place since at least 1993; what revealing renewal has suddenly happened to clear the way for a proper realization of those ideals?

Be careful out there!

Full disclosure: no positions

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