Pareto Policy Solutions, LLC

advancing innovation through smart regulation

Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

The Cumulative Burden of Regulation

Businesses large and small complain about the burden of regulation.  Small businesses owners consistently rank regulation as the top impediment to conducting business.  Nearly 75% of the CEOs of the nation’s largest companies say regulation is one of the top three cost pressures they face.

And now that Republicans have taken over both chambers of Congress, they promise to put regulatory reform near the top of their agenda in 2015. 

The underlying problem stems not from any particular regulation or even new regulatory programs (think Obamacare, or Dodd-Frank), but the rather nebulous issue of “cumulative burden”. 

Economist Michael Mandel of the Progressive Policy Institute likens the issuance of regulations to adding pebbles to a stream.  At some point, the flow of the stream is altered, yet no single pebble is to blame.

But it is hard to get a handle on “cumulative burden”.  We know regulations are issued in astonishing numbers (approximately 3400 final regulations are issued each year by federal agencies), that this number grows over time (in 1938, all federal regulations could fit into two volumes; today they take up 30+ feet of shelf space), and that compliance is becoming more complex (case in point, the tax code). 

Yet academic research suggests that regulation (posing hundreds of billions of dollars in annual cost) is not a major threat (at least not yet) to a $17 trillion dollar economy.  We also know that the benefits of at least some regulation greatly exceed the cost.  The Office of Management and Budget says that the monetized benefits of all major regulations issued in the past decade exceed, by a large margin, the monetized cost.

Of course, these are not mutually exclusive facts.  It is possible that regulation is largely beneficial, and that “cumulative burden” poses a real threat. 

But what is the problem specifically?  Is it trying to comply with numerous regulatory mandates that seem as challenging as solving Rubik’s Cube? Is it an avalanche of paperwork and red tape? How about regulatory agencies run amok? Or maybe it is the stifling of innovation?

Answering this question is critically important; the policy solution depends on the answer.  If the problem is red tape, then let’s revisit the 1980 Paperwork Reduction Act.  If the problem is a rogue agency, then Congress ought to conduct oversight and clip its wings.  If the problem is old regulations that no longer make sense in today’s world, let’s sunset them. If we simply cannot afford all of these regulations, let’s create a regulatory budget and force agencies to work within it.

Until the problem is defined through political consensus and leadership, the issue of “cumulative regulatory burden” will remain little more than a rallying cry. 

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