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.

Cutting Regulation without Sacrificing Public Protection

President Donald Trump wants to eliminate federal regulations. His January 30, 2017 executive order sets a target of “net zero” for the incremental cost of all new federal regulations in fiscal year 2017. And he has ordered regulators to eliminate two existing regulations for every new regulation (known as One In, Two Out, or OITO).

Critics are understandably worried that such de-regulation will lessen social benefits. Which raises the question: Can the President cut regulation without sacrificing public protection?

Yes, he can. The President has ample room to improve the efficiency of federal regulatory programs.

To see how, let’s first provide some context.

Federal regulators impose about $10 billion in new costs every year. The total stock of federal regulations imposes hundreds of billions of dollars in costs every year. While the exact number is uncertain, let’s assume for the purpose of this exercise that it is $500 billion. So every year, federal agencies add about 2% more to the cumulative cost of federal regulation.

The executive order aims to limit this annual 2% ($10 billion) increase to 0%.

A 2% cost reduction target is eminently achievable. Here’s how it will play out.

Agencies will first lower the cost of new rules so they do not have to cut as much out of their stock of existing regulations. And even when they are forced to issue a new rule required by statute or by court order, they will do so in the least-cost manner because the new executive order gives them that incentive. In other words, agencies get to set their own target, and for most agencies, that target will be less than 2%.

Then they will eliminate or cut back on regulations that are not contributing to the agency’s mission. Here are four categories of regulatory requirements that fit the bill:

  • outdated regulations that are no longer needed (due to technological advances, etc.),
  • redundant or duplicative regulations,
  • ineffective regulations that either address a problem that no longer exists or have made no progress in achieving the regulatory objective, and
  • regulations that penalize good performance (such as a requirement imposed on an entire sector instead of just on the bad actors).

If necessary, agencies will improve the cost effectiveness of existing regulatory programs by cutting benefits slightly to reduce costs greatly. Net benefits will go up, in accordance with one of Bill Clinton’s executive orders that is still in effect.

Agencies may also get an assist from Congress. Regulations eliminated under the auspices of the Congressional Review Act (CRA)—which allows Congress to disapprove a new federal regulation—count toward the targets set in the executive order.

And Congress can also eliminate regulatory costs without using the CRA. For example, last year Congress eliminated mandatory country of origin labeling (COOL) for beef and pork—a rule that was estimated to cost more than $1 billion annually when it was first issued.

So there you have it—cutting regulation without sacrificing public protection.

The reality, of course, is going to appear messy--especially at first. Interest groups will stake out their positions, and the noise will seem deafening. Scoring of existing regulations is hardly a straightforward exercise. And because of due process, agencies will take a long time to eliminate a bad regulation. But for those within the government who are tasked with implementing the executive order, the outlined approach represents the path of least resistance. Sooner or later, they will stumble upon this path.

And the public will have, every year, $10 billion more to spend on other things.

 

 

 

 

 

 

 

 

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