Extreme Makeover: Regulation Edition

Lynne Kiesling

This week’s Economist has an article that points out what many US residents, and readers of this blog, know full well:

But red tape in America is no laughing matter. The problem is not the rules that are self-evidently absurd. It is the ones that sound reasonable on their own but impose a huge burden collectively. America is meant to be the home of laissez-faire. Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.

From federal financial regulation to local lemonade stand regulation, the regulatory systems in the US are a mess. I generally focus on energy and technology regulation (with the occasional foray into national security and surveillance), but that’s one piece of a large, complex, regulatory puzzle that has taken on a lumbering life of its own, beyond the intentions of the designers and well beyond any sincere interest they might have in reining it in. The growing weight of the regulatory state is both economically and socially corrosive.

I think the Economist has also hit on a home truth in its assessment of why we are in this messy, inefficient, costly regulatory thicket:

Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future). Far from preventing abuses, complexity creates loopholes that the shrewd can abuse with impunity.

The other force that makes American laws complex is lobbying. The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy. Congress’s last, failed attempt to regulate greenhouse gases was even worse.

Yes. Hayek’s Pretence of Knowledge meets Smith’s “man of system”, Tullock’s rent seeking, and Olson’s concentrated benefits and diffuse costs. Regulatory complexity creates benefits for politically-powerful special interests, but it creates costs for everyone else, and this ongoing process feeds the egos of our elected representatives who believe they can engineer, design, and manipulate society to achieve their desired outcomes.

The Economist rightly recommends that regulatory proposals should have to pass a benefit-cost analysis by an independent group, and more importantly, that regulations should be simpler and more transparent. In this they invoke themes that resonate with Richard Epstein’s Simple Rules for a Complex World.

I would go farther. The underbrush of regulations that are passed and persist beyond their usefulness, the accretion of costly conflicting regulations, all of these have produced a stultifying regulatory thicket that makes attempting productive, entrepreneurial economic activity costly or impossible has to be evaluated and cleared out. I recommend that we make it popular with the American people by turning it into a reality TV show — Extreme Makeover: Regulation Edition. It’ll be like those makeover shows when you go into the house of the hoarder, clear out the stuff and put it all on the driveway, clean the place and modernize it, and then evaluate each piece individually and in its systemic entirety (to see whether or not the complexity is beneficial) before it goes back in the building. D’you think Ty Pennington could whip those legislators into shape and get them to see the folly of their ways?

13 thoughts on “Extreme Makeover: Regulation Edition

  1. There’s something vastly more pernicious about US regulation than the above. And I speak as someone who has done business in the US, Russia and three EU countries.

    In the US everyone, the bureaucrats and the citizenry, actually believe that these detailed rules should be followed. Sure, some of them maybe stupid, perhaps people will agitate for them to be changed. But while they are the rules then everyone agrees that they have to be obeyed.

    Now a belief in the rule of law is indeed something useful to a society. But this can be taken too far. A bit more of the citizenry simply ignoring the bureaucrats would not come amiss.

  2. When I was growing up, my father used to tell me that “ignorance of the law is no excuse”. However, in the US today, with its specialized lawyers, accountants, judges and courts, ignorance of the law is virtually unavoidable. Only those individuals and business affected by the law and the implementing regulations are required to have a comprehensive understanding of those laws and regulations and how they are affected by them. Many are unaware of requirements placed upon them until they fail to comply with them in some way.

    I would love to see an objective report on the percentage of our elected representatives who actually read and understand either the 2000+ page climate change bills or the 2000+ page Obamacare legislation. I am confident that very few of those elected representatives have read the implementing regulations spewing forth from HHS regarding Obamacare.

  3. As I have argued elsewhere, politicians become popular by “doing things”. Humans react along the lines of “see problem – fix problem”, so voters reward the politicians that do things. “What is not seen” we care very little about.

    Most problems now come from the fact that all major environmental and safety issues were actually solved several decades ago, on an absolute scale. But we do not see risks on an absolute scale, instead we keep worrying about just about anything. If there are no large risks, then we worry about the small ones, “all for the good of the children”. It has probably been impossible to hijack a plane with any knife up to the size of a machete, ever since 9/12, and yet we ban scissors.

    Ed, have you read “The Old Regime and the Revolution” by Tocqueville? France reached and actually surpassed the current US regulatory productivity in the 18th century. Bureaucrats, like Sibelius and the EPA today, produced regulation after regulation, unhindered by the inertia of elected assemblies (which as you say are able to produce thousands of pages by themselves). Because a bureaucracy can change regulation so quickly, the public could not keep up, so no one cared. To exaggerate a bit, the French today only follow the law when a policeman is watching.

  4. A current version of “Extreme Makeover: Regulation Edition” comes in the form of Sunset reviews, which apply to some agencies in some states.

    Texas created a Sunset Advisory Commission in 1977, and in theory just about every agencies is supposed to undergo a top to bottom review every 12 years. (Yes, there is some irony in the fact that to eliminate wasteful state government activity the first thing done was to create another state government commission. They estimate that their actions have reduced state spending by a net of about $950 million in the 30 years or so of operation. http://www.sunset.state.tx.us/suntx.pdf) The sunset review practice has some successes in Texas, but I wouldn’t say it has solved the problem of the ever-expanding regulatory thicket.

    In theory, OMB review of major regulations is supposed to serve as a cost-benefit check, but as part of the White House, organizationally speaking, it isn’t entirely an independent voice. And as the Economist points out, there are a number of practical difficulties involved in assessing the regulatory burden of a piece of legislation like Dodd-Frank, which mandated 400 new rules, but leaves the details to regulatory agencies to develop.

  5. Mike,

    Laws which require regulatory agency implementation are much like presidential speeches. As CBO Director Douglas Elmendorf said recently: “We cannot score a speech.” CBO also can’t really score a law which requires regulatory agency implementation.

    One interesting example which comes to mind is is the amendments to the Clean Air Act, which the “Supremes” have now decided give EPA the authority to regulate CO2, even in the absence of commercially available technology to do so. How could you possibly “score” a barrage of regulations requiring industries to apply non-existent technology to achieve unquantified results?

    Do you wonder why the industry response is BOHICA?

  6. “It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?

    “Another effect of public instability is the unreasonable advantage it gives to the sagacious, the enterprising, and the moneyed few over the industrious and uniformed mass of the people. Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow-citizens. This is a state of things in which it may be said with some truth that laws are made for the few, not for the many.

    “In another point of view, great injury results from an unstable government. The want of confidence in the public councils damps every useful undertaking, the success and profit of which may depend on a continuance of existing arrangements. What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed? What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him a victim to an inconstant government? In a word, no great improvement or laudable enterprise can go forward which requires the auspices of a steady system of national policy.

    “But the most deplorable effect of all is that diminution of attachment and reverence which steals into the hearts of the people, towards a political system which betrays so many marks of infirmity, and disappoints so many of their flattering hopes. No government, any more than an individual, will long be respected without being truly respectable; nor be truly respectable, without possessing a certain portion of order and stability.”

    Madison Federalist No. 62.

    I guess that pretty much covers it.

    You were warned.

  7. Since I don’t really watch TV, I was remembering Ty Pennington from memory ;-)! Is it still on the air, with a new host? Mike Holmes it is, then! Either way, Congress is showing that they don’t have the incentives or cojones to do it themselves.

  8. It’s hard to disagree with the sentiments expressed by this article. Who wants regulation for its own sake? The problem with this conversation is the probem with most similar conversations: it is impossible to turn this into a proposal without getting to the point of talking about reguations more specifically. The sentiment that we have too much regulation is much like the sentiment that we have too much spending. Although everyone agrees in the aggregate, once we get down to individual proposals, things get a lot stickier. Conversations about “regulation” at this level are simply not that useful.

    Do any of these ideas help you stort out which ones to chuck and which ones to keep? One persons essential procedural safeguard is another person’s worthless red tape. I agree with the idea of sunseting regulations, at least that agencies have some duty to periodically reivew and update their rules. Cost-benefit analysis is also an interesting idea.Both of these are just more procedural rules that will show up in another speech in a couple of years as evidence of more wasteful red tape. If less regulation is better than what we have now, how much regulation is the right amount? What quantum do we use to even measure how much regulation we have? What constitutes burdensome? Most importantly, if we have been complaining about this for so long, why is it still such a problem? That is, I think, the most interesting question.

    I suspect that a distrust of the civil service is one reason for increasingly complex rules. A huge set of rules is necessary to rein-in any exercise of administrative discretion because they can’t be trusted.

    From what I have seen, the biggest barrier to doing top-to-botton regulatory overhaul is the cost and complexity of the process. Such an would also overhaul create litigation exposure. Leaving well enough alone does not. If you are appealed, one can only be appealed on the rule an agency changes.

    Complaints about special interest capture are not so much complaints about regulation as they are complaints about the current political culture. The regulatory process is an instrucment of government and can never be anything but a reflection of political culture. If powerful special interests run government, would they not necessarily run the regulatory process too? How could it possibly be any other way?

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