Friday, February 24, 2012

From Over-Regulated to Under-Regulated America in Two Easy Steps

The February 18th edition of The Economist (here) provides an grossly insufficient analysis and irresponsible recommendations to fix supposedly rampant over-regulation, which it claims, on very little evidence, is choking off economic growth.

I have no doubt that there is over-regulation, just as there is under-regulation (for instance, of toxic pollutants). But, somewhat unusually, The Economist takes up an extreme position based on a paucity of evidence and analysis. In the first place, the conceit of the article's subtitle, that America is the "home of laissez-faire," is not, and never has been, the case, except perhaps in a comparative sense. In the second place, aside from listing a few examples of ridiculous state regulations and the byzantine puzzle of Dodd-Frank, the article simply presumes that over-regulation is the norm, rather than an exception.

To fix this presumed problem of rampant over-regulation, The Economist recommends that (1) all regulations should be subject to cost-benefit analysis (CBA) by an independent watchdog and (2) all regulations should sunset after 10 years, unless expressly re-authorized by Congress. These recommendations present several obvious issues that are not addressed in the article.

First, they offer an economically expensive fix to a presumed problem that has not been analyzed economically, let alone quantified. We have no way of knowing whether their proposed solutions are worth the cost.

Second, the proposed solutions would have no effect on the chief example the article cites, Dodd-Frank, which as legislation could not, under the US Constitution as presently written, be subject to independent economic analysis before enactment. Further constitutional amendment would be required to impose sunset provisions on legislation (as originally suggested by Thomas Jefferson).

Third, all major federal (executive branch) agency regulations already are subject to mandatory CBA requirements under both statutory law (the 1995 Unfunded Mandates Reform Act) and an unbroken series of Executive Orders dating back to President Reagan (and, in some respects, back to President Nixon). These CBAs usually are not prepared by independent "watchdogs," but they are subject to regulatory review by the Office of Information and Regulatory Affairs within the President's Office of Management and Budget, which serves that function. Indeed, the OMB has been alleged to have a decided anti-regulatory bias. (For more on the legal and political structure of CBA within the federal government, including citations to anti-regulatory bias within the OMB, see my recent working paper here.) It is not clear how or how much value The Economist's CBA recommendations would add to this existing process.

Finally, a mandatory 10-year sunset requirement for all regulations, absent express re-authorization by Congress would surely lead to chronic under-regulation (which might, after all, be the ulterior goal of the article's author) with consequent reductions to social-welfare (based on CBA), stemming from gridlock in Congress, which increasingly seems unable to agree on anything, however socially valuable.

In the final analysis, this article is the kind of reckless opinion piece I would expect to see from the Cato Institute or some other anti-regulatory think-tank. I expect better of The Economist. Perhaps I'm expecting too much?

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