Government Regulators Should Adhere to Executive Orders

May 25, 2012

Washington bureaucrats often seem to have a “regulate first, think later” mentality. The bureaucratic rush to regulate of course reflects the political agenda of the administration in charge, but it also, may reflect the performance incentive structure imposed by government managers. In the Department of Labor, for example, top management in 2009 announced to senior executives in the rule-writing agencies that their annual performance bonuses would depend on their successfully meeting deadlines for publication of new rules on the department’s regulatory agenda. Federal agencies do not often present outstanding performance awards to bureaucrats who recommend that a supposed problem needs more study or that solution of a problem be left to free markets instead of government intervention. 

Ironically, the “rush-to-regulate” mentality runs counter to the regulatory culture of thinking first and regulating later that every President since Ronald Reagan and notably including Barack Obama has promoted through executive orders requiring specific analytical steps before adopting regulatory strategies. The president’s Office of Management and Budget (OMB) is charged with the responsibility to enforce the president’s regulatory impact analysis requirements, but all too often, it seems, the conscientious effort of the OMB staff to create a culture of more thoughtful regulation runs into headwinds of regulatory zeal emanating from the managerial and political incentives within the agencies to push forward a prescribed regulatory agenda. Here are 3 key elements of thoughtful regulation reflected in executive orders.   

First, think about and CLEARLY EXPLAIN why a regulation is needed at all. Why is there a need to impose government mandates on free choices and free markets? This involves clearly defining the problem that the regulation is intended to address and the source of the problem. The concept of market failure frequently comes in here – the idea that market prices and the private choices that those prices inform do not reflect the full costs and benefits of the activity involved.  Too often we see regulations proposed without a well stated understanding of the problem and objectives of government action and without an examination of the possible negative unintended consequences. This is the stage at which data collection is important to establish the dimensions of the problem and to identify performance measures for gauging regulatory effectiveness. This stage is too often omitted.

Second, think about alternatives. Identify a variety of different ways to achieve the goal or fix the problem. One alternative may be to do nothing; let existing trends take their course.  For example, a recent regulatory proposal by the Environmental Protection Agency would require utilities operating existing coal fired power plants to retrofit scrubbers or shut-down older plants completely in order to meet a 2017 goal of reducing total nationwide mercury air emissions. EPA ignored the fact that newly constructed plants have long been required to meet the proposed standards (compliance in new plant construction is less costly than retro-fitting existing plants), and it ignored the fact that the level of mercury emissions has been declining steadily for 30 years as new, cleaner coal-fired plants replaced older plants in the natural progression of plant retirement and replacement.  Based on the trend of declining national mercury emissions total, the EPA’s goal would have been reached by 2027 (ten years later) if no regulation had been imposed. EPA imposed a regulation with high costs compared to the limited benefits of slightly faster achievement of an inevitable result.

Other alternatives may involve different levels of requirements or different administrative structures. Too often regulators focus on one pre-selected approach and fail to think creatively about alternatives. 

Third, think carefully and thoroughly about the costs and benefits of each alternative. It is important to think about the costs and benefits of the regulation under consideration as well as a range of alternatives. The goal is to identify one alternative among them that adds the most incremental benefit at the least additional relative cost. This is the hard part of the exercise that requires intense data gathering and analysis. It is easy to overlook significant costs. A recent Department of Labor regulation proposal required every affected employer to hold a meeting of all employees once every year to inform them about the subject topic. In its estimate of the cost of the regulation, the Department of Labor failed to include in its calculations employee compensation for their time attending mandatory meetings. This omission alone amounted to more than $700 million in additional annual compliance costs, based on a one-hour session for the 26 million employees of affected companies. The overlooked cost element amounted to 10 times the costs identified by the agency.  Too often agencies naively assume that compliance, especially compliance with recordkeeping requirements, will be easy and inexpensive.  If agencies were to spend more time and effort on empirical research on business compliance cost issues they would be able to produce more accurate and realistic estimates of regulatory costs.

Regulatory Accountability Act Would Result in Legally Enforceable Executive Orders

Poor rulemaking is the result of the failure to do the following: fully study and understand the regulated industry; collect and analyze data; conduct experiments and pilot studies; and look back at previous regulation to learn from experience.  On paper, relevant executive orders have principles that should result in a culture of good, thoughtful rulemaking. But the practice falls short of the ideal because politics and agency motives too often counter the good intentions of the presidential orders and the OMB efforts of oversight.

The failure to achieve a more thoroughly thoughtful regulatory process derives in large part from the fact that the principles in the executive orders are not enforceable in judicial proceedings. This is a fault that the proposed Regulatory Accountability Act would correct. By moving the principles of thoughtful regulation from the realm of executive orders, where enforcement depends on presidential discretion and political whim, to the status of statute, the principles of thoughtful regulation could at last become legally enforceable.




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