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Reining in the Executive Branch Bureaucracy, Part 5: Categorize Regulations by Impact

Since the Federalist Papers, America has debated “Energy in the Executive.” But President Obama’s 2014 agenda framed by his State of the Union address heralds a class warfare agenda, one fusing an “income inequality” theme with federal industrial policy.

When I can act on my own without Congress, I’m going to do so,” Obama promises. This spend-and-transfer fixation makes Americans poorer and dependent except for the lucky few running things.

Others have argued for federal budget rationality as essential to any anti-poverty agenda. This series proposes a greater prosperity enhancing opportunity, streamlining the nearly $2 trillion regulatory state and ending the uncertainty, wealth destruction and job loss it creates.

Every year, the Office of Management and Budget's (OMB) releases its annual Report to Congress on the Benefits and Costs of Federal Regulations.

Well, almost every year; in 2013, OMB issued only the Draft version and we still await the final.

The report leaves out a lot of the regulation that goes on, moreover OMB's ability to address economic regulation as opposed to health, safety and environmental rules is undermined by its lack of a mandate to review independent agency rules such as those of the Federal Communications Commission, the Securities and Exchange Commission or the Consumer Financial Protection Bureau. OMB just reviews (some) executive agency rules.

Nonetheless, OMB’s prior willingness to entertain the notion by researchers such as Robert Hahn of the American Enterprise Institute that some economic regulation “produces negligible benefits” was a dramatic official development of the latter 20th Century.

Now, of course -- given antitrust, "net neutrality," energy regulation, financial regulation, privacy and endless commandments regarding health insurance -- economic regulation has rebounded.

OMB remains on the right track, though, in distinguishing between economic and environmental and social regulation in recent reports within the limits it faces.

It's an approach OMB has used since it first began issuing annual reports in the late 1990s. While recent reports cite earlier versions as “outdated,” OMB once did a more thorough job in citing research on both sides of the argument that regulation imposes either net costs or net benefits.

The weakest rationale for government interference in the economy is that of economic intervention. This seems to be the case whether the issue is grand design government intervention, such as “fine tuning” of the macro economy, or direct government management of an specific industry’s output and prices (such as agricultural quotas or electricity generation prices) or entry into an industry (such as trucking).

Even assuming angelic motives, economic interventions fail owing to the impossibility of central economic planning and calculation. Moreover regulations aren’t necessarily rooted in “public interest,” compounding regulatory failure and serving interests of the regulated parties rather than the public.

Since the role of health and safety regulation is so different from economic regulation, separate presentation in the Report to Congress and in any future regulatory transparency report or "Regulatory Report Card" makes sense from the standpoint of comparing relative merits of regulations as the scope of OMB’s surveys grows. So greater review of independent agency rulemakings is needed.

There are conceptual differences that render meaningless comparisons of, for example, purported economic benefits from a trade regulation with lives saved by a safety regulation. Since the two types of benefits allegedly achieved are on the one hand of the economic variety, and on the other of a health and safety variety, no basis exists for comparing the two so their costs should be presented separately.

To the extent that analyses such as the annual OMB reports help discredit economic regulation, such regulations can be removed from the purview of government altogether (a utopian thought given modern political philosophy). That would leave Congress and OMB the "smaller" task of documenting and controlling costs of environmental, health and safety regulations which are expanding and not always achieving positive ends.

Economic regulation once lost its luster compared to environmental and health and safety intervention. Consumers benefited from the late 1970's wave of liberalization in airline and other regulations. The resurgence of economic regulation in banking, energy, telecommunications and infrastructure is unfortunate, but a spotlight on them might help again. And where categorizing regulations by type of impact reveal that health and safety rules also have “private interest” underpinnings, an improved case can be made for their rollback, too.

Disclosure means to measure and categorize. We've barely begun the task.

Next Time: Deal With The Deadweight Cost Of Regulation

Also in The "Reining In the Executive Branch Bureaucracy" Series:
Part 1: Measure Regulatory Costs
Part 2: Regulatory Benefits? Maybe Not
Part 3: Make Regulations Transparent Like the Budget
Part 4: Put a Spotlight on Economically Significant Rules