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Reforming Regulation, Bit by Bit

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Reforming Regulation, Bit by Bit

President Obama recently issued an executive order directing independent agencies to comb through their books and repeal unneeded regulations. This is, as he put it, "an opportunity to do something big and lasting - to change the ways of Washington; to focus on what works; and to forge a 21st-century regulatory system that makes our economy stronger and more competitive."

A similar executive order in January for cabinet-level agencies repealed 30 rules and saved an estimated $1.5 billion in regulatory costs. This is good news for a struggling economy. But it's hardly enough to "change the ways of Washington" or "forge a 21st-century regulatory system."Despite the big words, these are small reforms.

The $1.5 billion from January's Executive Order represents roughly one-tenth of 1 percent of the total federal regulatory cost burden, now estimated at $1.7 trillion. That is less than a dollar in savings for every thousand that businesses spend complying with federal regulations. That also affects consumers; businesses pass the added costs on to them.

Under the President's new executive order, independent agencies have 120 days to pick which regulations to keep and which to drop, so it will be about four months before we find out how much the savings will be. But even if the number is in the billions, it will still be small potatoes compared to total regulatory costs.

Regulators will not  agree to reduce the size and scope of their fiefdoms without a fight. Take the Environmental Protection Agency (EPA), as an example. It has a $10.5 billion budget and more than 17,000 employees. Last year alone it proposed 345 new regulations-31 of which are expected to cost at least $100 million each.

When ordered by the President to trim some fat, what did EPA do? It repealed exactly one regulation. Gas station pumps will no longer be required to have vapor recovery systems, because separate regulations require all new automobiles to have similar systems built in. Getting rid of this redundancy will save about $60 million in compliance costs.

Thousands of other EPA rules were left untouched. Surely at least a few of them would fail a cost-benefit test.

EPA is hardly unique. Agencies complied with Obama's executive order just enough to garner some good publicity, and no more. The President is taking the wrong approach to repealing obsolete, redundant, or harmful rules.

Agencies cannot be trusted to clean out their own books because they have no incentive to. Agency administrators want to maximize their missions and budgets. Having them police themselves will not yield real savings.

There is a relatively easy fix: get independent outsiders with no stake in the outcome go through the Code of Federal Regulations make the repeal recommendations. President Obama should appoint a bipartisan repeal commission to do just that and then send its package of repeal proposals to Congress.

Congress, worried about backlash from interest groups with vested interests in existing rules, would have every incentive to water down the package. To avoid that, Congress should impose on itself a requirement to have a straight up-or-down vote on the package within a short time-say, 10 legislative days-with no amendments allowed.

A good model for that process is the Defense Base Closure and Realignment Commission, which allowed Congress to vote for military base closures as a package, insulating individual Members from constituent backlash over base closures in their districts.

This commission's recommendations should not be a one-time event. There are so many rules on the books that are obsolete, anti-competitive, or just plain onerous, that it will take more than one pass through the Code of Federal Regulations to roll back regulatory burdens enough to have a real impact. The bipartisan repeal commission should reconvene annually.

A repeal commission would not be immune to politicking, but that isn't necessarily a bad thing. As control of the White House and Congress shifts between the two parties, the commission's priorities will change. With each party wanting to undo the other's legislative achievements, they are likely to appoint repeal commissioners who will do just that.

When Democrats are in power and appoint a majority of members, it might be especially concerned with small business regulation or worker safety. Republicans would give special attention to rolling back federal involvement in education or health care. The parties' worst impulses usually block reform. Here, they can be used to enact it.

President Obama's twin executive orders will save a few billion dollars in regulatory costs. He deserves praise for that, but regulation is a trillion-dollar problem. An annually recurring bipartisan repeal commission would do much more than the occasional executive order to lighten regulation's heavy hand and get the economy going again.