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Administrative Procedure Act Limitations: Cost Measurement and Disclosure

U.S. Circuit Judge J. Harvie Wilkinson III noted in a 2017 journal article that regulation sometimes contains “too much detail,” changes too “frequently and capriciously,” creates backlogs and delay of work and decisions, or even results in “imperiousness” and “jerk[ing] people around.”

It is important to oversee the process. The Administrative Procedure Act of 1946 (APA) set up the foundation of the public consultation rulemaking procedure.  Beyond it, there are tools like the central White House review process historically rooted in President Ronald Reagan’s 1981 Executive Order 12291 on “Federal Regulation,” and guidance to agencies like Office and Management and Budget’s Circular A-4.

Despite, or perhaps even because, of these very processes, a “good government” rather than classical liberal stance on congressional over-delegation dominates regulatory policy. If elected representatives are not held accountable—and overdelegation ensures that Congress is not so constrained—problems are necessary and built in, not accidental.

Below appear shortcomings that illustrate the APA represents no great barrier to an expanding state and the costs generated by it, as circumstances can allow regulation to fly under the radar of the limited central review process, and for order to deteriorate. In this instance, capsules on rule cost categories prone to escaping measurement and disclosure are shown; a later column will identify some process/oversight shortcomings.

Costs of Rules Not Deemed “Economically Significant” by Agencies that in Fact Are. Rules can be highly significant without the public being told so. “Economically significant” is not officially defined in law or executive order, but is indirectly demarcated as a rule with economic effects of $100 million or more annually. Many of the thousands of regulations issued by agencies annually may exceed the threshold, or do so in combination with related rules, but not be so designated. The Obama-era net neutrality order is an example of a highly significant action not so designated. Agency guidance documents or policy statements also may induce regulated parties to alter behavior such that when rules eventually are issued, costs may be designated non-economically significant since some may have been informally pre-nudged. 

Costs of Independent Agencies’ Regulations. A fraction of independent agency costs get tabulated, such as some financial rules, but these are not reviewed by the Office of Management and Budget as executive agency rules (theoretically) are. The Heritage Foundation’s “Red Tape” series notes many billions of dollars in this category, but there is more out there unrecognized. OMB review of independent agency review has been endorsed by a bipartisan group of former directors of the Office of Information and Regulatory Affairs at the Office of Management and Budget. Another unappreciated cost, related to issues of loss of constitutional liberties many have noted and to be addressed later in another “Rule of Flaw” installment, is that “Independent agencies can’t be too independent if they have great discretionary power,” as noted by the Hoover Institution’s John Cochrane.    

Costs of Unfunded Mandates on States and Localities. Unfunded mandates’ effects receive some limited attention in the annual OMB Report to Congress on benefits and costs of federal regulation, by the Congressional Budget Office, and by external monitors such as the National Conference of State Legislatures. Congress should consider fuller treatment of mandates’ budgetary and regulatory impacts since loopholes in the Unfunded Mandates Reform Act (UMRA) allow plenty to be overlooked. The Government Accountability Office has pointed to UMRA exceptions to its own requirement to conduct analysis—for example, the requirement to prepare “written statements” for $100 million rules holds only “before promulgating any final rule for which a general notice of proposed rulemaking was published.” Proposed rulemakings sometimes are not published, so statements do not get triggered. Further, as the Congressional Research Service has noted, the $100 million threshold applies to “expenditures” imposed, which is a narrower criterion than factors that help determine rule significance.

Costs of Interpretive Rules and Guidance Documents. Guidance documents, policy statements, memoranda, notices, circulars, bulletins, administrative interpretations, and other sub-regulatory decrees are supposed to clarify, not change, policy. But they do sometimes make it possible to influence policy without writing notice-and-comment rules, perhaps also in frontier areas where there may effectively be no law to apply. While not technically legally binding or enforceable, sub-regulatory guidance, like regulations, can change regulated parties’ behavior due to agencies’ emphasis on them and the public’s reluctance to get crosswise with powerful authorities with the discretion to punish. Costs may be reviewed by OMB, but seemingly are not for the most part. And guidance is extensive, as reaffirmed in the 2018 House Oversight and Government Reform Committee report, “Shining Light on Regulatory Dark Matter.” Along with regulation by guidance, agency attempts to choke off or deplatform frowned upon activities are notable, such as financial services guidance from the Federal Deposit Insurance Corporation (FDIC) that included dating services, coin dealers and payday loans.  

Indirect Costs. Indirect costs relative to direct compliance costs can take many forms, such as ripple effects through an industry, sector and economy, and through ventures never pursued and established. Prior to the OMB abandonment of aggregate cost assessment, officials more candidly acknowledged that indirect costs of regulations can be greater than direct costs, while now these are given a lower profile or disavowed.

Job Costs of Regulation. Apart from election-year political considerations that force recognition of the negative job effects of regulation, officialdom’s proclivity is to subscribe to the broken window theory of economics that regulations not only cost no jobs, but more likely create new ones. Groups such as the Center for Progressive Reform and the Coalition on Sensible Safeguards uniformly reject the notion that regulations unacceptably affect jobs and employment. Like the minimum wage losers, the effect on the avoidably unemployed or underemployed is usually unseen. Labor, already a cost to an employer, is made greater still by over-regulation.

Entrepreneur and investor John Chisholm writes of regulations’ deterrent effect at key stages of entrepreneurship and job creation. These steps include getting started (worker status regulations and occupational licensing), innovation (resources being dedicated to R&D vs. being diverted to compliance), and business expansion, showing importance of minimizing regulations’ deleterious effects. We’ll close here with a direct quote from his “Unleash Your Inner Company (p. 308):   

Define any metric that you wish of potential entrepreneurs that combines ratings of such qualities as skill, passion, perseverance, self-confidence, ambition, and resources. Your metric will distribute the entrepreneurs along a [bell-shaped] curve…. No matter how you define your metric, many potential entrepreneurs, especially at the low end of your rating scale, are being blocked by regulations. The numbers blocked each decade grow as regulations grow. The very men and women in society who find it hardest to provide for themselves and their families and live in self-sufficient dignity are blocked.

Note: This survey is part of a roundup of gaps in regulatory cost assessments presented in outline form in “Rule of Flaw and the Costs of Coercion: Charting Undisclosed Burdens of the Administrative State.”