Presidential Candidates Neglect Regulatory Bureaucracy


Allowing a $19 trillion federal debt when it was obvious that interest rates couldn’t remain zero forever is Exhibit A that legislatures rarely control spending. That overreach is compounded by the regulatory bureaucracies those same legislatures have endorsed over decades, either through design or apathy.

As lawmaking became untethered from the legislature and was delegated to unelected, unaccountable alleged experts at bureaucracies, economic, environmental, and social interventions escalated. There were 87 laws passed by Congress and signed by the president in 2015. However agencies, implementing laws passed earlier and by earlier Congresses, issued 3,408 rules and regulations—a multiple of 39 rules for every law.

One would think, given all the talk about the economy and income inequality, red tape would be a major campaign issue. Perhaps it still will be. On those occasions when Congress does get traction on regulatory liberalization and mobilizes for reform, the inspiration is often smaller business burdens and job concerns. A recent one is the bipartisan #CutRedTape effort sponsored by Sens. Lankford and Heitkamp.

Numerous other agency decrees take the form of guidance documents, bulletins, memos, letters, “sue and settle” decrees, threats, and fines.

What’s gone wrong? How is all this happening?

There are tools in place that aren’t working. Since 1980, the Regulatory Flexibility Act has directed federal agencies to assess their rules’ effects on small businesses and describe regulatory actions under development “that may have a significant economic impact on a substantial number of small entities.” It (imperfectly) recognized the importance of vitality in small business and the need to scale federal actions to the size of those expected to comply, and occasional attempts to update it occur but have not been implemented. Another mobilization driven regulatory reform was the Unfunded Mandates Reform Act of 1995 (P.L. 104-4.), driven largely by governors mobilized against Washington’s rules for which compliance was disrupting states’ own budgetary priorities. So popular was the Senate version of the legislation it was dubbed “S. 1”

The 1996 Congressional Review Act (CRA) requires agencies to submit reports to Congress on their major—roughly $100 million—rules. Maintained in a Government Accountability Office database, these reports allow one to more readily observe which of thousands of final rules issued each year are major and which agencies are producing the rules.

The CRA gives Congress a window of 60 legislative days in which to review a major rule and, if desired, pass a “resolution of disapproval” rejecting the rule. The CRA, in spirit, is one of the more important recent affirmations of the separation of powers. But despite the issuance of thousands of rules since passage, including many dozens of major ones, only one rule has been rejected: a Labor Department rule on workplace repetitive-motion injuries in early 2001.

Such concerns were recognized early, and upgrades to CRA to require an affirmative approval of major agency regulations before they are effective are required. Congress did not do this with Republican control of both Houses and the presidency, and now Obama promises a veto of the current incarnation (the so-called REINS Act, or “Regulations from the Executive In Need of Scrutiny”). Meanwhile the CRA itself is further undermined given that final rules are no longer properly submitted to the Government Accountability Office and to Congress as required under the law.

The Constitution has not come to the rescue, and alas, nor has Congress, so for the moment, we are largely stuck with executive branch review of regulations that isn’t working either.

The basis of the modern regulatory process is the post-New Deal Administrative Procedure Act (APA) of 1946 (P.L. 79-404), which set up the process of public advance notice of rulemakings and provided the opportunity for the public to provide input and comment before a final rule is published in the Federal Register subject to a 30-day period before it becomes effective. The Federal Register is the daily depository of all these proposed and final federal rules and regulations, such as the 3,408 rules of 2015.

While the APA established formal rulemaking processes with quasi-judicial proceedings for significant regulations, these are rarely used. Instead, APA’s “informal rulemaking” procedure of notice and comment (“Section 553” rulemaking) is most common. But there is wiggle room even for that. As noted in a 2014 Congressional Research Service report, “The APA specifically authorizes any federal agency to dispense with its requirements for notice and comment if the agency for good cause finds that the use of traditional procedures would be ‘impracticable, unnecessary, or contrary to the public interest’.”

During the late 1970s and early 1980s, concern over regulations’ economic impacts bred inquiries and reforms meant to reinvigorate the economy while stemming that era's inflationary pressures. The mood was rethinking government regulations in contrast to today’s compulsion to expand them.  Alongside cost concerns, agency tendencies to overstate or selectively express benefits was recognized. Prominent regulatory liberalizations began in the 1970s, and included certain trucking, rail, and airline deregulatory moves, partial financial services reforms, relaxed antitrust enforcement and paperwork reduction.

The executive branch regulatory review story began with President Nixon, was elaborated extensively by President Ford, and embraced more fully by President Carter. This involved the White House Office of Management and Budget (OMB) acting as central reviewer of important agency regulations. A significant advance was the Reagan Administration’s formalization of more activist central regulatory review at the Office of Information and Regulatory Affairs (OIRA) within OMB.

Created by the Paperwork Reduction Act of 1980, OIRA first concentrated on reducing the private sector’s federal paperwork burdens. Later, OIRA’s authority was expanded by President Reagan’s February 17, 1981 Executive Order 12291 to encompass (theoretically) a larger portion of the regulatory process by requiring that any new major executive agency regulation’s benefits outweigh costs where not prohibited by statute (independent agencies were exempt), and to review agencies rules and analyses. Earlier administrations’ regulatory review efforts such as ones conducted by the Council on Wage and Price Stability, the Council of Economic Advisers and the interagency Regulatory Analysis Review Group, lacked extensive enforcement powers; these earlier bodies could seek regulatory cost analysis if not statutorily prohibited, but could not enforce net-benefit requirements; agencies could still reject reviewers’ counsel and appeals to the president were possible but rare.

Net benefit analysis as practiced by bureaucracy has insurmountable problems of its own, but the intent was significant in the prevailing context of consciously addressing regulation. The early and mid-1980s saw declining costs and flows in regulation particularly economic regulation in contrast to social and environmental. 

But over the years since, OIRA review—and that at the first President Bush’s Council on Competitiveness tasked to screen regulations—faced political opposition, narrow scope of authority and limited resources. On September 30, 1993, President Bill Clinton’s replacement of Reagan’s E.O. 12291 with his own E.O. 12866 “Regulatory Planning and Review” reduced OIRA’s authority. The Clinton approach retained the central regulatory review structure but “reaffirm[ed] the primacy of Federal agencies in the regulatory decision-making process,” weakening the “central” in central review. The new order also changed the Reagan criterion that benefits “outweigh” costs to a weaker stipulation that benefits “justify” costs. But the order did retain requirements for agencies to assess costs and benefits of “significant” proposed and final actions, conduct cost benefit analysis of “economically significant” ($100 million plus), and to assess “reasonably feasible alternatives,” and for OIRA to review those. In reality, though, less than a percent of rules get OMB-reviewed cost-benefit analysis. And as with E.O. 12291, independent agencies remained exempt.

President Obama’s own January 18, 2011 E.O. 13563 on review and reform (“Improving Regulation and Regulatory Review”) carried on the Clinton order and articulated a pledge to address unwarranted regulation. The president achieved a few billion dollars in savings, even wisecracking in the 2013 State of the Union Address about a rule that had categorized spilled milk as an “oil.” Suffice it to say that such trivialities are not the source of the regulatory excess and economic stagnation that concern many; the few billion dollars cut via executive order have been swamped by rules otherwise issued.

Independent agencies, while they are subject to APA notice-and-comment are not subject to enforceable regulatory review. Still President Obama addressed them in his July 11, 2011 E.O. 13579 (“Regulation and Independent Regulatory Agencies”) with a call to fall into line on disclosure. A president cannot change congressional directives with respect to independent agencies, but can use the bully pulpit to, if not to restrain agencies, to not encourage their excesses. That certainly hasn’t happened.

In all, four of President Obama’s executive orders ostensibly address over-regulation and rollbacks and the role of central reviewers at OIRA. Yet expansion of government into economic, social and environmental realms has been the administration’s emphasis, not review-generated cutbacks. Quite the contrary; the situation today is that expansions in which many agencies engage are supported and encouraged by the administration such as President Obama’s call on FCC “to take up the strongest possible rules to protect net neutrality.” 

So despite Obama’s executive orders ostensibly shining a light on regulatory excess, walking the executive order walk likely awaits a different regime. Yet we’re not hearing much detail from presidential candidates apart from some swearing to jettison Obama’s unlawful executive actions.

The executive branch regulatory review processes we have cannot work when the president’s philosophy is that government, not private individuals and interactions, should dominate finance, health care, energy policy, manufacturing and other spheres of human action. Barack Obama’s repeated pledges to go around Congress attest to this, while every instance from net neutrality to breath-mint serving size rules to school lunch mandates underscores a federal government unwilling to leave individuals alone.

Like the tangible regulatory slowdown that happened after Reagan’s E.O. 12291, the potential for executive orders and the existing APA process to boost oversight and review and lessen regulation is high when the motivation exists. Think “Liberty’s Meataxe” instead of Obama’s “pen and phone.” But as of 2016, regulatory liberalization still awaits, and will require Congress to act and an engaged president who recognizes the problems of executive overreach.