Zero-Based Governing and Improving the State of the Union

Removing burdensome regulations on small business hasn’t figured much into the economic recovery program thus far. Too bad.

Alternatives to “spendulus” and the “Bailout to Nowhere” exist.  A “Liberate to Stimulate” campaign would include spending/tax reforms, “deregulatory stimulus,” infrastructure liberalization, financial sector reforms that shift risk back on the institutions rather than toward taxpayers, a “regulatory reduction commission” and much more. Starting from the basics–what exactly is it that limited government entails–can go a long way toward laying the right foundation for unimpeded economic recovery.

Consider regulation of business in America today: We’ve all heard of the trillions of dollars in new government spending. But the compliance costs generated by thousands of regulations pouring forth from over 50 departments, agencies and commissions impose trillions more. (See Ten Thousand Commandments for a survey.)

Agency bureaucrats don’t answer to voters. But Congress–although responsible for the underlying statutes that propel those agencies–can blame them for regulatory excesses that contribute to lackluster economic performance. So you get “regulation without representation.”

Evem reforms like cost-benefit analysis can’t tame the regulatory state so long as agencies themselves get to assess their own benefits, and so long as legislative or Constitutional constraints on the scope of the regulatory state as such are weak.

The latter—reducing the scope of government control in the economy–is the true end game. But so long as government control is pervasive, something like a “regulatory budget” could promote accountability by limiting the amount of regulatory costs agencies could impose on the private sector, and hold Congress responsible for those costs.

There are numerous methods; one probably overly detailed version I recall would require that Congress cap compliance costs for each newly enacted law or reauthorization of existing law. The Office of Management and Budget would assess private sector regulatory costs during the rulemaking phase. Any agency reaching its congressionally set cap would be unable to issue new rules unless it received explicit congressional authority. The real innovations of regulatory budgeting would be its reinforcement of congressional primacy in the legislative and rulemaking processes, and its potential to impose the consequences for the quality (or lack thereof) of regulatory decisionmaking on agencies rather than solely on regulated parties.

Of course, regulatory costs can never be precisely measured, and a budget cannot achieve and should not seek absolute precision. Moreover, enforcement will never be easy: agencies can have incentives to underestimate compliance costs, while regulated parties may have the opposite incentive. However, the enhancement of congressional accountability and limitations on the delegation of regulatory power will help. The key in the meantime is not to systematically understate costs.

As information (sorely lacking now) accumulates, Congress can begin to divide a “total” budget among agencies roughly in proportion to potential benefits, such as lives saved. Agencies’ incentives would be to rank hazards from most to least severe, and address them within their budget constraint. Unwise regulating could mean transfer of the squandered budgetary allocation to a “rival” agency. Congress would weigh an agency’s claimed benefits against alternative means of protecting public health and safety, giving agencies incentives to “compete” and expose one another’s “bogus” benefits. Agencies that today rarely admit a rule provides little benefit would be forced to compete for the “right” to regulate.

Explicitly recognizing that an agency’s basic impulse is to overstate the benefits of its activities, a budget would relieve agencies of benefit calculation responsibilities altogether. Agencies would concentrate only on properly assessing the costs of their initiatives and attempt to maximize benefits within its congressionally specified budget constraint.

Other ways to promote the success of a budget are to: start small; collect and summarize annual “report card” data on the numbers and costs of regulations in each agency; establish a regulatory cost freeze and set up a Regulatory Reduction Commission to assemble a package of regulations to cut; employ separate budgets for economic regulation and environmental/social regulation; and, finally, control indirect costs by limiting the regulatory methods most likely to generate them.

A regulatory budget will not magically reduce the current $1 trillion annual regulatory burden. But better information about the size of the regulatory state will aid future economic stimulus efforts just as compiling the federal fiscal budget–as catastrophically out of control as it is today–is indispensable to any effort to plan and control government spending and pull us out of the mire.