Rule of Flaw and the Costs of Coercion: Charting Undisclosed Burdens of the Administrative State

“The genius of the Progressives in the late 19th century was to preempt or push large sectors of the emerging future (the environment, schools, electromagnetic spectrum, infrastructure, welfare, the medical world) into the political world.”  —Fred L. Smith Jr.

Bloated by Congress’s delegation of most lawmaking, the Administrative State sits in America’s middle seat with its elbows out.

It is, as Steven F. Hayward put it, an “independent ‘fourth branch of government’ that fits nowhere within the scheme of the Constitution as understood by its authors.”

A new taxonomy of the burdens, costs, encumbrances and liabilities of coercive regulation, intervention and administering of private affairs is required for many reasons, including:

1. Costs of individual regulations and some of the most elemental interventions are often ignored;
2. Aggregate costs are always ignored;
3. The Administrative State assumes credit for benefits and well-being that are often fundamentally the fruits of voluntary  pursuits of mankind; and
4. Administrative State expertise, the regime’s selling-point, is more fallible and limited than outside expertise; tends to block superior competitive disciplines; and both derails and does not yield to evolution of institutions of liberty to replace itself.

The Progressive triumph of allegedly scientific, disinterested, apolitical bureaucracy — in significant part the root of today’s liberalism (including the Republican variant) — has largely supplanted a constitutional republic of separated powers, limited government and protection of individual rights. Over time this has helped enable the modern left’s self-acknowledged radicalization, heralding still-larger government for posterity. “Living political constitutions must be Darwinian in structure and in practice,” said Woodrow Wilson.

While there may emerge some limited restraints owing to the makeup of the Supreme Court, the Administrative State and its largely impervious mega-scale regulatory apparatus have little to fear from the 1946 Administrative Procedure Act’s purported safeguard of a public-consultation rulemaking process. The APA’s checks on agency “tyranny” (the consolidation of powers in the same hands explicitly warned of in The Federalist Papers) entail public comment, judicial review and executive review and congressional oversight. But that same APA’s provisions enable its own avoidance for “good cause,” and Congress has been unable to resist delegation. Legislative reform of regulatory process is highly unlikely in the 116^thCongress

For context, the federal fiscal regime, despite the discipline of congressional vote and a presidential signature, will soon again run trillion-dollar deficits, as seen in the new Congressional Budget Office Budget and Economic Outlook). The State of the Union address, now back on, is likely to address spending, particularly since president Donald Trump’s own budget proposal is expected soon. The U.S. sports a $22 trillion “peacetime” debt larger than the economy itself, plus tens of trillions more in unfunded liabilities.  A mere few dozen laws passed by Congress annually are the basis of that spending, which is at least disclosed publicly.

The regulatory state, on the other hand, is the “least disciplined” component of federal activity, not fully disclosed even as agencies write most law, issuing over 3,000 rules and regulations annually. No studies capture the full scope of government intervention, but in order to fill in the blanks policymakers need to at least care where and what the blanks are.

The turn-of-the-century decision made by the Office of Management and Budget (OMB) in its Report to Congress on the Costs and Benefits of Regulations and Unfunded Mandates on State, Local, and Tribal Entities to dispense with aggregate cost reckonings is a problem. It obscures late 19th- and 20th-century economic intervention and distortion still affecting today’s advanced economy, like cross-sectional burdens, ex-post costs and the long-term effects of sectoral lock-in (regulators are quick to fret over alleged lock-in in the free market, as antitrust activism against social media attests). The OMB is required by the Regulatory Right-to-Know Act to present an aggregate regulatory cost estimate annually (the decrees of which OMB prefaces in its annual Report to Congress), not merely an annual estimate and the 10-year partial roundup OMB now provides.

Three of the author’s children have grown and left home since the last aggregate cost disclosure despite the vast informational resources at the federal government’s disposal that it can summon or effortlessly contract for. The primary debate over aggregate regulatory was over bottom-up vs. top-down estimates—not over an aggregate appraisal as such. Perhaps not surprisingly the Report to Congress even shrugs at deadlines for the partial information it does present; even this is a couple years overdue now. The draft (not even final) 2017 report contains only fiscal year 2016 data.

Lack of awareness of what the heck is really going on makes for bad policymaking. Official policy seems to regard the entire sweep of 20th century Administrative State as being effectively zero-cost (indeed, the bipartisan story is that the regulatory state sports “net benefits”). This is alarming when progressives are ramping up sweeping new regulatory plans for which there will likely again be incomplete accounting presented to our descendants. Regulatory transparency is necessary but not sufficient, because, just as many “benefits” progressives tout are avowedly non-quantifiable, the same holds for costs of intervention and administration. That’s why reform proposals stress congressional accountability.

Reckoned aggregate costs of regulations span the pitiful few billions (naturally, swamped by benefits) the government acknowledges annually in the 10-year window in the incomplete Report to Congress, to trillions annually. The Mercatus Center, for example, reports “the accumulation of rules over the past several decades has slowed economic growth, amounting to an estimated $4 trillion loss in US GDP in 2012 (had regulations stayed at 1980 levels).” Obama alone generated a minimum of $122 billion in new annual costs in a subset accounted for by the Heritage Foundation. The occasional savings from liberalization are demonstrative: The Small Business Administration’s Office of Advocacy, in the Annual Report of the Chief Counsel for Advocacy on Implementation of the Regulatory Flexibility Act, has claimed savings for small business of tens of billions of dollars over the past two decades.

Now, all this said, costs, of course, cannot actually be calculated objectively and accurately. We can at best deal in loose magnitudes, in a context of Congress approving what agencies do. In July 2016, in House Budget Committee oral testimony on the topic of regulatory budgeting, I remarked: “Nobody sees the same rainbow… and nobody necessarily sees the same cost and benefit of any given regulation. So let us commence the case for budgeting federal regulations by recognizing that, some compliance burdens aside, perfectly tabulating subjective and indirect costs is impossible.” Written testimony stressed regulatory cost immeasurability, unfathomability and subjectivity that could undermine beneficial regulatory budgeting:

“Cost, properly construed, as James M. Buchanan, the 1986 recipient of the Nobel Memorial Prize in Economic Sciences, put it (Cost and Choice: An Inquiry in Economic Theory, University of Chicago Press: Chicago and London, 1969), “is that which the decision‑taker sacrifices or gives up when he makes a choice.” As Buchanan counseled, there are no “objectively identifiable magnitudes” available to the third‑party regulator: “Cost cannot be measured by someone other than the [regulated] decision-maker because there is no way that subjective experience can be directly observed.” And if, as Ludwig von Mises proclaimed, “Economic Calculation in the Socialist Commonwealth” is impossible, so too is regulatory cost calculation in an essential sense. Cost experienced subjectively by someone who’s not you, cannot be measured by you.”

So apart from some bare compliance/paperwork and personnel outlays, costs are inherently incalculable despite such official regulatory analysis techniques as “revealed preference” and “willingness to pay” noted in, for example, OMB’s Circular A-4 guidance to agencies. The broad process/paperwork estimate OMB provided at the turn of the century is effectively replaced now by the OMB’s (often overdue) Information Collection Budget of the U.S. Government. The 2016 edition recorded nearly 10 billion hours required to complete certain paperwork, the bulk tax compliance. Of the remainder, some would be expected to be contained in agency regulatory impact analyses. OMB noted in the 2011 edition of the ICBthat “if each hour [then 8.783 billion] is valued at $20, the monetary equivalent would be $176 billion.”

Beyond that though, if regulatory costs and benefits could be accurately calculated by those not experiencing them, let alone those imposing them in the first place, so too could the calculations of a planned economy. Classical liberals reject the economic calculation that socialism first and foremost and administrators and planners by extension take for granted. But if legislative rules are imposed in the real world with no congressional approval, then instigators must disclose costs and be held accountable for the sweep of what we do not know. In that vein, in a 2017 working paper Tip of the Costberg, this author pointed to problems with the government’s numbers from the turn of the century (regulatory proponents affirm the government’s benefit estimates without contest, however) in making an appeal for official reckonings to resume.

There will remain an irreconcilability between the Administrative State mindset and classical liberals with respect to the elemental question of the federal government’s proper function. The Administrative State tends to regard intervention all the way up to and including government management of economic sectors as a non-cost. The compulsory nature of the Administrative State means proponents must never be absolved from answering for all costs and anti-benefits with the same zeal with which they stress benefits. We can infer, observing the fiscal side of federal operations, that matters are considerably less in hand than acknowledged. As shown in the outline below, policymakers, Administrative State advocates, beneficiaries, consultants, rule-negotiators, careerists and rent-seekers bring sticks to the forest when it comes to acknowledging the sweep of Administrative State intervention and its costs.

Even if Washington collected a negligible percentage of Americans’ incomes in taxes, we would still keep track of total taxation to prevent abuse, no matter how society may benefit from government spending programs. But the public gets gerrymandered statistics or none at all with respect to the Administrative State, even as the largest costs are not necessarily specific rules and regulations but indirect costs and the phenomenon of government steering while the market rows with loss of wealth compounded  decade after decade. Other costs are the sidelining of individual liberty and the cavalier way the Administrative State has rendered the precious Constitution a temporary blip in human affairs. Americans possess an inalienable right to practice limited government, yet that institution is rendered impossible by the changes wrought by Progressivism, socialism and alleged softer “Third Way” variants, which have themselves fertilized the new “democratic socialist” programs being teed up. All such philosophies are united by less freedom, more powerful central government, disregard for measurement and disclosure, minimal concern for political failure, and indifference to the duty to extend institutions such as property rights into the governance of complex emerging frontier sectors.

Clearly the controversy over the Administrative State is less a mere regulatory reform spat than a full-throated confrontation over the kind of governance tomorrow’s United States will have. The current categorizations for costs, such as presented in the OMB Circular A-4 regulatory guidance, leave gaps, so one must color with different ink. The outline below presents a taxonomy of some disregarded and unfathomed costs , which we may walk through later here and in other venues. While costs cannot be “measured,” perhaps future researchers can develop ways of depicting these and perhaps others in informing discussion. If nothing else, the list underscores the gulf between the planner mentality and one of limited government, which in turn underscores the appropriateness of either far greater accountability for regulators or preferably, ensuring that elected representatives call the lawmaking shots.

Originally published at Forbes.