What Has To Happen For Trump’s Federal Regulatory Budget To Work

Congress is moving forward on the 2018 federal Budget Resolution, and maybe the promised tax system overhaul. Of course, the $4 trillion a year the federal government spends — and the realization that fiscal year 2017 ended with a $666 billion deficit — are only part of the story.

Apart from its own spending, Washington directs the private sector to spend and re-purpose vast resources, too. All that red tape and regulatory overreach led to President  Trump’s proposals for speeding up project permitting, and for eliminating two regulations for every one enacted.

Given the importance of the fiscal budget, the concept of a “regulatory budget” occasionally gains currency as well, and this is one of those times. Trump’s executive order also calls on agencies to impose no net new costs, which might be thought of as a sort of status-quo budget, freezing things at current levels.

Let me state my conclusion first, which is that Congress and the administration should implement experiments in regulatory cost budgeting that already have bipartisan pedigree, within a framework of amplified congressional accountability for what unelected regulators do.

While making a case for cautious regulatory budgeting, my starting assumption is that, apart from certain payroll-rooted paperwork and compliance burdens, objective costs of each years’ thousands of regulations cannot be calculated. If, as Ludwig von Mises proclaimed, “Economic Calculation in the Socialist Commonwealth” is impossible, then impossible too is regulatory cost calculation in an elemental sense. Cost experienced subjectively or indirectly by someone who’s not you, cannot be measured by you. We must instead transact in magnitudes and thresholds and, yes, guesstimates.

And in another starting assumption — and here I’m requesting that you put on your laissez-faire pants for a second: Some think regulatory cost budgeting will restrict regulation, I believe it can enable more discipline, properly understood. All the benefits we seek to elevate via regulation — public health, financial stability, food safety, auto safety, airspace allocation, privacy and cybersecurity, you name it, are also forms of wealth. They require market disciplines, not just political ones, to flourish.

The choice is never “no regulation,” it is always between political or competitive and other disciplines. Markets and competitive enterprise make the world not just richer, but “cleaner, safer, healthier and healthier.” Regulation doesn’t get all the credit; nor even the bulk of it.

Now: the concept of budgeting is not new, nor traditionally partisan. Former Democratic Texas Sen. Lloyd Bentsen, who served as Treasury Secretary in the Clinton Administration, proposed in 1979 to:

“[P]ut an annual cap on the compliance costs each agency could impose on the private sector through its rules and regulations. The process for establishing the annual regulatory budget would resemble the process currently used to set the fiscal budget—we would have a proposed budget from the President and annual budget resolutions from the budget committees. This would make it possible to coordinate the regulatory and fiscal budgets. We need a regulatory budget in order to reduce the impact of unnecessary, excessive and conflicting Government regulations. (Congressional Record, Vol. 125, March 5, 1979, p. S2024)”

Regulatory budgeting was referenced back in President Jimmy Carter’s 1980 Economic Report of the President. Today, you can find a survey of recent offerings in the House Budget Committee’s September 2016 “Introduction to Regulatory Budgeting” report.

Presumably, a comprehensive regulatory budget paralleling the fiscal one to better account for government’s presence in economy would require Congress to divide a total budget among agencies roughly in proportion to potential lives saved or other metrics. While agencies could regulate unwisely, stupidly or even with malice, the squandered budgetary allocation could shift to a rival agency that saves more lives, to equalize margins, say, cost of the last life saved.

That regulatory costs rival a sizable percentage of the level of government spending argues for some version of budgeting, party notwithstanding. But here’s the thing:

Nobody sees the same rainbow, and nobody necessarily sees the same cost and benefit of any given regulation. And I don’t just mean big ones like the Clean Power Plan debated yet again this October on NPR. There isn’t even agreement on whether attic fans save or waste energy. A fascinating book called Where the Water Goes about the Colorado River’s upper and lower basins, dams and drainage regions shows how well-intended conservation efforts in some cases may not conserve.

And people certainly perceive risks differently. Mom used to clean my ears with a bobby pin. As a dad of 5, I now know it’s better to use Q-Tips, right?

(Incidentally, when it comes to real perspective, and benefits of things that presumably only national governments can presumably address, you might’ve seen that that Asteroid 2012 TC4missed us by cosmic inches last week, and might not miss next time. So for me, NASA should get the entire fiscal and regulatory budget allocation. OK I’m exaggerating. A little.)

Unfortunately, the disclosure needed to undergird successful budgeting is absent. The annual Office of Management and Budget Report to Congress on the Benefits and Costs of Federal Regulations, which presents cost benefit analysis for a couple dozen rules at most, is unceasingly overdue; we don’t even have Trump’s yet.

Meanwhile the 800-pound-gorilla Independent agencies get no OMB scrutiny. When you hear of cost-benefit analysis and OMB review of regulations, that all only applies to executive branch agencies.

Moreover, prospective regulatory budgeters will have to pay close attention to unmeasured categories of intervention and interference, not just discrete rules as cost drivers. When government steers in some area of practical endeavor while the market merely rows, that creates compounding costs even if no “budgetable” future rules are issued, such as in antitrust regulation, the reluctance to move spectrum into the wealth-creating sector to bridge digital divides, and the delivery of the Internet, drones, and likely soon driverless cars, into century old public-utility models.

Furthermore, the prominence of unmeasured agency guidance, notices, memoranda, Administrative Interpretations and so forth that I’ve taken to calling regulatory dark matter, will complicate budgeting efforts.

I noted the impossibility of objectively measuring costs scientifically or even accounting-wise; other hazards of over-reaching include the unintended expansion of the scope of government; the elevation of utilitarianism over individual rights; and the temptation to include benefits in a budget. These pitfalls I explored in 2016 House Budget Committee testimony.

So in terms of trans-partisan solutions we need a few North Star goals to work toward together, just as Republicans and Democrats did in the 1990s with the Senate’s 86-1 passage of S. 1, the Unfunded Mandates Reform Act, and with small business relief that incorporated the Congressional Review Act that proved so controversial this year, which the Senate passed 100-0.

There’s surely Common ground, arguably with respect to some tech policy regulation, for example: Left and right alike don’t wish over-regulation on the likes of Uber or Airbnb. And there’s agreement that forcing corn ethanol into the mix for gasoline is problematic economically and for humanitarian reasons. The “Problem Solvers” bipartisan Hill caucus has sights on regulatory reform, too.

So a few suggestions, assuming here we’re working within the framework of the administrative state, not the more fundamental Article I restorations I’d prefer. (Last year, the House GOP released a task force report on “The Constitution” that’s worth a look in this respect.)

First, my preference is incremental regulatory cost budgeting experiments rather than presuming a total budget.

Second, at the very least we need to come to some agreement on how we can address independent agencies’ largely economic costs.

Third, we need to quantify what we cannot quantify, and report that number in bold, blinking highlights. I’d want to know the percentage of rules that failed to quantify costs, and the percentage of rules that failed to quantify benefits, and always open discussion pn regulatory reform with that.

Fourth, we need to  slice up the elephant for digestion by employing separate cost allocations for economic, safety, health, social, environmental, transportation, and tech policy categories, and of course paperwork . These days, government paperwork chews up 9.778 billion hours, the annual equivalent of 13,953 full human lifetimes.

Fifth, we need to tabulate the hierarchy of significant regulatory dark matter, since such material escapes notice-and-comment review and can swamp ordinary rules and laws. You may not realize last summer’s 600-page FAA drone rule relays at least 8 critical areas where it will issue future guidance. Not laws, not notice and comment rules, but guidance. The FCC’s net neutrality rule promises a similar Mother-May-I regime.

Sixth is do more of what the U.S. is now doing in the wake of Trump’s executive orders, which is testing rule-in, rule-out measures already underway internationally, and that happen to have bipartisan pedigree in the U.S. Let’s look at all this for a moment.

Trump’s regulatory moratorium on Day 1 was not something new, for example, but mirrored the very first action of the Obama administration; its uniqueness was in covering guidance, too.

Nor was Trump’s one-in, two out executive order idea new. Its modern bipartisan root is Sen. Mark Warner’s (D-VA) one-in, one-out Pay-Go proposed in 2010 in the Washington Post.

The latest development here is OIRA director Neomi Rao’s September 7 memoranda to executive agency “Regulatory Reform Officers” to propose agency regulatory cost-allowances to anchor the upcoming Unified Agenda of federal regulations. Published this the 80s, the little-known Agenda presents agency priorities. For the first time, this fall it will contain these proposed agency “budgets.”

Canada’s rule-in, rule out effort was praised by NPR in 2015. British Columbia is a realm where the size of TV’s in Canadian pubs and the size of nails in small bridges are no longer regulated.

Britain’s rule-in, rule out process addressing broad Care, Energy and Waste categories has recently morphed into 1 in 3 out, and is credited with cutting $10 billion pounds in permitting burdens and reducing overlap in agencies.

Goals and targets matter: British Columbia’s program sought and achieved a 1/3 reduction in “requirements,” and cut hundreds of thousands of paperwork hours; Britain’s version seeks to cut another $10 billion by 2020. As Duke Ellington said, “I don’t need time. What I need is a deadline.”

In garnering savings, it may make more sense to locate equivalent burdens, not necessarily rule counts, elsewhere. Perhaps dollar for dollar rather than rule for rule.

Now: Reducing future regulatory flows is not the same as a review and rollback of the existing body accumulated over decades, which also matters in budgeting.

Accordingly, Britain’s in-out “budget” is paired with a Cutting Red Tape review program. A similar proposal in the U.S. was President Obama’s executive order on retrospective review, but is most embodied in Sen. Angus King’s bipartisan Regulatory Improvement Commission, an idea endorsed by the Progressive Policy Institute, which makes the commonsense observation that regulations that make sense alone might not when layered atop one another. Regulatory cost budgeting experiments are already complicated, so reducing the universe of subject matter can help.

There needs to be something —  like, like, oh I don’t know, maybe the Trump agency Task Forces — within the federal government that says “Wait”; that assembles reasons against yet another rule and re-examines old ones, because every other predisposition of government and nudge is toward a larger state. The Framers had even debated a “Council of Revision” for laws; we got the executive veto instead of the Council and a multi-headed executive, of course. But Administrative State proclamations are laws, too.

Lastly, or seventh if you’re counting, I highlight also the former Regulatory Program of the U.S. Government, a sister document to the federal Budget, and a model by which OMB could compile an annual Regulatory Transparency Report with pre-budgetary disclosures and measurements paralleling the historical tables in the fiscal budget, but most importantly, to quantify the unquantified, as I called for.

Disagreements over regulatory benefits are the core concern that keep left and right apart today. These are irreconcilable, but that’s actually constructive, because it exposes the truth that elected legislatures must resolve controversial issues when it comes to any particular lawmaking with massive effect. There is no other solution to this central inappropriateness of the man-made administrative state’s coercive management of human affairs by the unelected. If a budget is blamed for preventing a needed regulation — the chief criticism — what it really means is that a law should have been or needs to be passed by Congress.

But for lesser anxieties, my optimism rests in knowing that some among those with opposing political viewpoints agree that, sometimes, so-called market failures might be rooted in longstanding political failures; and that coercive top-down regulation isn’t always the answer.

You don’t knock down a wall when there’s a door to walk through. Look for longstanding and organic market and common-law alternatives to the administrative state’s coercive discipline. I mentioned looming Drone guidance; I once heard entrepreneur John Chisholm, author of Unleash Your Inner Company, note the role vicious animal and peeping tom laws could play against misbehaving drones.

Like taxes, regulations transfer wealth from one party to another; and even if they agreed on nothing else, both the left and right understand regulatory capture and rent-seeking.

So we could do far worse than cautious experiments in regulatory cost budgeting and disclosure, within a broader rubric of congressional accountability for agency regulation and guidance.

In fact that’s exactly what we do—far worse.

(This article is in part based on the author’s speech at the 2017 American Bar Association, Section of Administrative Law & Regulatory Practice’s Administrative Law Conference, October 2017.)

Originally published to Forbes Online.