Capital Matters

Watching the Regulators

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Congress should act to protect the impartiality of federal agencies’ economic analyses of regulations.

The Biden administration, supported by thin Democratic majorities in the House and Senate, may soon begin issuing regulations to achieve its policy goals. A presidential memo from last month outlines the administration’s plan for modernizing the federal regulatory-development process within the executive branch. It calls for rulemaking-process improvements to promote goals such as public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, and equity.

But a close reading of Biden’s memo raises questions about whether the process improvements that it envisions will suffice to provide necessary transparency and accountability in rulemaking. In fact, Congress should consider taking additional steps in order to ensure transparency and accountability and to help make regulations authorized by existing statutes more efficient and cost-effective.

President Biden’s January 20 memo reaffirms, without elaboration, the principles of earlier executive orders about regulation issued by Presidents Clinton and Obama, which are themselves descendants of President Reagan’s landmark executive order of 1981 on regulation. Stated plainly, they are: to conduct a careful economic analysis before regulating; regulate only based on a reasoned analysis that the benefits justify the costs; pick regulatory options that provide the largest net benefits; ensure that regulations achieve their objectives at the lowest possible cost; and assess the performance of existing regulations in order to fix or cancel those that perform badly.

These executive orders provide commonsense and battle-tested principles for regulating, and they create pressure for regulators to estimate and publicly report benefits and costs — information that can facilitate discussions about more-economically sensible options. But they cannot prevent federal regulators generally from issuing costly and ineffective regulations, since they are enforceable only by White House officials and not by the courts.

So a larger question emerges: Is anyone, then, regulating the regulators? There is good reason, I’m afraid, to question the impartiality of federal agencies’ economic analyses of regulations. Loss of impartiality — e.g., self-serving analyses by federal regulators — can limit public and congressional understanding of the merits of regulatory actions, and can stymie oversight of the modern regulatory state.

Under current arrangements, regulatory agencies’ staff prepare economic analyses of regulations as they are developed, knowing or anticipating what policy choices their leadership or White House officials prefer. As a result, they are tempted to conduct such analysis with a thumb on the scale, deeming some effects too uncertain to quantify or express in monetary terms, or identifying policy alternatives that obscure important choices. Of course, the White House Office of Management and Budget, which is charged with enforcing existing executive orders to conduct economic analyses of regulations, may ask for a proper analysis consistent with its official guidance. But it has serious difficulty requiring such analysis, especially if doing so would reveal that the option preferred by senior officials incurs more costs than benefits — a conclusion that senior officials would not want to report publicly. Thus, concerns about the quality of a regulatory agency’s economic analysis of a pending regulation may frequently be subordinated to concerns about whether such analysis presents the regulation favorably (i.e., with the highest believable estimates of net benefits).

This lack of impartiality is not remedied elsewhere during federal rulemaking. Agencies receive public comments on proposed regulations and the supporting analysis, but these are typically from interested parties with the incentives and means to acquire and use relevant expertise, or the result of letter-writing campaigns. The General Accountability Office (GAO), keeps track of whether agencies categorize regulations as “major” under the Congressional Review Act (which provides for fast-track up-or-down votes in Congress about whether to overturn recent federal regulations). But it does not assess the quality or completeness of the underlying economic analyses, or whether they comport with relevant standards.

Courts have become more interested in looking at federal agencies’ consideration of benefits and costs during the rulemaking process, but their review of agencies’ economic analyses of regulations is limited. Authorizing statutes, especially those intended to protect health, safety, and the environment, have been interpreted in ways that limit consideration during rulemaking of economic benefits, costs, or both. Since 2009, courts may have settled into a trend of supporting and sometimes requiring use of cost–benefit analysis, according to Brian Mannix and Bridget Dooling of George Washington University. But they acknowledge that courts have not developed procedures or standards to assess the quality or completeness of agencies’ analyses.

One solution, they suggest, is for the administration to codify in the Code of Federal Regulations the principles of regulatory analysis found in EO 12866, signed by President Clinton and in force ever since, to help guide judicial review of agency rulemaking. This solution, however, would require the Biden administration to develop a rule about its rulemaking processes in order to facilitate greater judicial review of its substantive rulemakings — an unlikely prospect.

Another solution is for Congress to create an office outside the executive branch with authority to review and comment publicly on economic analyses conducted by regulatory agencies in support of their rulemakings. Such an office would address whether federal agencies’ analyses of regulations meet the appropriate federal standards for such analyses (e.g., those of OMB’s 2003 Circular A-4, entitled “Regulatory Analysis”). A focus on this sort of technical review should allow such an agency to be nonpartisan — it could be either a congressional office or an independent commission. It would state publicly how an alternative analysis that met the standards of A-4 might reach conclusions about benefits and costs different from those published in support of the agency’s rule. And it would also address alternatives to federal regulation when appropriate, such as state or local solutions instead of federal ones.

Such an office could pack a punch. If organized and staffed so that its reports could be submitted as timely public comments on proposed federal regulations, its reports could be cited by other public commenters and become part of the administrative record reviewable in court.

There is, in fact, precedent for this sort of arrangement. The White House Council on Wage and Price Stability filed public comments on federal agencies’ rulemaking during the Carter administration. While COWPS was a White House office, and not an independent agency, its work illustrates that regulatory agencies can accommodate public comments about proposed rules submitted by another federal agency.

Such an office need not be large. If staffed with two dozen senior analysts, it could reasonably be expected to write timely public comments on a few dozen major regulatory proposals annually. OMB reported that, in fiscal year 2019, executive-branch agencies finalized 55 major regulations, over half of which affected budgetary programs or revenue collection. An independent office of regulatory review might also usefully review the economic analyses in support of the rules issued by so-called independent agencies, given that they are not subject to review by OMB. Independent regulatory agencies finalized another 15 major regulations during fiscal year 2019. Of course, the Biden administration may seek to issue more regulations than the Trump administration did.

In 2000, Congress authorized but did not fund an office of regulatory analysis that would have been housed in the General Accountability Office. Congress should now authorize and fund such a body, either as a part of the GAO or as a stand-alone organization.

An independent office of regulatory analysis would surely not prevent all federal regulatory excesses, either those that go beyond existing statutory authority or those that are legally sound but burden families and small businesses and curtail innovation without commensurate benefits. But it would help protect the impartiality of estimates of the economic effects of federal regulation and thereby enhance serious deliberations about specific federal regulations and the regulatory process generally. And in a troubled world in which legislative action by our elected officials may be limited and new regulations abundant, this modest step is well worth taking.

Randall Lutter, Ph.D., is a senior fellow at the Manhattan Institute, where his research focuses on pharmaceutical markets and policy, medical innovation, and regulation.


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