The Corner

Much-Needed Regulatory Reform

I understand that lawmakers want to be perceived as doing something to fix our economic problems. So here is something lawmakers could do now to help the economy grow.

As you know, economists have studied the effects of regulation on economic growth for many years. Their main conclusion is that a heavier regulatory burden — particularly in product and labor markets — reduces growth and promotes informal markets. The implications of their work are clear: Regulatory reforms, especially those that liberalize entry, are very likely to spur investment and growth.

It would be easy to come up with a long list of regulations that need to be eliminated. But a list of individual regulations doesn’t focus attention on the underlying problem. Instead, we need a dramatic reform of the core laws that govern how we produce regulations. This is why we must reform the Administrative Procedure Act of 1946 (don’t fall asleep yet).

The APA focuses regulators on the process of rulemaking rather than the quality of agency decisionmaking. While presidents since Richard Nixon have tried to address this problem through executive orders establishing standards for regulatory analysis, the results have been weak at best. Agency rulemaking too often yields poor analysis and more regulations rather than effective problem-solving. It is visible in the 165,000 pages of rules in the Code of Federal Regulations, rules that are strangling U.S. businesses and making them less competitive. An important reform would be to make sure that before any agency produces a new regulation, the following questions are asked and answered:

1. Is there a large, systemic problem that is unlikely to resolve itself in the near future?

2. Is the federal government in the best position to solve this problem? 

3. Does the regulation actually address the identified systemic problem?

4. What other solutions are available?

5. Would the proposed solution give rise to other significant problems?

6. Would the preferred solution solve the problem at a reasonable cost?

7. Will the agencies be able to recognize when the problem is actually solved and eliminate the regulation when it becomes obsolete?

These changes would shift the agencies’ current focus on checking the procedural box in order to push out new regulations, to asking how the identified problem can be solved and whether or not a new regulation is needed to achieve that solution.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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