January 17, 2017

Congress Should Follow Arizona's Lead on Deregulation

Veronique de Rugy

Senior Research Fellow
Summary

At the national level, regulations are insanely expensive. The unparalleled regulatory expansion under the Obama administration costs $108 billion annually. Make no mistake, everyone is paying for those business regulations. Cumulatively, they cause a serious drag on economic growth and trigger job losses.

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Some cool reforms are happening in Arizona. From the look of it, Gov. Doug Ducey, a Republican, is actually doing something about the regulatory overload that has plagued his state, like so many others, for decades. His first action in office, for instance, was to issue a moratorium on all new regulatory rulemaking by state agencies. He then sent a very strong signal that Arizona was open for business and that regulation won't continue getting in the way of creating jobs and economic growth.

His next step was to tackle anti-competitive and anti-consumer licensing laws. It's a tall task: A 2012 study by the Institute for Justice ranked Arizona as one of the five most burdensome states for professional licensing requirements. As a starting point, he tried to get rid of licensing requirements for "landscape architects, geologists, assayers, driving school instructors, fruit packers and yoga instructors." When that's done, he will move to other occupations, as he signaled in his 2017 State of the State address.

Next, he went on to freeing the craft beer industry and the sharing economy, which explains why both are now booming in Arizona.

Finally, recently he started a program called RedTape.AZ.Gov, designed to ask for input from the public and the communities directly affected by harmful and outdated regulations. In particular, he's interested in getting rid of regulations scattered all over the Arizona code of regulation that are obsolete, but still in existence "just because they're on the books and nobody's bothered to change them."

You can bet that in the process, they are going to discover some regulations that no one knew were still on the books, or even existed.

These are smart moves from a governor who obviously understands the economic and fiscal burden that regulations can impose on an economy. At the national level, regulations are insanely expensive. According to Diane Katz and James Gattuso at the Heritage Foundation, the unparalleled regulatory expansion under the Obama administration costs $108 billion annually. However, these are surely underestimations, since they use the agencies' own estimates and never consider the loss of freedom and opportunity these 229 major regulations cause.

Make no mistake, everyone is paying for those business regulations. Companies naturally shift the costs onto customers in the form of higher prices, onto employees in the form of lower wages, and onto investors in the form of lower returns.

Cumulatively, they cause a serious drag on economic growth and trigger job losses. A 2013 article in the Journal of Economic Growth by John Dawson and John Seater finds regulation reduced our gross domestic product by a surprising $39 trillion — $129,300 per person — from 1949 through 2005. Imagine what that number would be like today after eight years of regulatory frenzy.

The good news is that President-elect Trump has promised to address this issue and repeal many useless and burdensome regulations issued by his predecessor. In the latest issue of the always-excellent Regulation Magazine, Sam Batkins explains why this is more complex than it sounds and what the new president can do about it. His suggestion, similar to many other regulatory scholars, is to first focus on stopping the implementation of rules issued during the last few months of the Obama administration.

That can be done with the Midnight Rules Relief Act, a proposal that would amend the Congressional Review Act (it allows Congress, with the help of the president, to repeal a regulation under expedited procedure in the House and the Senate) to allow joint resolutions to be disapproved en bloc. As he describes it, "The Midnight Rule Relief Act would allow Congress to bundle dozens of major regulations, with billions of dollars in annual costs, and undo the final gasps of a presidency."

Among the eligible rules for the process, Batkins suggests:

  • Phase 2 greenhouse gas standards for trucks, which cost $29.3 billion
  • Overtime rule, $2.9 billion
  • Aviation drone rules, $2.5 billion
  • Drilling in the Outer Continental Shelf, $2 billion
  • Disclosure of payments by resource extraction issuers, $1.2 billion
  • Fracking emissions standards, $890 million
  • Fair pay and safe workplaces, $872 million
  • Treatment of certain interests in corporations, $280 million

These would be a good start since, as he notes, "Combined, these rules will impose more than $5 billion in annual economic costs and 8.5 million paperwork burden hours."

The whole thing is here. I also recommend reading another piece in the magazine by Batkins and Ike Brannon called "Five Guiding Thoughts For Regulatory Reform In The Next Administration."

Unfortunately, other punishing rules are ineligible for this process and will require legislative action to repeal them. It will be tough, but these rules are in dire need of more review:

  • Clean Power Plan
  • Endangered Species Act
  • Affordable Care Act individual mandate
  • Waters of the United States Rule
  • All of Dodd-Frank

Keep your fingers crossed that Congress and the new president do not squander this unique opportunity to do something great about regulatory burden.