Trump Takes Aim at Wrong Regulatory Problem

President-elect Donald Trump has made it clear: He is not a fan of federal regulations. He stated on the campaign trail that 70 percent of federal regulations could be eliminated and announced plans to do away with two existing regulations for every new one.

His intuition should be applauded, but on their own, these actions may simply drive regulatory activity toward informal enforcement and reduce the rule of law among the federal agencies he hopes to rein in.

To create lasting regulatory reform, the new administration must also focus on laws that reduce agency jurisdiction. That's because there are a number of tools at an agency's disposal when it decides it wants to act. For many agencies, formal, published regulations only emerge when they have run out of alternatives.

Take the Federal Communications Commission (FCC), for example. Since the 1930s, the FCC has had authority to approve or deny the transactions of regulated companies by using its broad "public interest standard."

Most of these transactions are straightforward license transfers, which require a simple registration with the FCC documenting that ownership of a broadcast tower or telephone line has changed hands.

This once-defendable requirement for the AT&T telephone monopoly, however, has metastasized into a near-limitless ability to coerce agreements from cable, media and technology firms who need the FCC's blessing for a transaction.

Demands by activists feature prominently in FCC approvals, and they request conditions — like broadband price controls, monetary donations to public safety organizations, and dedicated children's and Spanish-language TV programming— that could never be achieved through the traditional regulatory process.

Good intentions cannot rescue these illegitimate processes, which are unpredictable to companies and inscrutable to the public.

This corrupting process expands agency power beyond its legal authority. In a few cases, the FCC coerced companies to abide by net neutrality regulations and telephone pricing rules which were later struck down in court.

The rules remained in place for the companies in question, however, because they were a requirement extracted during prior transactions. And parties are unwilling to challenge them because they fear retaliation.

Through transaction conditions and the implicit signal they send to the rest of the media and communications industries, the agency has effectively built an empire that extends beyond the scope of any regulation it has formally published.

Most agencies have "backdoor regulations" — in the form of guidance documents, consent decrees, transaction agreements and ad-hoc customary law — that are visible only to the agency, established industries and D.C. insiders.

A commendable policy — like reducing the number of regulations — is rendered meaningless if agencies' existing, sweeping authority is not narrowed to a few important, identifiable public problems.

Trump is correct in focusing on the pernicious role that federal regulations can play in economic growth and innovation. The problem, however, is that the rules are just the surface of a quagmire of backroom behavior by federal regulators and captive industries.

Welcome to Washington, President-elect Trump.