February 22, 2018

Let Regulators Eliminate Regulations

James Broughel

Research Fellow
Summary

It's often not the public that knows best which regulations need to go.

In recent months, regulatory reform has been atop the agenda of many of the country's politicians. President Donald Trump's efforts to roll back federal regulations have received the most attention, but the states are also making cutting red tape a priority. MissouriIllinois and Kentucky are just a few with regulatory reform initiatives underway.

In these cases, a common tactic used to identify problematic regulations has been to solicit comments from the public about which rules are creating the most headaches. On the surface, this sounds like a good idea. After all, the public knows a lot the government doesn't – but there are a number of reasons why this approach may not be very effective.

One reason is because participants in the commenting process for regulations often do not represent the broad public interest. Historically, the process tends to be dominated by special interests, like lobbyists, labor unions or activist groups of various kinds.

Even the business community, known for fighting regulations, may not be that helpful. Businesses often fight new rules because they want to avoid additional compliance costs. But once regulations are in place, and firms have adjusted to them, businesses often don't mind the rules that much. At that point, regulations actually protect them by making it costlier for any new competitor to enter their industry.

This probably explains why the Trump administration's early efforts to reduce regulatory burdens have focused on repealing recently finalized rules or withdrawing rules that were still in the pipeline.

Ideally, the administration would instead focus on the tens of thousands of regulations that have been in effect for years. Surely some of these rules are outdated or create more problems than benefits. But, surprisingly, there is often no obvious constituency ready to fight to have those problematic rules rolled back.

Why? For starters, there is very little incentive for ordinary citizens to learn about which regulations harm them, despite the fact that regulatory burdens are passed on to consumers through higher prices and to workers through lower wages. Becoming informed about regulatory policy is costly and time consuming, and the additional information provides little use in our daily lives. As a result, most people rationally opt to stay uninformed about complex policy issues like regulation.

This helps explain why, when asked about which regulations need fixing, people often express a preference to maintain the status quo and argue to leave the current stock of regulations alone. When people aren't very informed about an issue, they are hesitant to rock the boat.

The key to meaningful regulatory reform, however, is to identify those rules that look good on the showroom floor, but when we peek under the hood, we find the engine needs repairing. This involves knowing the intricacies of specific policies. In other words, we need a mechanic, which is why the most helpful group is the regulators themselves.

Regulators possess expertise, which is why they are trusted to write regulations in the first place. This same expertise can help to weed out those rules that are not working as intended. In fact, many regulators already know a lot about which rules are working and which are just causing problems.

The main challenge is that they have little incentive to state this information publicly. If an agency admits one of its programs isn't working, it invites criticism upon itself, or worse, budget and staffing cuts. Regulators need to be encouraged to eliminate rules that are ineffective, and rewarded when they are able to do it.

Requirements that force the elimination of old rules as new ones are added can be just the kind of nudge the regulators need. Creating fast-track procedures for rule repeals will also make it easier for regulators to put an end to those rules that aren't advancing the public interest. And simple gestures like giving successful red tape cutters awards – such as golden scissors – let civil servants know that the public appreciates the hard work they do.

In the private sector, firms go in and out of business every day and no one bats an eye. But regulations seem to have eternal life. The key to reducing regulatory burdens is creating the right environment so that the experts can, and will, do their jobs. With the right incentives, regulators are likely to prove a lot better at identifying troublesome rules than public comments.