Independent Arbiters Needed for Regulatory Accumulation Problem

Political parties rarely agree on much these days. Yet, with the Code of Federal Regulations at nearly 175,000 pages, both Republicans and Democrats seem to understand the need to jettison outdated regulations. Even though they widely acknowledge regulatory accumulation—the build-up of rules without concern for duplication, interaction, effectiveness or obsolescence—no solutions are forthcoming.

This week, the House Judiciary Committee held a hearing on proposed legislation that offers a new approach to reviewing regulations. In my hearing testimony, I suggest that the key to solving the problem is having independent arbiters, not regulatory agencies, review existing regulations to identify problematic rules. Then Congress can then act to remove or modify them based on this assessment.

Accumulation is a consequence of the regulatory system’s design. Politicians and agencies react to new problems by creating new rules and regulations. Bureaucrats within agencies are actually rewarded with plaques, awards, and better performance reviews for helping produce new regulations. The new rules are added to a regulatory code that expanded from 71,224 pages in 1975 to 174,545 pages in 2012. There are now over one million restrictions—words such as “shall” or “must” that indicate a binding, legal constraint—in the code.

This one-sided process typically rewards the creation of new rules but rarely rewards a decision not to create a rule—even if government employees conduct a detailed analysis confirming that a proposed regulation doesn’t provide enough benefits to outweigh the costs. Agencies have little incentive to review existing rules to find nonfunctional rules that are obsolete, duplicative, ineffective, or inefficient.

Why is regulatory accumulation problematic? Because it hinders innovation and entrepreneurship, the backbones of economic growth. It prohibits some would-be entrepreneurs from creating new products that could improve our quality of life or even save lives. For example, the National Highway Traffic Safety Administration (NHTSA) has regulations restricting car headlight designs. While those regulations allow headlights to automatically switch between high or low beams and swivel to shine light around curves in the road, they don’t allow designers to implement any sort of adaptive setting that could dim the high beam only at the appropriate spots in the road.  

While switching to low beams has the benefit of not blinding oncoming drivers, it has the cost of reducing visibility, particularly on the sides of the road. Toyota, Mercedes, and Audi all created systems that dim only a select portion of the high beam when another car is approaching. This selective dimming allows drivers to still see the sides of the road, where pedestrians may be, while simultaneously keeping high beams from blinding oncoming drivers. These systems are built and sold in Europe and Asia, they cannot be sold in the United States because of NHTSA regulations. This entrepreneurial innovation could occur here; and perhaps more importantly, these adaptive headlights could save some pedestrians’ lives.

When regulations stifle innovation and entrepreneurship, the effects are felt throughout the economy. A study published last year in the Journal of Economic Growth found that regulatory accumulation slowed economic growth by an average of 2 percent annually from 1949 to 2005.

Every president since Jimmy Carter recognized this problem, but none have successfully addressed it. The reason is, despite good intentions, presidents always ask the agencies to review their own rules and decide which ones to repeal or modify. That’s akin to asking students in a class to grade their own term papers. A few students may be legitimately self-critical, but on average, you can expect self-graded tests to score much better than if a neutral third party graded them. Moreover, and in fairness to the agencies, their budgets hardly allow them to allocate any serious effort to retrospective review, especially when their missions don’t include such action.

An alternative approach is to have independent arbiters test for obsolete and duplicative rules. The analysis would also review whether rules are actually achieving their objectives and whether they are doing so in the most cost-effective manner.

Rulemaking evolved quite a bit since the Code of Federal Regulations first began growing, right around the same time as Wyatt Earp’s shootout at the O.K. Corral. It only makes sense to review this stockpile of rules and cut away some of the red tape that inhibits innovation and entrepreneurship. But to succeed, the review will require independence. The potential gains from a successful retrospective review are too large to ignore, and such a review can’t be left to agencies with neither the budgets nor incentives to do it right.