One Giant Leap for Evidence-Based Policy in Kansas

Chair Barker, Vice Chair Arnberger, Ranking Member Ruiz, and members of the House Committee on Federal and State Affairs:

Thank you for the opportunity to submit this testimony on Substitute for Senate Bill 34 (Sub SB34), which establishes a five-year process by which regulations will be periodically reviewed in Kansas and creates a fast-track removal process for regulations identified as revocable during those reviews. My name is James Broughel, and I am a senior research fellow at the Mercatus Center at George Mason University and an adjunct professor of law at the Antonin Scalia Law School. I specialize in regulatory procedures, cost-benefit analysis, and the impact of regulations on economic growth. In my research for the Mercatus Center, I conduct independent nonpartisan analysis, employing economic scholarship to assess regulations and their effects on economic opportunity and societal well-being.

As part of forthcoming research, two coauthors and I identify just eight states in the nation without some process for periodically reviewing existing regulations. Kansas is one of these eight states.

The purpose of periodic review is simple: determine whether regulations are achieving their objectives. Periodic review also creates a process during which rules can be fine-tuned as circumstances change. A periodic review process can take several forms, but perhaps the most common is to establish a set timeframe according to which regulations under an agency’s authority must be reviewed. That is the process envisioned by Sub SB34.

The process is reminiscent of business investments: once a new project begins, the investment often unfolds in a manner very different from expectations, and therefore adjustments are needed to bring expectation and reality into alignment.

Billionaire investor David Rubenstein sums up this issue nicely in a recent interview:

"Most business people—if you go back and look at their original business plan, you’ll find that it bears no relationship to what they actually became. If you go back and look at what Bill Gates, Steve Jobs, Mark Zuckerberg, Jeff Bezos were going to do at the beginning—what they ultimately turned out to do was completely different. For example, Jeff Bezos—and I knew him at the beginning—he was just going to sell books over the internet, and that was it, nothing else. And then later he evolved to doing everything over the internet."

Countless regulations are certainly having unanticipated effects, just as occurs with business investments. Without some form of periodic review, these unintended consequences can never be understood, and regulators can therefore never be expected to align theory and practice. Equally important, lessons from reviewing regulations can be incorporated into the design of new regulations, thereby creating an iterative process that involves experimentation, learning, adapting, and ultimately improving the effectiveness of regulations over time.

Sub SB34 is notable in that it would create a fast-track process for eliminating regulations identified as candidates for removal as part of agencies’ periodic reviews. This is important because it addresses an asymmetry in the regulatory process: once enacted, rules create constituencies that benefit from their existence and will lobby to keep them in place. In the case of occupational licensing, for example, regulations often act as an impediment to market competition, and therefore the industry being regulated will lobby hard to keep regulations in place. Because removing a regulation often removes a privilege the government has bestowed upon some favored interest group, it is often easier to add new rules than it is to take them away. A fast-track process for repealing rules levels the playing field.

Making it easier to eliminate regulations also adheres to the economic principle of creative destruction. Sometimes the best way to facilitate progress is to wipe out old ways of doing things so that new, superior methods can replace them. (This idea has come to be associated with the Austrian economist Joseph Schumpeter.) Thus, the best way to improve a regulation that isn’t working as intended may not be to add another regulation on top of the first, with some new additional refinements, but rather to remove the old regulation altogether and replace it if need be.

These two changes that are being considered under Sub SB34—adding a periodic review process and creating fast-track procedures for removing outdated regulations—are both recommendations I make in a recent report about regulatory reform in Kansas (see attachment). The changes may seem modest at first glance, but they actually have the potential to usher in a sea change in the regulatory mindset in Kansas. What makes Sub SB34 so significant is that it would commit Kansas to reviewing regulations on the books to determine whether they are working, a commitment that stands in stark contrast to the status quo alternative of assuming that regulations are working.

Passage of Sub SB34 would signal to regulators that the old days, when regulations were allowed to languish on the books for years without any consideration of whether they are succeeding, are over. This is a gesture that all Kansans should recognize marks a powerful shift in regulatory philosophy that signals better days ahead.

Attachment

“Cutting Red Tape in Kansas: A Menu of Options” (Mercatus Policy Brief)