Addressing the Growing Problem of Regulatory Accumulation

[This essay originally appeared on the AIER blog on May 23, 2019 under the title, “Spring Cleaning for the Regulatory State.”]

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Spring is in full blossom, and many of us are in the midst of our annual house-cleaning ritual. A regular deep clean makes good sense because it makes our living spaces more orderly and gets rid of the gunk and grime that has amassed over the past year.

Unfortunately, governments almost never engage in their own spring-cleaning exercise. Statutes and regulations continue to accumulate, layer by layer, until they suffocate not only economic opportunity, but also the effective administration of government itself. Luckily, some states have realized this and have taken steps to help address this problem.

Mountains of Regulations

First, here are some hard facts about regulatory accumulation:

• Red tape grows: Since the first edition of his annual publication Ten Thousand Commandments in 1993, Wayne Crews has documented how federal agencies have issued 101,380 rules. Other reports find agency staffing levels jumped from 57,109 to 277,163 employees from 1960 to 2017, while agency budgets swelled in real terms from $3 billion in 1960 to $58 billion in 2017 (2009$).
• Nothing ever gets cleaned up: A Deloitte survey of U.S. Code reveals that 68 percent of federal regulations have never been updated and that 17 percent have only been updated once. If a company never updated its business model, it would fail eventually. But governments get away with doing the same thing without any fear of failure. “If it were a country, U.S. regulation would be the world’s eighth-largest economy, ranking behind India and ahead of Italy,” Crews notes.
• The burden of regulatory accumulation is getting worse: “The estimate for regulatory compliance and economic effects of federal intervention is $1.9 trillion annually,” Crews finds, which is equal to 10 percent of the U.S. gross domestic product for 2017. When federal spending is added to regulatory costs are added to federal spending, Crews finds, the burden equals $4.173 trillion, or 30 percent of the entire economy. Mercatus Center research has found that “economic growth in the United States has, on average, been slowed by 0.8 percent per year since 1980 owing to the cumulative effects of regulation.” This means that “the US economy would have been about 25 percent larger than it actually was as of 2012” if regulation had been held to roughly the same aggregate level it stood at in 1980.

In sum, the evidence shows that the red tape is growing without constraint, hindering entrepreneurship and innovation, deterring new investment, raising costs to consumers, limiting worker opportunities/wages, and undermining economic growth.

Regulations accumulate in this fashion because the administrative state is on autopilot. Legislatures pass broad statutes delegating ambiguous authority to agencies. Bureaucrats are then free to roll the regulatory snowball down the hill until it has become so big that its momentum cannot be stopped.

The Death of Common Sense

Policy makers enact new rules with the best of intentions, of course, but we should not assume that the untrammeled growth of the regulatory state produces positive results. There is no free lunch, after all. Every regulation is a restriction on opportunities for experimentation with new and potentially better ways of doing things. Sometimes such restrictions make sense because regulations can pass a reasonable cost-benefit test. It would be foolish to assume that all regulations on the books do.

Spring cleaning for the regulatory state, therefore, should be viewed as an exercise in “good governance.” The goal is not to get rid of all regulations. The goal is to make sure that rules are reasonable and cost-effective so that the public can actually understand the law and get the highest value out of their government institutions.

Philip K. Howard, founder and chair of the nonprofit coalition Common Good and the author of The Death of Common Sense, has written extensively about how regulatory accumulation has become a chronic problem. “Too much law,” he argues, “can have similar effects as too little law.” “People slow down, they become defensive, they don’t initiate projects because they are surrounded by legal risks and bureaucratic hurdles,” Howard notes. “They tiptoe through the day looking over their shoulders rather than driving forward on the power of their instincts. Instead of trial and error, they focus on avoiding error.”

In such an environment, risk-taking and entrepreneurialism are more challenging and economic dynamism suffers. But regulatory accumulation also hurts the quality of government institutions and policies, which become fundamentally incomprehensible or illogical. “Society can’t function when stuck in a heap of accumulated mandates of past generations,” Howard concludes. This is why an occasional regulatory house cleaning is essential to unleash economic opportunity and improve the functioning of our democratic institutions.

Regulatory House Cleaning Begins

Reforms to address this problem are finally happening. In a series of new essays, my colleague James Broughel has documented how several states — including Idaho, Ohio, Virginia, and New Jersey — are undertaking serious efforts to get regulatory accumulation under control. They are utilizing a variety of mechanisms, including “regulatory reduction pilot programs” and “red tape review commissions.” Recently, Idaho actually initiated a sunset of its entire regulatory code and will now try to figure out how to clean up its 8,200 pages of regulations containing 736 chapters of state rules.

Meanwhile, other states are undertaking serious reform in one of the worst forms of regulatory accumulation: occupational licenses. The Federal Trade Commission notes that roughly 30 percent of American jobs require a license today, up from less than 5 percent in the 1950s. Research by economist Morris Kleiner and others finds that “restrictions from occupational licensing can result in up to 2.85 million fewer jobs nationwide, with an annual cost to consumers of $203 billion.” And many of the rules do not even serve their intended purpose. A major 2015 Obama administration report on the costs of occupational licensing concluded that “most research does not find that licensing improves quality or public health and safety.”

Arizona, West Virginia, and Nebraska are among the leaders in reforming occupational-licensing regimes using a variety of approaches. In some cases, the reforms sunset licensing rules for specific professions altogether. Other proposals grant workers reciprocity to use a license they obtained in another state. Finally, some states have proposed letting most professions operate without any license at all but then requiringall, but then require them to make it clear to consumers that they are unlicensed.

The Need for a Fresh Look

Sunsets are not silver-bullet solutions, and the recent experience with sunsetting and “de-licensing” requirements at the state level has been mixed because many legislatures ignore or circumvent requirements. Nonetheless, sunsets can still help prompt much-needed discussions about which rules make sense and which ones no longer do.

Sunsets can be forward-looking, too. I have proposed that when policy makers craft new laws, especially for fast-paced tech sectors, they should incorporate a clause that what we might think of as “the Sunsetting Imperative.” It would demand that any existing or newly imposed technology regulation should include a provision sunsetting the law or regulation within two years. Reforms like these are also sometimes referred to as “temporary legislation” or “fresh look” requirements. Policy makers can always reenact rules that are still relevant and needed.

By forcing a periodic spring cleaning, sunsets and fresh-look requirements can help stem the tide of regulatory accumulation and ensure that only those policies that serve a pressing need remain on the books. There is no good reason for governments not to clean up their messes on occasion, just like the rest of us have to.

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