Returning to Regulatory Basics

For decades, executive branch agencies have been required to do identify significant problems they are trying to address before going through with a regulation. And for decades, they have been ignoring this mandate.

Jerry Ellig and James Broughel at the Mercatus Center at George Mason University have released a new policy brief, “Regulation: What’s the Problem“, looking into this fundamental problem that has spread to most federal agencies.

For more than three decades, the president has required executive branch agencies to identify the systemic problems they wish to solve when issuing major regulatory actions. In fact, the very first principle in Executive Order 12866, which governs executive branch regulatory review, is that an agency shall “identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem.”

This principle reflects the common sense notion that before making a decision, decision makers should understand the root cause of the problem the regulation is supposed to solve. Unfortunately, in practice regulatory agencies often decide what they want to do, write up the proposed regulations, and only then hand the proposals to their economists. Only at this late stage in the process do agencies identify the problems they are trying to solve.

Executive agencies should spend more time (1) looking for real problems that are affecting the population; (2) conducting honest, outside, and unbiased analyses to see if the benefits of addressing the issue truly outweigh the cost; and (3) taking a deliberate, inclusive approach that works with all affected parties to solve the problem in the simplest way.

Perhaps the agency that ignores this process the most is the Environmental Protection Agency (EPA). Similar to a legislator running for office, most EPA administrators enter their position with a full list of issues they want to tackle, before having the benefit of robust evidence that it is worth tackling. The perfect example of this is Lisa Jackson who came into her position promising to propose lower ozone standards to fight smog. Despite the fact that this was completely discretionary and EPA would be doing a routine review of the standard in 2013, Jackson pushed ahead with a regulation that even the EPA estimated would cost $90 billion a year to comply with. Like all EPA air regulations, the cost-benefit analysis was conducted by an EPA economist after the regulation was proposed. Thankfully, President Obama scrapped the regulation before it took effect.

So how do we get back to regulatory basics? Ellig and Broughel suggest:

Congress should begin the regulatory reform process by requiring agencies to analyze the problems and alternative solutions before they decide to write regulations. This would put assessment of the problems where they belong: before decisions get made about the solutions.

Sound advice. They go an extra step, identifying the questions that agencies should be answering, as well as the best and worst methods of addressing them. You can find these best practices and their entire study here.