What a Good Regulatory System Should Look Like
Regulations should solve real problems at an acceptable cost. Unfortunately, this does not always happen. Five steps are necessary to ensure that legislators and regulators consider the consequences of their actions before they make decisions.
1. Assess the Likely Effects of Legislation That Authorizes Regulation before Congress Votes on the Legislation
Regulation occurs when Congress delegates rule-writing to administrative agencies. All regulations can ultimately be traced back to the legislation that authorizes them. Before enacting legislation that authorizes legislation, Congress needs to understand the nature and significance of the problem it seeks to solve, potential alternative solutions, and the consequences (benefits and costs) of each alternative.
Congress currently receives a blizzard of information but little structured, impartial analysis of this type. For this reason, Congress needs to create a regulatory analysis unit tasked with conducting “legislative impact accounting.” Legislative impact accounting would assess the effects of proposed regulatory legislation, much like the Congressional Budget Office scores budget alternatives for their impact on federal revenues and expenditures.
2. Improve Agencies’ Information about Regulations’ Likely Effects before They Write Regulations
Congress often delegates to agencies decisions about whether to regulate, how to regulate, or how stringently to regulate. For this reason, agencies also need to assess the nature and cause of the problems they seek to solve, alternative solutions, and the benefits and costs of each alternative. Since 1981, presidents of both parties have required executive branch agencies to conduct this type of analysis, called regulatory impact analysis. But extensive research has found that compliance with executive orders on regulatory analysis is often uneven at best. And few of the independent agencies outside of the executive branch are required by statute to conduct such analysis. To remedy these deficiencies, agencies should be required by statute to conduct an evidence-based assessment of the nature and cause of the problem, alternative solutions, and the benefits and costs of regulations before they write new regulations.
3. Clarify How Courts Are Expected to Review Agencies’ Economic Analysis
Courts currently review regulatory agencies’ economic analysis only in unusual circumstances, such as when the agency is required to produce the analysis by law or the agency itself relied on the analysis to justify its decisions. The extent of review is highly uneven and unpredictable, because courts usually review agency analysis under the vague “arbitrary and capricious” standard. To provide consistent but limited judicial review of agency analysis, Congress should specify in statute the topics a regulatory impact analysis must cover (assessment of the problem, alternative solutions, and benefits and costs of alternatives) and specify that the agency must use the best available evidence in the record when it conducts its analysis. These changes would clarify the extent and standard of review without allowing courts to strike down regulations simply because the judges have different policy views than the regulators.
4. Analyze Regulations to See If They Are Working
Regulation is often a “faith-based” initiative; legislators and regulators both assume that once a regulation is adopted, it will accomplish its stated purpose because that’s what they intend to accomplish. But good intentions do not guarantee good results. Few agencies conduct rigorous retrospective assessments to see if regulations accomplished their intended purposes, and at what cost. When regulatory agencies issue new regulations, they should be required to outline a plan for assessing the regulation’s actual effects after it is adopted and indicate the types of data that will be needed to conduct such an assessment. Ideally such assessments should be conducted by an independent entity that did not write the regulation, such as an expert commission or the regulatory analysis entity established by Congress.
5. Create a Feedback Loop for Congress
Assessments of regulations’ actual effects should be transmitted back to Congress to inform decisions about oversight, budgeting, and reauthorization of regulatory statutes. Ideally, Congress would also establish a budget of regulatory costs for each agency and use the results of retrospective analysis to determine whether agencies are within their allocated regulatory budgets. A budget for regulatory costs would provide a concrete motivation for decision-makers to reexamine old regulations to see if they should be eliminated or modified.
For a more extensive discussion of the current problems with the US regulatory system and the potential contribution of these five solutions, see the recently-released Mercatus Center policy primer by Patrick A. McLaughlin, Jerry Ellig, and Michael Wilt, Comprehensive Regulatory Reform.
