On January 30th, the White House issued a new executive order targeting regulatory reform. The rule has been promoted, by both the White House and the media, as the rule that forces regulatory agencies to get rid of two rules for every new rule they issue.
Both Canada and the UK have used one-in, one-out rules, with the UK switching towards implementing two for one. The statement below is from a policy paper by the Conservative and Liberal Democrat Coalition government in December 2012 as they switched one One-In, One-Out (OIOO) to One-In, Two-Out.
It is clear that the OIOO rule has delivered a profound culture change across government as demonstrated not only by the continuing increase in deregulatory measures but also in the high number of Departments in credit at the end of the OIOO period.
Building on this culture change, Government is now pressing Departments to deregulate further and faster to free up business from unnecessary red tape and deliver growth. From January 2013, our rule is doubled to One-in, Two-out (OITO). The Red Tape Challenge will continue to be an important vehicle for Departments to reduce regulatory burdens and identify OUTs.
Given the UK’s experience, it makes sense that Trump is starting with two for one. He is not a man of half measures.
But the number rules are not the most important aspect of this policy. A single rule could have a miniscule impact, and repealing two of them might not matter if the new rule imposed gigantic costs. The executive order does not overlook this:
“In furtherance of the requirement of subsection (a) of this section, any new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations”
Trump essentially told the agencies that he is capping the costs they are imposing on the economy. They can reduce costs by being more efficient, or by prioritizing their rule making around the most important problems. He is giving every agency a regulatory budget.
The idea of a regulatory budget is simply applying the concept of a budget to regulations. If applied correctly, government agencies are only be allowed to impose a certain amount of cost on society regardless of their net benefit. As agencies are eager to remain relevant and fix the greatest problems of the day, they will be incentivized to remove or remake some of the costlier rules. The benefits of regulatory policy are not ignored, they are taken into account by the amount of cost each agency is allowed to impose on the economy. Trump’s executive order is designed so the regulatory budget of agencies will be increased or decreased, as needed.
During the Presidential budget process, the Director shall identify to agencies a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year. No regulations exceeding the agency's total incremental cost allowance will be permitted in that fiscal year, unless required by law or approved in writing by the Director. The total incremental cost allowance may allow an increase or require a reduction in total regulatory cost.
While the order looks sound, implementation will be key. First, there is the question of how these costs are measured. The direct cost of paperwork and compliance are not the only costs imposed by regulations, there are also indirect costs that are difficult to take into account but which are often larger than the direct costs.
Second, there is the question of prioritizing the right rules to cut. Right now, this order has implemented partial regulatory budgeting, probably the best that can be done without support from Congress. The costs that the agency can impose, along with the number of rules, has been capped. And while we know the total number of rules issued by each agency, we do not yet know the costs and benefits associated with each rule. Only some rules have been analyzed, and many of those analyses are out of date. Agencies enforcing many costly rules with few real benefits should be made to cut much more than two for one, while agencies providing significant benefits in excess to their costs might be given increase in their regulatory budgets. This is an approach favored by Cass R. Sunstein, one time head of Obama’s Office of Information and Regulatory Affairs.
It is important to remember that regulatory budgeting isn’t some new crazy idea. Canada and the United Kingdom have applied regulatory budgeting. In British Columbia, the Deregulation Office used a regulatory budget approach to cut the number of requirements to 55% of their 2001 level. This is made easier in Canada and UK because the ruling party of coalition in a parliamentary system can change the law. In the US, when an agency gets rid of an outdated and costly rule, they may run into legal obstacles if that rule was legislatively mandated.
It would be best if the agencies were operating under the explicit orders or Congress and the Executive branch to create real change. This isn’t just about rolling back inefficient regulations, it’s also about making the government work far more efficiently. It’s a good start.