Almost six months into the Trump administration, frustration is mounting over the lack of progress on the bold agenda outlined by the president. Tackling Obamacare has proved more challenging than initially assumed, which has kicked up a backlog on tax reform and other key initiatives on President Trump’s agenda. In fact, Republicans in Congress are now discussing whether the August recess should be cancelled so they can address the stalled legislative process and avoid another fight over a government shutdown. But one area where there has been progress is regulatory reform, which is good news for consumers and American businesses who have been struggling to keep up with the regulatory burden.
Whether it is restoring internet freedom or pulling out of the Paris Accord, it’s clear that the new administration is challenging the regulatory status quo. Congress has stepped up its game on regulation as well with the aggressive use of the Congressional Review Act for targeting costly regulations.
So while other priorities may be languishing, the new administration has hit the ground running with respect to regulatory reform. For starters, President Trump has issued two executive orders on regulation, putting agencies on notice that the new administration wants to pare back unnecessary regulations to unleash innovation and growth. The first executive order, E.O. 13771 calls on federal agencies to adopt a one-for-two rule: for every new regulation an agency wishes to pursue, it must identify two additional rules to be stricken from the books. Ideally, the goal is to force agencies to not only prioritize new regulations, but also take stock of potentially burdensome existing regulations that may no longer have any economic justification.
Reviewing the backlog of regulations has been a nagging problem for regulatory reform, because policy typically focuses on new regulations without necessarily assessing the benefits — or costs — of the regulations already on the books. The second Trump executive order, E.O. 13777 helps facilitate this process by requiring every agency to appoint a regulatory review officer to ensure that federal agencies are serious about eliminating onerous regulations.
As noted in the latest edition of Wayne Crews’ 10,000 Commandments, the regulatory burden continues to grow at an alarming rate. Crews reports that the overall burden of regulation has risen to $1.9 trillion annually. And the most recent edition of the Office of Management and Budget’s Information Collection Budget reports that in 2015, Americans spent 9.78 billion hours complying with federal requests for information. From both a monetary and an administrative perspective, federal regulations are a burden.
Despite these staggering cost figures, others suggest that these figures do little to capture the true cost of regulation. Not only are there direct costs to regulation, but there are opportunity costs as well, best described as the foregone opportunities due to regulatory impediments. For example, John Cochrane points to a study that has found that zoning and other restrictions on urban land use alone lowered economic growth in the United States by more than 50 percent between 1964 and 2009. Why? Because such restrictions distort the market and make it difficult for people to live near the productive centers of the economy. So there is a mismatch between labor and capital that limits productivity and hampers economic growth.
Clearly there are many other regulatory barriers in addition to land use regulations. All of which impose costs by eliminating opportunities to expand economic output. And while there are cost estimates that attempt to look at the direct costs of complying with regulations (for example, $1.9 trillion), it is much more difficult to assess the broader impact of regulations on economic activity. But these broader implications are important, and President Trump’s focus on the growing regulatory burden is a welcome shift in policy that could have an impact as large as tax reform.
At the same time, the growing regulatory burden is a symptom of a larger government presence in the economy. And this has the perverse effect of moving resources out of the market and to what economists call the rent-seeking society. This rise of the regulatory state goes arm in arm with the rise of interest groups, lobbyists, and big business that now have a vested interest in shaping government policy. As long as Washington has a say in how businesses are run, corporations will invest billions in the political process to shape the laws and regulations that govern them, along with the unions, trial lawyers, and other special interests who prefer to compete in Congress rather than the marketplace.
While regulatory reform may not receive the same attention as tax reform, it is just as significant for restoring economic growth. The president’s interest in paring back unnecessary regulations is to be lauded, and it may be one bright spot that breaks through the current policy logjam in Washington.