Economy & Budget

The cornerstone of regulatory reform

When the 114th Congress assembles in January, members will have a plethora of proposed regulatory reforms on their plate. These plans range from required congressional approval for major regulations to stronger judicial review standards. Setting priorities will be a challenge, but one reform can lay a crucial cornerstone—statutory regulatory analysis standards for all regulators. 

Regulatory expertise requires the discipline to conduct quality economic analysis. In order to get a good result from regulations, it’s important to use good inputs before writing them. Unfortunately, federal regulatory analysis is poor at best. If it were better, agencies could solve more problems at lower costs with fewer regulations. 

{mosads}Any effective regulatory reform must ensure that agencies first conduct a complete economic analysis of regulatory proposals, including an examination of regulatory and non-regulatory alternatives. Before they write a proposed or final regulation, agencies should use economic analysis to help make informed decisions about how regulatory authority will or will not be used. 

The benefits of statutory regulatory analysis standards extend beyond the agencies. Such standards will enhance the ability of Congress and the judiciary to evaluate agency compliance with statutory intent and regulatory decision-making standards. 

There is long-standing agreement on the value of methodical regulatory analysis as evidenced by a series of executive orders articulating regulatory analysis standards issued by presidents of both parties. Yet regulatory impact analysis is often incomplete or not used because of weak enforcement mechanisms. The current system places both the writing and review of regulatory analysis at the discretion of executive branch—respectively, the agencies and the Office of Information and Regulatory Affairs (OIRA). As a result, both agencies and the president can make exceptions to the analytical requirements in executive orders when they so choose. This happened in the Obama administration with regulations implementing the Affordable Care Act, as well as in the Bush administration with security regulations implemented in the wake of 9/11. 

Having the discretion to comply or not with regulatory analysis standards means that decision makers too often are regulating in the dark. Without comprehensive regulatory impact analysis, regulators do not know whether there is a problem regulation could solve, and they often fail to craft a workable, cost-effective solution. 

The absence of methodical regulatory analysis also impedes congressional oversight. Congress must have good information about the outcomes the regulation is intended to achieve and the pros and cons of the options available. Without that information, it will be significantly harder for Congress to employ mechanisms that provide for congressional approval or disapproval of individual regulations, such as the Congressional Review Act or the proposed Regulations from the Executive in Need of Scrutiny (REINS) Act. By first ensuring agencies meet sound regulatory impact analysis standards, these mechanisms will create a stronger regulatory process. 

Judicial review is necessary to enforce statutory analysis requirements. Judicial review gives stakeholders an opportunity to challenge regulatory impact analyses that are incomplete, use poor science or are obviously designed to support a decision made before the analysis even began. Statutory analysis requirements provide courts with a more detailed record of why and how agencies are regulating and the guideposts necessary to assess agency compliance with their statutory authority and obligations. For example, the Securities and Exchange Commission has statutory language that courts have interpreted to require benefit-cost analysis of certain SEC regulations. After losing several court cases due to insufficient analysis, the SEC issued new staff guidance on regulatory analysis based on the principles executive branch agencies must follow. 

Our current regulatory system continues to produce ineffective and expensive rules, because we’ve failed to tackle the core cause of poor regulations. Our end goal is solving more problems at a lower cost, and this can be achieved through methodical analysis and transparent decision making. With a foundation of statutory analysis standards for all regulators, we can build a better regulatory system. 

Ellig is a senior research fellow with the Mercatus Center at George Mason University. Williams is vice president for policy research with the Mercatus Center at George Mason University.


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