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Trump made a start — now to scrap the red tape on regulators

Trump made a start — now to scrap the red tape on regulators
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Last October, President Donald TrumpDonald John TrumpIvanka Trump, Jared Kusher's lawyer threatens to sue Lincoln Project over Times Square billboards Facebook, Twitter CEOs to testify before Senate Judiciary Committee on Nov. 17 Sanders hits back at Trump's attack on 'socialized medicine' MORE signed an executive order directing executive branch agencies to move their “guidance documents” into new online portals. These documents, written by federal regulators, include the various memoranda, policy documents, and other directives agencies issue that don’t go through the usual Administrative Procedure Act process for ordinary regulations.

This change could have a bigger impact than might appear. Not only is it a chance to continue streamlining regulations for the American public and businesses — an area where Trump is making progress — but it’s a chance for federal agencies to unburden themselves from some red tape of their own.

Trump’s order and a subsequent Office of Management and Budget (OMB) implementation memo gave agencies until Feb. 28 to create the new online portals and until June 27 to move existing guidance into that system. Any guidance not in the system by that point would have to be reissued by the agency before it could be effective — a process which, going forward, will be more stringent, sometimes requiring cost-benefit analysis or scrutiny from OMB.

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Some agency guidance serves a useful purpose, such as explaining to small businesses the steps they can take to ensure compliance with the law. However, some of it can be an informal type of “stealth regulation” that escapes the usual checks and balances of the rulemaking process.

And it turns out that some of the most pernicious guidance can come in the form of guidance to the regulators themselves. That is, agencies sometimes issue documents outlining their own internal procedures, or OMB will issue guidance to agencies on how to conduct certain practices. When done right, these documents can be extremely helpful. The problem is that they can be error-laden and have unintended consequences when they codify flawed practices.

Although agencies’ internal guidance are exempt from certain aspects of Trump’s executive order, now is still an opportune time to review these documents. Take, for example, mortality risk valuation guidelines issued by agencies like the Environmental Protection AgencyDepartment of Health and Human Services, and Department of Transportation. When federal agencies produce a cost-benefit analysis to estimate the effectiveness of a regulation, they will often resort to putting a dollar value on a human life. This is usually done using a metric called the “value of a statistical life,” or VSL — a measure of what some current citizens are willing to pay to reduce death risks.

Many peer-reviewed academic studies estimate the VSL (with agency guidelines citing such studies), but shockingly little serious discussion has taken place among economists as to whether it’s theoretically appropriate for use in cost-benefit analysis. What seems to have attracted agencies to the VSL (and by extension economists who want to influence policy) is that it is often as much as 10 to 20 times higher than other mainstream estimates of the value of life. That boost gives agencies a lot of leeway to justify expensive regulations that would otherwise look counterproductive.

This is a problem because while exaggerating the value of life could in theory reduce short-term risk in society, we also have to think about what we’re giving up. Ample evidence suggests that a high level of wealth at the national and individual level is one of the best predictors of safety. So if our measurement tools emphasize short-term risk reduction at the expense of economic growth and long-term prosperity, then our children could end up paying the price by having to live in a poorer, more dangerous and riskier world than might otherwise be.

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As agencies now consider what guidance to rescind, VSL-touting internal guidance should be one obvious choice. In fact, the Office of Management and Budget should similarly be thinking about reconsidering aspects of its own outdated guidelines. One document, known as Circular A-4, sets regulatory analysis guidelines for the government. While it includes some useful recommendations, it is closing in on 20 years old. And one of its main effects seems to be spreading faulty “best” practices throughout the government.

Among other things, A-4 recommends agencies use the VSL. It also includes recommendations to apply a discount factor to human lives expected to be saved in the future by a policy — another questionable practice. These two practices on their own cast doubt on the validity of much of the cost-benefit analysis produced by federal agencies, even if some small improvements resulted from other recommendations in A-4.

Trump’s recent agency guidance executive order presents a unique opportunity to remove outdated regulatory clutter that inhibits small businesses and entrepreneurs. But some of the most problematic red tape bogs down the regulators themselves. In some cases, these documents have shoe-horned regulators into economically unsound, and even morally questionable, analytical practices. Fortunately, now is the perfect time to right the ship of government.

James Broughel is a senior research fellow with the Mercatus Center at George Mason University and an adjunct professor of law at the Antonin Scalia Law School.