Regulation 101
Goals


Provide a general overview of the federal
regulatory process and the effects regulations have
on the economy.
Illustrate productive narratives to use when
discussing regulatory issues.
Regulations are Everywhere
Why We Regulate

Correct Market Failures
 Anticompetitive
Behavior
 Externalities
 Asymmetric


Information
Promote Public Health and Safety
Control behavior deemed
socially unacceptable
How We Regulate



Social Regulation – prohibits firms from producing
products harmful to public interests such as health,
safety, and the environment. OSHA, EPA, FDA.
Economic Regulation – prohibits firms from charging
prices or entering into business that might cause harm to
the economic interests of other firms or economic
groups. FCC, SEC, USDA.
Administrative Regulation – Paperwork requirements
such as income tax, immigration, social security, food
stamps, or procurement forms. IRS, HHS, DHS.
How Regulatory Sausage is Made
Regulatory Trigger
Legislative
Action
• ObamaCare
• Dodd Frank
Court
Decision
Agency
Priority
• Green House
Gas Emissions
• Medicaid
Expansion
• Appliance
Efficiency
Standards
• Fuel Efficiency
Standards
How Regulatory Sausage is Made
Informal Rulemaking Process
Twice a year the President
must release the
regulatory priorities of
every agency
Unified Regulatory Agenda
The rule is made available
for public review - usually
30 to 90 days.
Relevant agencies develop
the rules laid out in the
Agenda
Agency must review all
public comments and make
necessary adjustment based
on the comments they deem
relevant.
(Excluding Direct-Final Rules)
White House evaluates the
rule before it’s published for
public review
Except for Independent
agencies (e.g. FCC, SEC)
Final rule is published,
including reasons justifying
the final language and
responses to significant
criticisms.
How Regulatory Sausage is Made
Formal Rulemaking



Law must require a public hearing to trigger the
formal rulemaking
This requires a full trial-like proceeding. The agency
will call witnesses, take testimony and create a
record. The decision will be the rule.
Overseen by an Administrative Law Judge that can
review “substantial evidence.”
How Regulatory Sausage is Made
Review Process
During Rulemaking
• White House reviews all
rules deemed significant:
• Interferes with another
agency
• Effects federal
entitlements or payments
• Raise novel legal or
policy issues
• Conflicts with President’s
priorities
• Economic effect is $100
million or more. (Requires
Regulatory Impact
Analysis)
After Rulemaking
• Congress may review and
reject new regulations
issued by a Federal
agency.
• Only done once - 2001,
to repeal a Clinton-era
ergonomics rule.
• Judiciary can review
whether the regulation
exceeds the authority
granted by the authorizing
law and whether the
agency properly followed
the public review process.
How Regulatory Sausage is Made
Review Process
Benefits
• A Regulatory Impact Analysis forces agencies to offer a justification for the action and
review its costs and alternatives.
• Public Notice and Comment creates regulatory transparency.
• Judicial Review gives a final check against “arbitrary-and-capricious” rulemaking.
Problems
• Quality controls on analysis are weak: no peer review, judges do not consider the
quality of the review.
• Judicial Review is narrow
• Chevron Deference– Has Congress directly spoken to the precise question at issue. If
not, the agency's interpretation is given considerable weight and should be deferred
to. (FDA v. Brown & Williamson Tobacco)
• Was Public Notice and Comment followed
• Is the rule arbitrary-and-capricious (Bloomberg soda ruling)
• No outside review process (all executive branch)
• Does not cover Independent Agencies (e.g. FCC, SEC)
How Good is Costs/Benefit Analysis?

Should the reported benefits be viewed skeptically?


Scientification of policy
During the past decade over 80% of total reported
regulatory benefits derive from three sources:
0.00209 point
(1) reductions of fine particles in the air as a increase in the
average IQ
direct result of regulation
 (2) “co-benefits” achieved from reductions in these particles
as an indirect result of regulation, and
 (3) Consumer savings for which agencies offer no market
failure and ignore consumer preferences

Exaggerated Benefits?
So how many regulations are there?
So how many regulations are there?
Midnight Regulations
No ‘Midnight’ After This Election, Ike Brannon, R Street Institute
Cost of Regulations
Cost of Regulations
Cost of Regulations
OMB 2013 Draft Report to Congress on the Benefits and Costs of Federal Regulations
Cost of Regulations
Cost of Regulations
Cost of Regulations
The Industry-specific Regulatory Constraint Database (IRCD), Mercatus Center at GMU
The Seen Cost of Regulation
Federal Regulatory Enforcement Spending 2005-2010 (Billions of Dollars)
$54
$55
2009
2010
$49
$45
$38
2005
$41
2006
2007
2008
Crews, Clyde Wayne, Competitive Enterprise Institute, Ten Thousand Commandments. 2012 Edition
The Unseen Cost of Regulation
Federal Regulatory Compliance Spending 2005-2010 (Billions of Dollars)
$1,752
$1,127
$1,142
$1,157
$1,172
$44
$45
$46
$49
$52
$53
2005
2006
2007
2008
2009
2010
$1,187
Crews, Clyde Wayne, Competitive Enterprise Institute, Ten Thousand Commandments. 2010 Edition
Cronyism in Regulation
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Regulatory Capture – When a regulatory agency,
tasked with regulating in the public interest, instead
promotes the commercial or special interests of
industry in sector it is charged with regulating.
Rent Seeking – Groups spending private funds to
secure public benefits.
Revolving Employment Door
Reform Initiatives

Require Congress to approve economically significant rules

Regulatory Pay-Go

Expand the use of formal rulemaking procedures

Provide for judicial review of substantial evidence

Create a congressional regulatory oversight body (Actually exists - the Truth in
Regulating Act of 2000 - Funds have never been appropriated)

Codify requirements for Regulatory Impact Analysis

Executive branch efforts
Upcoming Regulations to Watch For

Greenhouse gas emissions on utilities

ObamaCare

Dodd Frank
 153
(38.4%) of the 398 total required rulemakings
have been finalized, while 128 (32.2%) rulemaking
requirements have not yet been proposed.
Takeaways for talking about regulations


Being against regulation just to be against
regulation is just as bad as being for it because “we
must do something!”
Regulations are enormously costly and you should
be extremely careful to use such a blunt tool in a
complex world.
 Ask
why you need it? Will it fix it? What are the
alternatives? And what will it cost?
Regulation 101