A Solution to Regulatory Accumulation

February 25, 2014

The 2012 Code of Federal Regulations, which contains all federal regulations currently in operation, was a whopping 170,000 pages. Regulations only continue to build up over the years, with new rules placed atop new rules as events suggest the need for more regulations. Obsolete and poorly performing regulations should be eliminated, say Patrick A. McLaughlin, a senior research fellow, and Richard Williams, director of policy research, at the Mercatus Center.

All of this accumulation negatively impacts businesses and industry, which are forced to comply with an ever-growing web of regulations that, while they may appear to make sense at the time of enactment, can prove not to be cost-effective.

  • One study found that the accumulation of regulations between 1949 and 2005 slowed down economic growth by an average 2 percent per year.
  • These regulations also impact investment. When the United States and the United Kingdom liberalized markets in the late 1970s and early 1980s, investment as a share of capital stock grew from 3.7 percent in 1975 to 8.15 percent in 1998. But countries that did not implement deregulatory reforms saw investment rates decrease by 5 percentage points.

Attempts to deal with the issue have largely been done through executive order and have not been able to achieve the type of large-scale reform that could be accomplished by an evidence-based, analytical process. Models do exist, however, that could be used to deal with this issue.

  • The United States created the BRAC Commission to deal with the problem of closing military bases after the cold war. Congress made the commission independent, so as to keep special interest influence to a minimum, and required its members to agree to abide by its recommendations unless it passed a joint resolution of disapproval. The commission was able to close 11 major bases as a result.
  • In the Netherlands, the Dutch set a goal of reducing regulatory costs by 25 percent and required all of its regulatory agencies to measure their regulatory costs using a standard model. As such, they were able to make comparisons and reduce 25 percent of costs.

Following these successful models, an independent regulatory review commission could be created to evaluate existing regulations in the United States. The authors suggest that with strict parameters -- such as requiring the commission to make changes that would reduce the administrative burden by 25 percent -- effective changes could actually be made, and those regulations no longer useful could be tossed out. They suggest that the commission's recommendations automatically go into effect unless Congress issues a joint resolution of disapproval of the entire cutback scheme, keeping pork barrel politics in check and limiting the influence of interest groups.

Source: Patrick A. McLaughlin and Richard Williams, "The Consequences Of Regulatory Accumulation And A Proposed Solution," Mercatus Center, February 2014.

 

Browse more articles on Economic Issues