Streamlining The Regulatory Tangle

The perennial debate on expanding or curtailing government regulation of economic activity continues unabated. Issues ranging from global warming to workplace diversity ensure that this area of public policy remains controversial. Under the circumstances, it might be helpful to begin by emphasizing major areas of agreement.

The American people overwhelmingly believe that government regulation is needed to achieve many important economic and social goals. Regulations spring directly from the desire for clean air, drinkable water, safe workplaces, reliable financial markets, and improved medicines - . so regulation is a large and necessary presence in the US economy.

Nevertheless, the current regulatory system produces too few benefits at excessive cost. This is not well understood by the public, since the main costs of regulation are hidden from view. Those costs show up only indirectly - in the form of higher prices, diminished product variety, lower rates of innovation and productivity growth, and reduced job opportunities. A more efficient regulatory system could be both more effective and less costly.

Defects in basic regulatory laws are the major shortcoming in the US regulatory system. Many of these statutes limit or prevent the regulatory agencies from even considering costs in the preparation of new regulations. Other regulatory laws don't allow the agencies to use economic analysis to evaluate regulatory benefits and burdens or to seek the least-cost method of achieving accepted regulatory goals. This problem arises because Congress, in the crucial stage of writing regulatory statutes, doesn't use even the modest methods of professional analysis that are available to executive branch agencies.

Every president from Gerald Ford to Bill Clinton has tried to reduce the high cost of regulation. While substantial progress has been made in eliminating unneeded economic regulation, efforts to reform social regulation have been disappointing. The president's jurisdiction doesn't extend to key regulatory agencies such as the Federal Communications Commission, the Federal Trade Commission, the International Trade Commission, the National Labor Relations Board, and the Nuclear Regulatory Commission.

Reform efforts are severely hampered by distrust on both sides of the regulatory debate - those committed to improving health, safety, and environmental conditions with little attention to costs, and those who are committed to the reduction of "big government," regardless of the benefits obtained. To reconcile these polar extremes, better information, based on sound science and analysis, is needed. The nonpartisan Committee for Economic Development has offered an ambitious agenda of regulatory reform:

* When writing a regulatory statute, each congressional committee should articulate the expected benefits and costs in the report accompanying the legislation. The committee should be required to affirm that these benefits justify the program in light of its estimated costs.

* Congress should eliminate provisions in existing regulatory statutes that prevent regulatory agencies from considering costs or comparing expected benefits with costs when designing and promulgating regulations. Regulations that seek to reduce health or safety risks should be based on scientific risk assessment and should address risks that are real and significant.

* Congress should establish its own professional, nonpartisan regulatory analysis organization to provide it with reliable data, including the required estimates of benefits and costs. This organization should establish a program to evaluate the costs and efficacy of existing regulatory programs.

* Congress also should codify in a single statute a requirement that regulatory agencies analyze the impact of significant regulatory initiatives before they are undertaken. Such an analysis of expected benefits and costs should be made a routine in drafting of new regulations and should be made public.

* Congress should also require the Office of Management and Budget to continue its annual report on the costs and benefits of federal regulations, with supporting detail by agency and program. When regulatory cost data become more fully developed, Congress should establish on an experimental basis a regulatory budget.

These aren't a panacea for eliminating all shortcomings of the regulatory system. But they'd do much to improving the status quo.

* Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University in St. Louis. He served as project director of the Committee for Economic Development report on regulatory reform.

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