A man and a few good plans.

The Poor Need Ryan's Regulation Reform

Cass R. Sunstein is a Bloomberg View columnist. He is the author of “The World According to Star Wars” and a co-author of “Nudge: Improving Decisions About Health, Wealth and Happiness.”
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While Representative Paul Ryan's new anti-poverty plan has provoked significant discussion, little attention has been given to his ideas for regulatory reform. Those ideas deserve separate analysis and also considerable credit. They point in helpful directions, and they suggest the possibility of bipartisan cooperation on some important questions.

For years, people on the left have argued that regulators should take account of the so-called distributional effects of regulations -- that is, who wins and who loses. Even when the costs of regulation exceed the benefits, it might be worth proceeding if workers, or people with serious health problems, are especially likely to be helped. Conservatives have often ridiculed this idea.

With his latest proposal for reforming regulation, Ryan agrees with progressives that distributional effects matter and need to be considered. He is especially concerned about the problem of occupational licensing, which can hurt people toward the bottom of the economic ladder. He thinks that the current requirements -- which impose high barriers to becoming a florist or a cosmetologist, for example -- protect incumbents rather than the public. Ryan calls on states and local governments "to begin to dismantle these barriers to upward mobility."

At the federal level, Ryan would require regulators "to conduct a distributive analysis of who would bear the cost of the proposed regulation and whether those costs would be regressive." This would have to include an analysis of jobs lost and jobs created.

Under Ryan's approach, an agency would have difficulty adopting any regulation that would "have regressive effects, either through imposing a disproportionate burden on low-income households or by displacing a disproportionate number of low-income workers." The agency would not be able to proceed unless there was an "immediate risk to public health or safety," or unless it could obtain the approval of Congress.

With respect to occupational requirements, Ryan is on firm ground. True, some such requirements are justified; people should not be allowed to practice medicine or law simply because they hold themselves out as specialists. But all too often, the public-interest justification for licensing requirements is a facade -- the real goal is to insulate existing providers from competition. That insulation is especially harmful to low-income people: They are deprived of potential jobs even as they also face higher prices for licensed services.

But there are three problems with Ryan's proposal for federal regulators. First, regulatory requirements can have disproportionate benefits for the poor. And the distributional benefits, as much as the costs, should be taken into account.

Second, agencies should not be required to demonstrate an immediate risk to public health and safety whenever they find regressive effects. Suppose, for example, that an effort to simplify and reduce paperwork and regulatory requirements on hospitals would eliminate some jobs, and in that sense have regressive effects, but it would also save hundreds of millions of dollars per year. Or suppose that an environmental regulation would raise energy prices, and in that sense prove regressive, but it would eventually save thousands of lives every year. The benefits would dwarf the costs. Regressive effects are not desirable, but they should not be a trump card.

True, under Ryan's proposal, agencies could try to persuade Congress to enact any regulation that has regressive effects, but that brings us to the third problem. Because Congress is so frequently paralyzed, the consequence of this proposal would be to block highly desirable rules, many of which have already been subject to careful cost-benefit analysis.

But let's not lose the forest for the trees. Ryan is on the right track insofar as he suggests that occupational licensing is a big problem and that regulatory agencies should take steps to reduce or eliminate adverse effects on people who are struggling. Democrats and Republicans should be working together to solve the problems that Ryan has identified.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Cass R Sunstein at csunstein1@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net