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Regulation

Trump's Doomed War on Regulations

There's a better way to cut red tape.

It’s now going on 10 years since I appeared on a panel about the future of conservatism and proposed that it was time for the Republican Party to stop focusing so much on tax cuts, and start thinking more about regulation. Oh, sure, tax cuts are a nice goodie to hand your base. But outside of the donor class, they’re just not that big a goodie, because decades of Republican tax-cutting have already reduced most peoples’ effective tax rates to negligible amounts. Moreover, the taxes that voters still notice are often things like sales taxes and property taxes, over which national-level politicians have no control.

Regulation, on the other hand, has grown steadily since the Reagan era. To take one crude metric: the number of pages in the Federal Register has grown by more than 50 percent since Reagan took office. That of course does not count state- and local-level regulations.

Now President Donald Trump has come along with a new executive order designed to hack away at all this red tape. The tool he wants to use is blunt indeed: for every new regulation an agency wants to introduce, it has to get rid of two existing ones.

I myself am a longtime advocate of a more deliberate approach: the regulatory budget. This is a way to account for the costs of complexity, as individual regulations pile up and intersect and even conflict. The goal is not to get rid of regulations per se; I’m a pretty big fan of some, like those that keep our air and water clean. The goal is to be realistic about the cumulative effects of rules, rather than considering each on its merits and ending up with a pile of red tape that chokes off the ability of ordinary people to found and manage a business.

As someone who occasionally writes about consumer finance, I recognize this pattern of looking at the parts but not the whole from the stories of people who have gotten themselves into major debt. Often, those people weren’t blowing everything they had on outrageous purchases like mansions and boats. Instead what you find is that they evaluated each purchase in isolation, asking “Can I afford something like this on my income?” The answer is yes, they could afford that pair of shoes. Or the travel soccer team for the kids. But not both.

The best way to conquer that problem of piecemeal thinking -- for governments or individuals -- is to address all the decisions at once, with a written budget.

An ideal regulatory budget would not fixate on the number of rules, but on the complexity they create. But economic science has not yet advanced to the point where we can get pinpoint-reliable estimates of that sort of complexity. And when it comes to dealing with the bureaucracy, blunt tools are often more effective than sophisticated ones. Blunt tools are harder to evade.

That said, I have some questions about Trump’s new order. For one thing, he is clearly promising that this will bring huge relief to small businesses. But much of the regulation that businesses struggle under is not federal, but at the state level, and will not go away simply because President Trump thinks it would be nice. (For an excellent primer on how states ramp up costs for small businesses, I recommend reading the “regulation” archives of Coyote Blog, which is written by a small-business owner.) For another, whenever anyone orders the bureaucracy to do anything, I immediately start asking how the bureaucracy is going to get around it. Who is going to get to define what regulations count as meeting the standards? How quickly will the Office of Management and Budget, which is supposed to oversee this process, start granting exceptions?

Perhaps most importantly, I wonder what will happen when Congress starts trying to do things that Trump wants done. Every time Congress passes legislation, some bright analyst toiling in the bowels of a Washington building has to spell out exactly how that legislation will be implemented. Repealing and replacing Obamacare, for example, will require new regulations. Finding twice as many old regulations to cut may be a mite challenging -- less so at first, more so as time goes by. So too with infrastructure, and immigration, and every other major policy area Republicans want to touch. Everything they talk about doing will result in new regulations. When those priorities conflict with the mandate on reducing regulations, I tend to think that the mandate is what will be bent.

It’s certainly an interesting experiment, and I’d be very pleased to see it work. But given the experience of Trump’s other executive orders over the last week, it’s hard not to suspect that the implementation will be poorly thought out and chaotic, and the net results very far from what its supporters might have hoped.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Megan McArdle at mmcardle3@bloomberg.net

    To contact the editor responsible for this story:
    Philip Gray at philipgray@bloomberg.net

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