Rise of the regulatory state

We’ve often decried the tidal wave of regulations being generated under the current administration, but in all fairness the wave has been building for decades. Witness this chart, which shows the growing resources being devoted to regulatory activity. Red tape rising: Obama regs top $100 billion annually, James Gattuso & Diane Katz, Heritage Foundation, 5/23/16.
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This is just the tip of the iceberg, as government costs for issuing and enforcing regulations are dwarfed by the public’s compliance costs. [Competitive Enterprise Institute] Report: Cost of federal regulations reached $1.88 trillion in 2014, Elizabeth Harrington, freebeacon.com,
5/12/15.

There is also a patchwork of state regulations in many areas, which adds to the overall regulatory burden. But to keep things simple, let’s say the current cost of government regulations is $2 trillion per year.

Many of the regulations in existence are appropriate, no doubt, but are there adequate safeguards to weed out rules that are ill-conceived, excessively burdensome, or have outlived their usefulness? And if the answer is “no,” as will be argued, what should be done about it? We’ll end with a suggestion for the path forward.

A. Seeds were sown – From a congressional standpoint, it’s convenient to set broad policy guidelines and allow the administrative agencies concerned to fill in the details. Such an approach speeds the drafting of complex legislation, and it also enables legislators to delegate controversial points to regulators and thereby avoid taking responsibility.

Another plus for regulations versus, say, spending programs, is that politicians can tout the purported benefits without having to include the costs in the government’s budget and take responsibility therefor. And said costs may not be readily determinable by the individuals or businesses that will bear them in many cases. Hmm, sounds like a “free lunch,” although everyone knows there is no such thing.

Consider the Dodd-Frank financial reform act, which called for hundreds of regulations on matters Congress had not deemed it expedient or feasible to address in the legislation itself. The challenges of implementing the Dodd-Frank Act, Kathleen Casey (SEC), Harvard Law School forum,
8/19/11.

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. . when one compares Dodd-Frank to the Sarbanes-Oxley Act of 2002, S-Ox seems almost quaint: Dodd-Frank is more than ten times longer, and mandates more than ten times the rulemakings and studies that S-Ox required. And even when one looks just at the SEC’s burden under Dodd-Frank, the Commission still has to do nearly six times the rulemakings and three times the number of studies it had to do under S-Ox — most of them within one year. The volume of this rulemaking, coupled with the speed at which Congress expects it to occur, poses significant challenges to the agency.

Critics claim the Dodd-Frank legislation was rushed through Congress without a robust review and did not effectively address the problems that caused the financial crisis of 2008. Oversight of Dodd-Frank Act implementation, House Financial Services Committee, accessed
6/16/16.

The Dodd-Frank Burden Tracker, the Committee’s online resource to keep track of these regulations, reports that 224 of the more than 400 regulations required by the Dodd-Frank Act have been issued so far.  Businesses will have to spend more than 24 million hours each year to comply with the red tape from these first 224 rules.  In comparison, it took less time – 20 million hours – for workers to build the Panama Canal.

B. Stuff happened – By granting sweeping powers to administrative agencies, Congress has progressively hollowed out its own policy-making role. See Article 1, Section 1 of the Constitution: “All legislative Powers herein granted shall be vested in a Congress of the United States, which will consist of a Senate and House of Representatives.”

Most of the federal laws issued nowadays come from administrative agencies led by political appointees and populated by career bureaucrats. Moreover, the preponderance of regulations in the mix is arguably representative of their substantive importance as well as their sheer volume. [Senator] Mike Lee bids to reclaim congressional power from the executive [branch], Elaina Platt, National Review,
1/22/16.

[Lee] picks up a 400-page pile, only a few inches tall. It comprises all of the laws Congress passed in 2014. The second stack — over 80,000 pages, around eleven feet high — he can’t hold. It’s the 2014 federal register, which contains all federal regulations to date.

•In Lee’s estimation, the imbalance between the two stacks is indicative of how much lawmaking power Congress has ceded to the executive branch. He sees a body of lawmakers unwilling to make the “tough choices” that are their rightful responsibility, and peppering their bills with phrases such as “the Secretary shall determine” that pass the buck to a cabinet agency all too willing to take it. It’s the reason, for instance, regulations continue to pour out of Dodd-Frank: Through the creation of the Financial Stability Oversight Council, Congress left all discretion over whether a bank has gotten too big to the Treasury secretary, rather than outlining a metric itself.


It can be argued, of course, that the members of Congress should defer to subject matter “experts” (presumably the regulators) on policy details rather than attempting to make all the decisions themselves. 30 years of conservative nonsense, Kurt Eichenwald, vanityfair.com,
11/6/14.

Come January, conservatives will have control of both houses of Congress, and hold a considerable legislative advantage in the last two years of the Obama presidency. Yet not a week ago, conservative politicians and commentators were screaming out batty ideas as they demanded that President Obama close the borders over Ebola, ignoring the advice of infectious disease specialists who know that shutting borders against a disease leads people to make travel by means that aren’t easily tracked, escalates danger, and harms the ability to stop the infection at its source, escalates danger, and harms the ability to stop the infection at its source. Conservative know-nothings dismiss the professionals as know-nothings themselves, despite their training and expertise.

In practice, however, some government regulators have proven to be unprofessional and ideological. Consider a profile of the Environmental Protection Agency that we posted a few years ago, citing examples of various types of misbehavior. Incompetent – inflexible – draconian – political – inopportune – relentless – ideological. Our recommendations for corrective action were not implemented, and the EPA remains a rogue agency that should absolutely not be allowed to exercise great discretional authority – but so far is getting away with it. Dear EPA: Shape up or ship out,
11/29/10.

Here’s another factor that argues against putting the EPA and other administrative agencies on a pedestal and according great deference to their regulations and decisions. Since Democrats lost control of the House of Representatives in 2010, the administration has increasingly been pushing its policy agenda through regulations versus legislation. Far from being based on facts and objective analysis, it often seems that proposed regulations are based on the agency’s marching orders from the White House. Meanwhile on the administrative front,
5/2/11; An administrative blitz: taking cover is not enough, 5/9/11.

C. Current state – With seven months left until a new president takes office, the administration is racing to wrap up a raft of administrative projects. Corners are being cut in many instances, and any semblance of respecting (let alone accommodating) contrary opinions seems to have evaporated. Some illustrative examples follow.

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Environmental Protection Agency – The EPA is attempting to implement half a dozen major environmental regulations, several of which have been challenged in court. One of the most consequential is the Clean Power Plan, which would require the states to commit to achieving major reductions in carbon emissions from electric power plants between now and 2030. In effect, compliance would necessitate a wholesale makeover of the electric power infrastructure of this country.

Over two dozen states, the coal industry, et al. are suing to challenge the legality of the CPP, basically on grounds that the EPA lacked authority to issue it. The court of appeals scheduled a hearing on the merits but declined to grant a stay. The plaintiffs appealed the denial of a stay, and the Supreme Court granted one; the order (with four dissents) was issued shortly before the passing of Justice Antonin Scalia. A setback for affordable energy [referring to a decision in another case],
3/7/16 (CPP portion).

Notwithstanding the stay, the EPA is attempting to coax states into beginning work on CPP compliance plans. EPA moves ahead on clean energy, John Siciliano, Washington Examiner,
6/16/16.

The Environmental Protection Agency issued a proposal Thursday detailing a Clean Energy Incentive Program meant to drive states' adoption of renewable energy to meet the demands of the agency's far-reaching Clean Power Plan, which is being challenged in federal appeals court by more than two dozen states and dozens of other groups.

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Consumer Financial Protection Bureau – Since being created by the Dodd-Frank Act, with sweeping powers and limited accountability, the CFPB has been shaking up the financial services industry. Someone’s got to pay, recap of a talk given by Daniel Kerrick, Esq. to the Conservative Caucus of Delaware, 5/23/16.

The CFPB’s approach is characteristically one-sided.  They solicit information about alleged abuses in a given area without seeking input from the service providers.  And their remedies (fines for alleged past misconduct, restrictions on future transactions) tend to be so sweeping that the firms in question will be forced to cease operations rather than being able to adapt. 

Subsequent to Kerrick’s talk, the CFPB proposed regulations governing the operations of “payday lenders” who specialize in proving high cost/short term loans to high risk borrowers. Among other things, payday lenders would be effectively required to do their customers’ thinking for them by assessing whether the customers could afford the loan payments they were committing to make.

Industry representatives objected that the upshot of the payday lending rules would be to deprive marginal borrowers of the financing they needed or force them to tap even higher cost sources. New CFPB proposal aims at “payday debt traps,” Kevin McCoy, USA Today,
6/2/16.

Noting that millions of Americans live paycheck to paycheck, Consumer Bankers Association CEO Richard Hunt said the proposal could send consumers "to pawnshops, offshore lending, and fly-by-night entities that will be more costly."

Far be it from us to defend payday lenders, but we would question the tendency to view their customers as witless victims who aren’t capable of comparing the loans they are taking out to the alternatives that are available. Lenders expect to cover their costs and earn a profit, and if the regulators make it impossible for them to do so the financing provided will dry up. Accordingly, it’s quite possible that the net effect of this and other CFPB rules will be to penalize the very people that are supposed to be helped.

Don’t be surprised if liberals open a new line of attack by characterizing affordable financing as a “human right” and proposing that government loans or loan subsidies be provided if necessary. What ever happened to personal responsibility?

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Department of Commerce – The Internet is a global network, but its technological underpinnings were developed in the US and remain subject to this country’s control. Some other countries have found ways to restrict Internet operations within their own boundaries, but the overall system has been kept free from bureaucratic meddling.

The key players are: (1) the International Corporation for Assigned Names and Numbers (ICANN), which exercises administrative authority over the Internet; (2) the Government Advisory Committee (GAC) representing numerous countries, which can issue guidance to ICANN but acts only with unanimous consent (this gives the US veto power); (3) the Internet Assigned Numbers Authority (IANA), which actually approves applications for and renewals of domain names & website addresses; and (4) the National Telecommunications and Information Administration (NTIA) – part of the Department of Commerce – which has contracted with ICANN for the functions it provides.

This arrangement is unpopular in some quarters, and there have been calls for change. The current idea is to cancel the US government contract with ICANN, reconstitute ICANN as an autonomous international organization with control over IANA, and empower ICANN to run the Internet with guidance from the GAC (which would switch to majority voting). The administration is apparently disposed to go along, despite considerable congressional sentiment to the contrary, and a showdown on the matter has been building for some time.

Congress defunded implementation of a transition plan during both the previous and current fiscal years, but the administration has kept moving ahead. Is the Obama Internet giveaway a criminal conspiracy? Robert Romano, netrightdaily.com,
6/10/16.

The [NTIA] on June 9 announced a plan preparing to transition the [IANA] functions to the [ICANN] on September 30. *** By preparing a plan for relinquishing responsibility over the IANA functions, NTIA agency officials are apparently planning to violate the congressional defund and the Antideficiency Act. [Under the statute, that would be a criminal offense.]

We have yet to see a coherent argument as to why the US should cede its control over the Internet infrastructure. Perhaps the rationale is that it’s good for us to support international organizations, but the track record of the United Nations since it was created in 1945 doesn’t provide much support for such a belief.

Critics oppose the proposed transition on grounds that putting ICANN in charge would facilitate interference with the Internet by governments with an axe to grind. This summer, Congress must make sure the Internet stays free, Mike Daniels, American Enterprise Institute,
4/28/16.

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. . ultimate control of the IANA function must never pass to an international organization controlled by governments, whether the United Nations, the International Telecommunications Union, or ICANN recast with governments in control. Congress must ensure that the US remains in a position to protect the stability and freedom of the Internet. That means making sure that any institution taking over the stewardship of the Internet’s core functions should be structured to keep the Internet decentralized, open and free.

Bearing in mind the adage that “if it’s not broken, don’t fix it,” we would certainly agree with the critics.

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Federal Communications Commission – Starting with the launching of the Internet, there was a longstanding and bipartisan understanding in DC that government regulators should leave the Internet alone. The idea was to foster innovation in this fast developing sector while relying on competition and choice to ensure responsible business behavior. A new president had a different view, however, and the FCC began studying the issuance of regulations after all. Why businesses should oppose net neutrality, Robert Litan & Hal Singer, Brookings Institution, 8/13/10.

President Obama made [net neutrality] a campaign issue in 2008, the [FCC] is determined to make it the law, and industry analysts are concerned that its passage would undermine investment by Internet service providers (ISPs).

The basic net neutrality concept was that all Internet users should pay the same rate for band-with usage, rather than permitting ISPs to charge higher rates for premium service. Among the potential consequences, ISPs might be less aggressive in expanding their networks and businesses innovation might be discouraged.
Ibid.

Non-discrimination under the FCC's net neutrality proposal means that ISPs cannot offer enhanced services beyond the plain-vanilla access service to content providers at any price. [Thus], if Sony wants to purchase special handling of the packets for its online gaming portal, then it must look beyond ISPs for a supplier. So long as ISPs are barred from charging for that service, they will refrain from offering it.

Fast forward to 2015, when the FCC commissioners voted (3-2) to regulate the Internet as a utility. Critics panned the net neutrality plan as little more than a power grab. Saying “so long” to the First Amendment, Tammy Bruce, Washington Times,
3/16/15.

Boy, do they have a plan. Their new rules for the Internet requires 313 glorious pages of vague, regulating terminology, allowing the agency to make up the rules as it goes along. Ever since the FCC started sidling up to the Internet like a dirty old man next to a supermodel, conservatives and other free marketeers have been channeling Cassandra, warning the nation that “net neutrality” was a pretext for the FCC to issue regulations putting them in charge of the Internet as a whole. That is just what has happened.

Congressional efforts to block the net neutrality plan fell short, even when a seemingly perfect opportunity arose. Senate Republicans made no serious effort to include such a provision in legislation renewing the FCC’s regulatory charter. Senate to dodge net neutrality when it reauthorizes FCC, Joel Gehrke, Washington Examiner,
4/21/16.

The FCC had claimed authority to regulate the Internet under a 1934 statute that clearly had not been written with the Internet in mind, and several court challenges were pending. Perhaps the GOP was hoping the net neutrality plan would be stricken by the courts, but this was not to be. Federal court upholds “net neutrality” regulations, Rudy Takala, Washington Examiner,
6/14/16.

Democrats hailed the ruling. "It ensures the Internet remains a platform for unparalleled innovation, free expression and economic growth," Democratic FCC Chairman Tom Wheeler said in a statement. "After a decade of debate and legal battles, today's ruling affirms the Commission's ability to enforce the strongest possible Internet protections — both on fixed and mobile networks — that will ensure the Internet remains open, now and in the future."

What now? Perhaps there will be an appeal of the court decision, or a legislative compromise will be proposed, or the net neutrality plan will stand and the business community will make the best of the situation as it has done with countless other regulations. Republicans weigh path forward after net neutrality ruling, David McCabe, thehill.com,
6/14/16.

D. Corrective action – The first step in solving a problem is to recognize that it exists. Hopefully, the foregoing discussion has made that point about the growing burden of government regulations on the economy.

Conservatives have basically been fighting the regulatory battles one by one, and losing many of them. This figures to be a losing strategy over time, because ground that is lost will rarely be recovered.

Growing dominance of the executive branch within our governmental system is driving the rising wave of regulations, and this would argue for seeking to revitalize congressional oversight. To this end, we would suggest changing the rules of engagement by enacting the REINS Act.

If affirmative congressional approval (with no possibility of a presidential veto) was required for major regulations to go into effect, as the REINS Act would provide, fewer such regulations would make the grade. No wonder liberals hate this idea. Don’t like Obama’s regulations? Change the rulebook, Cheryl Bolen, bna.com,
6/15/16.

This shift of power, however, is not only unsettling to public interest advocates, but also, they argue, likely unconstitutional. The “most radical measure of them all” is easily the Regulations from the Executive In Need of Scrutiny (REINS) Act, said John Walke, director of the Clean Air Project at the Natural Resources Defense Council. The bill, however, has gained support recently out of anger that the mechanism for overturning regulations—a Congressional Review Act resolution of disapproval—is not working as hoped. *** President Barack Obama has vetoed five resolutions of disapproval, which requires a two-thirds majority to override—votes Republicans don’t have, Walke said.

Duly noted, we say, and full speed ahead!


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