Economist Notices That The US Is Getting Buried Under Costly, Useless Over-Regulation

from the not-what-we-need dept

The US is often talked about as a major supporter of the "free market," but as we've seen over and over again what we have is really crony capitalism, with lots of efforts being made to protect certain industries through regulation. This hasn't gone unnoticed. The Economist has an article more or less mocking the US for pretending to be all about small government free markets, while really being buried in pointless, confusing and unnecessary regulations:

But red tape in America is no laughing matter. The problem is not the rules that are self-evidently absurd. It is the ones that sound reasonable on their own but impose a huge burden collectively. America is meant to be the home of laissez-faire. Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.

The article points its finger at two key culprits, both of which make sense: politicians who think they can craft perfect legislation to account for every eventuality... and the lobbyists who provide them language to make that possible:

Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future). Far from preventing abuses, complexity creates loopholes that the shrewd can abuse with impunity.

The other force that makes American laws complex is lobbying. The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy. Congress’s last, failed attempt to regulate greenhouse gases was even worse.

These two things are connected, rather than independent, as the article seems to imply. The first one is the key problem. To legislators, creating legislation is the only hammer in their toolbox, so they see every issue as a nail, even when that's rarely the case. And that hubris of being able to create perfect legislation to account for every eventuality is the opening for the lobbyists. Politicians who want to think through every possibility ask the lobbyists to help -- and the lobbyists then have every opportunity to tilt the playing field to their clients, and against the public interest. And that's exactly what happens all too often.

And, of course, if you have any familiarity with these issues, you know that it's incredibly costly:

Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private. America’s share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.

The Economist presents some recommendations on how to fix this. The first is that every law should have a cost-benefit analysis from "an independent watchdog" rather than the current efforts by the CBO. I'm not really convinced that will have much of an impact. We already have CBO estimates, and even if they're not accurate, very few people pay much attention.

They also suggest "the rules need to be much simpler." They suggest that it would be "better to lay down broad goals and prescribe only what is strictly necessary to achieve them." I'm pretty skeptical about this suggestion too. Vague, broadly drafted language leads to uncertainty, and uncertainty can lead to risks and liability... and fear to do things. That wouldn't help. I understand the reasoning here, and if the "broad goals" really are binding, then perhaps this could work somehow, but I think that a better response might be that if the law needs to be so complex, perhaps the law is attacking the wrong issue.

There is one suggestion that makes sense to me, but I don't think it goes far enough:

"All big regulations should also come with sunset clauses, so that they expire after, say, ten years unless Congress explicitly re-authorises them."

We should take that much, much further. First, I don't think it should just be "big regulations." Let's sunset everything, and force Congress to re-evaluate laws already on the books. Along those lines, all new laws (and any re-authorizations of old laws) should come with clear and stated metrics that will be used the next time around to determine if the bill was successful. If the metrics are not met, then the bill should not be allowed to be re-authorized without significant changes. It seems like rules like that might actually take us in a reasonable direction towards passing effective regulations, rather than the mess that we have today. It still amazes me that legislation doesn't already come with metrics to determine if they actually do their job.

Filed Under: expansive, red tape, regulation, us