Toward a 21st Century Regulatory System: Debating Better Regulation at the US Senate

Hearing_USA-senate

On February 25, 2015, the United States Senate Committee on Homeland Security and Governmental Affairs held a hearings on “21st-Century Regulatory System”.

Four witnesses were audited: Douglas Holtz-Eakin, President of the American Action Forum; Jerry Ellig, Senior Research Fellow Mercatus Center, at the George Mason University; Michael Mandel, Chief Economic Strategist at the Progressive Policy Institute, and the Honorable; Sally Katzen, Former Administrator of the Office of Information and Regulatory Affairs at the Office of Management and Budget. The Chairman of the Committee, Ron Johnson, and the Senator Thomas Carper introduced the hearing with their statements.

Three topics were discussed during the hearing: (1) measuring the size of total regulatory impact; (2) the use of regulatory impact analysis in rulemaking; (3) the role of retrospective review of regulation.

In more details, Douglas Holtz-Eakin focused on three main issue. The first is that understanding current burdens and reform attempts can guide any reform effort. The second is that regulations have a profound impact on economic performance, affecting employment patterns, the costs of household goods, and the price of energy and health care, among other impacts. Holts-Eakin stressed that during the past six years, the administration has added more than $95 billion in annual regulatory burdens. The third point concerns balanced regulatory reform that retrospectively examines past rules and prospectively evaluates the costs, benefits, and regulatory alternatives. This is not, in the words of Holtz-Eakin, a partisan exercise, but rather an international standard practice.

In the words of Jerry Ellig, a regulatory reform should consider at least four crucial points. First, to assess the nature and significance of the problem that the agency is trying to solve, so the agency knows whether there is a problem that could be solved through regulation. If there is, the agency can tailor a solution that will effectively solve the problem. Second, to identify a wide variety of alternative solutions. Third, to define the benefits that the agency seeks to achieve in terms of ultimate outcomes that affect citizens’ quality of life, and assess each alternative’s ability to achieve those outcomes. Fourth, and final, to identify the good things that regulated entities, consumers, and other stakeholders must sacrifice in order to achieve the desired outcomes under each alternative. In economics jargon, these sacrifices are known as “costs,” but just like benefits, costs may involve far more than monetary expenditures. In order to address these four points, regulatory reform should ensure the quality of cost-benefit analysis and make it inform decisions before they are made.

Jerry Mandel reported on his research on retrospective review which often falls short of expectations. One of the reason behind flawed retrospective review is that rules are often the results of Congressional mandates, which cannot be undone without legislative action. To address the shortcomings of retrospective review, Mandel proposed a Regulatory Improvement Commission that would be authorized by Congress for a fixed term, and consists of a panel appointed by the President and by Congressional leaders of both parties.

In his concluding testimony, Sally Katzen reported the experience of the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB) emphasizing the transparency ensured by the current regulatory system.

Testimonies are available here.

(Gianluca Sgueo)