Promise and Peril: Implementing a Regulatory Budget

32 Pages Posted: 6 Apr 2016

Date Written: April 1996

Abstract

Current regulatory reform approaches, such as requiring cost benefit analysis, will not tame the regulatory state so long as: (a) Agencies themselves get to "calculate" costs and benefits; (b) there are no legislative constraints on regulatory costs, and; (c) there are no Constitutional limits on the scope of regulation as such. At bottom, today's rulemaking process is plagued by the fact that agency bureaucrats are not accountable to voters. And Congress though responsible for the underlying statutes that usually propel those unanswerable agencies nevertheless can conveniently blame agencies for regulatory excesses. Indeed, Americans live under a regime of "Regulation Without Representation."

A regulatory budget could promote greater accountability by limiting the amount of regulatory costs agencies could impose on the private sector. Congress could either specify a limit on compliance costs for each newly enacted law or reauthorization of existing law, or Congress could enact a more ambitious full scale budget paralleling the fiscal budget, a riskier approach. A comprehensive budget would require Congress to divide a total budget among agencies roughly in proportion to potential lives saved (or some other measure of success). Agencies' responsibility would be to rank hazards serially, from most to least severe, and address them within their budget constraint. In either version of a regulatory budget, any agency desiring to exceed its budget would need to seek congressional approval.

Regulatory costs imposed on the private sector by federal agencies can never be precisely measured, and a budget cannot achieve and should not seek absolute precision. Nonetheless, a regulatory budget is a valuable tool. The real innovation of regulatory budgeting is simply its potential to impose the consequences for the quality of regulatory decisionmaking on agencies rather than on the regulated parties alone. Agencies that today rarely admit a rule provides negligible benefit would be forced to compete for the "right" to regulate. While agencies would be free to regulate as unwisely as they do now, the consequences could be transfer of the squandered budgetary allocation to a rival agency that saves more lives.

Budgeting could fundamentally change incentives. Today's conflict between agency political rewards and admission that a rule has no benefits would change. Under a budget, adopting a costly, but marginally beneficial, regulation will suddenly be irrational. Congress would weigh an agencies' claimed benefits against alternative means of protecting public health and safety, giving agencies incentives to compete and expose one another's "bogus" benefits. Budgeting could encourage greater recognition of the fact that some risks are far more remote than those we undertake daily.

In the long run, a regulatory budget would force agencies to compete with one another on the most important "bottom line" of all: that their least effective rules save more lives per dollar spent (or correct some alleged market imperfection better) than those of other agencies. The (unachieveable) "perfect" regulatory budget would be allocated such that further reshuffling of regulatory caps among agencies could save no more lives and would actually cause harm. There are clear benefits to regulatory budgeting, but there are also pitfalls. For instance, enforcement of a budget will never be easy. Under a budget, agencies have incentives to underestimate compliance costs while regulated parties have the opposite incentive. Self correcting techniques that may force opposing cost calculations to converge are only at the thought experiment stage. Limitations on the delegation of regulatory power and enhancing congressional accountability can help, however.

Despite pitfalls, certain princples and antecedents can help ensure that a regulatory budgeting effort succeeds. For instance, explicitly recognizing that an agency's basic impulse is to overstate the benefits of its activities, a budget would relieve agencies of benefit calculation responsibilities altogether. Agencies would concentrate on properly assessing only the costs of their initiatives. Since an agency must try to maximize benefits within its congressionally specified budget constraint or risk losing its budget allocation, it would be rational for agencies to monitor benefits, but Congress need not require it.

Other ways to promote the success of a budget are to: establish an incremental rather than total budget; collect and summarize annual "report card" data on the numbers of regulations in each agency; establish a regulatory cost freeze and implement a "Regulatory Reduction Commission"; employ separate budgets for economic versus environmental/social regulation; control indirect costs by limiting the regulatory methods that most often generate them.

A regulatory budget is not a magic device alone capable of reducing the current $647 billion regulatory burden. Yet so long as Congress is fully accountable for the results of a budget, a cautious one deserves consideration. Having good information is an aid in grappling with the regulatory state just as compiling the federal fiscal budget deficit or not is indispensable to any effort to plan and control government spending. Under any size government, keeping track of spending and regulation will remain vital.

Keywords: regulatory budget, cost of regulation, Office of Management and Budget, fiscal budget, regulation

JEL Classification: A1, B1, C1, C8, D2, D6, H00, H5, K00, K2, K23

Suggested Citation

Crews Jr., Clyde Wayne, Promise and Peril: Implementing a Regulatory Budget (April 1996). Available at SSRN: https://ssrn.com/abstract=2758788 or http://dx.doi.org/10.2139/ssrn.2758788

Clyde Wayne Crews Jr. (Contact Author)

Competitive Enterprise Institute ( email )

1310 L St,
7th Floor
Washington, DC 20005
United States

HOME PAGE: http://www.cei.org

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