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A regulatory budget?

Suppose you’re a Minister who wants to reduce, say, the road toll. Your officials tell you that roading investments to straighten out some curves and improve a few intersections would cost $2 million per statistical life saved over the next decade, but the up-front cost would be $100 million. It would hit the budget figures.

Alternatively, you could reduce the speed limit in those areas to 70kph and put in some speed cameras. Your officials tell you that it would cost $3.5 million per statistical life saved, but that those costs would fall on drivers: time costs of travel would increase. The net cost to government would be negative: speed camera fines would net you more than the cost of putting up the cameras. But it would still cost a lot more, in terms of overall cost to the country, per life saved.

You know that allocating more money to LTNZ would have to go through Cabinet, get into the budget, and would potentially get you into fights with colleagues who’d prefer to spend the money on their own areas of interest. Your officials, though, could pretty easily change the speed limits and put in the cameras.

As I’d noted in our Insights newsletter a couple of weeks ago, when governments face fiscal budget constraints, but no regulatory budget constraint, you can pretty easily wind up in perverse outcomes where government is happier to use more costly regulatory measures to achieve outcomes than to spend money to do it.

Charles Murray proposes a solution in his new book.

Here’s Brookings on it:

But the argument that Congress can never do much to reform the regulatory state is unpersuasive. It can. The central political challenge is to make regulatory reform a more bipartisan issue. Democratic advocates for regulatory reform tend to be few. Regulatory reform tends to be treated as a business – and therefore, Republican – issue.

This is unfortunate, because regulations affect nearly every aspect of modern life. They are neither inherently left nor inherently right. A perusal of the Competitive Enterprise Institute’s survey, “The 10,000 Commandments,” highlights the diversity of subjects for new regulations: the military’s Tricare prescription drug program; catfish inspections; federal assistance to foreign atomic energy activities; and disaster assistance programs, to cite just a few.

“Public-school teachers,” Murray observes, “typically labor under regulatory regimes that prescribe not only the curriculum but minutely spell out how that curriculum must be taught—an infantilization of teachers that drives many of the best ones from the public schools.”

There are approaches to regulatory reform that are innately bipartisan: they would strengthen the legislative branch as an institution vis-a-vis the executive. Congress could establish a Congressional Regulatory Office. Modeled on the nonpartisan Congressional Budget Office and Congressional Research Service, the new CRO would advise Congress on proposed and forthcoming regulations, and regulatory policy generally. A Congress with more expertise in regulations might well be less apt to give away its law-making authority and more able to thwart bad regulations before they are issued.

As for the great mass of existing regulations that Murray (and others, including myself) find problematic, there is a bipartisan, institutional solution. Congress can create a commission to study the corpus of federal regulations and identify rules for abolition. Anachronistic or unwise regulations would be rolled into a bill, and Congress would vote up or down on them (a bit like BRAC). Assuming this commission operates collegially and avoids highly charged regulations (e.g., Obamacare), it could significantly reduce the stock of regulations in a sensible fashion. Sen. Angus King, I-Maine, has proposed doing this in the Regulatory Improvement Act (S. 708), which has both Republican and Democratic original co-sponsors. Think tanks on the left and right both have advocated such a commission. Rep. Jason Smith (R-MO), has introduced the SCRUB Act (H.R. 1155) in the House, which proposes a similar commission.

The Regulatory Impact Statements accompanying New Zealand regulation are supposed to achieve similar objectives. But we still wind up with Worksafe regulations like those around scaffolding that impose substantial costs on new building with no substantive cost-benefit assessment before the regulation is imposed. The vetting office would need to be pretty rigorous.

About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

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