Monday, February 6, 2017

Cleaning Out the Regulatory Closet: An Analogy for Consideration . . .

This post comments on the method for managing regulation and regulatory costs in the POTUS's Executive Order on Reducing Regulation and Controlling Regulatory Costs.

I begin by acknowledging Anne's great post on the executive order.   She explains well in that post the overall scope/content of the order and shares information relevant to its potential impact on business start-ups.  She also makes some related observations, including one that prompts the title for her post: "Trumps 2 for 1 Special."  In a comment to her post, I noted that I had another analogy in mind.  Here it is: closet cleaning and maintenance.

84px-Wall_Closet
You've no doubt heard that an oft-mentioned rule for thinning out an overly large clothing collection is "one in, one out."  Under the rule, for every clothing item that comes in (some limit the rule's application to purchased items, depending on the objectives desired to be served beyond keeping clothing items to a particular number), a clothing item must go out (be donated, sold, or simply tossed).  Some have expanded the rule to "one in, two out" or "one in, three out," as needed.  The mechanics are the same.  The rule requires maintaining a status quo as to the number of items in one's closet and, in doing so, may tend to discourage the acquisition of new items.

Articulated advantages/values of this kind of a rule for wardrobe maintenance include the following:

  • simplicity (the rule is easy to understand);
  • rigor (the rule instills discipline in the user);
  • forced awareness/consciousness (the rule must be thoughtfully addressed in taking action); and
  • experimentation encouragement (the rule invites the user to try something new rather than relying on something tried-and-true).

Disadvantages and questions about the rule include those set forth below.

  • The rule assumes that it is the number of items that is the problem, not other attributes of them (i.e., age, condition, size, suitability for current lifestyle, etc.).
  • Once new items are acquired, the rule assumes that existing ones are no longer needed or are less desirable.
  • The rule operates ex post (it assumes the introduction of a new item) rather than ex ante (allowing the root problem to be addressed before the new item is introduced).
  • The rule encourages an in/out cycle that incorporates the root of the problem (excess shopping) rather than addressing it.
  • Definitional questions require resolution (e.g., what is an item of clothing).

Internet sources from which these lists were culled and derived include the article linked to above as well as articles posted here and here.

Regulation is significantly more complex than clothing.  But let's assume that we all agree that the list of advantages/values set forth above also applies to executive agency rule making.  Let's also assume the validity and desirability of the core policy underlying the POTUS's executive order on executive agency rule making, as set forth below (and excerpted from Section 1 of the executive order).

It is the policy of the executive branch to be prudent and financially responsible in the expenditure of funds, from both public and private sources. In addition to the management of the direct expenditure of taxpayer dollars through the budgeting process, it is essential to manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.

How do the closet organization disadvantages or questions stack up when applied in the executive agency rule-making context?  Here's my "take."

I am not confident that the case has been made that the number of regulations--as opposed to their content--is the problem that needs to be (or is intended to be) addressed.  The executive order seems to focus on regulatory cost and does not offer a basis for linking number to cost.  (The executive order does address regulatory cost as a separate, related matter, however.  I may have more to say on that in another post.)  However, assuming the number of regulations is the issue that requires resolution, even a superficial analysis requires that we understand what is meant in the executive order by the term "regulation."  My observations on that question are below.

Executive agency regulation is unlikely to stop as a result of the executive order.  Each new regulatory adoption will involve a clear but non-trivial tradeoff determination framed by a single, simple question: is this new regulation worth the loss of two existing ones?  It is tough to make a qualitative judgment on the value--or lack of value--of a regulation (assuming we can define what one is).  For example, a new regulation may benefit some types of businesses or social groups (or aspects of business or society) and detriment others.  Beauty--or quality--is in the eye of the beholder.  An obvious assumption underlying the judgment under the application of this rule, however, is that current rule makers will enact better rules than prior rule makers.

By waiting until a new regulation is proposed to make an adjustment in existing rules, we delay action to resolve any over-regulation problem that we may have.  It seems more sensible and direct to look at truing up existing regulations before introducing new ones.  Some who advocate the one-in, one-out rule for clothing management (see, e.g., this post) recommend engaging in this kind of tending and weeding before implementation of the rule.  If the number of regulations is too high now, the one-in, one-out rule does nothing to address that.

Along similar lines, by working off the proposal of new regulation, the one-in, one-out rule actually may encourage regulation.  Of course, nothing prohibits or restrains executive agencies from revoking regulations outside the operation of this rule.  But the rule does not necessarily encourage that process.  Agencies could be incentivized to hold onto less desirable rules so that when they want to implement regulation, they have some easily discardable regulations on hand to jettison . . . .

Finally, it seems appropriate to ask what the POTUS actually means by "one new regulation" and "two prior regulations."  There are a number of levels on which this definitional question operates.  First, there can be a bundling of subject matters in a single regulation.  Or, related rules can be separated into different regulations.  Also, since deregulatory initiatives are themselves introduced in regulation (e.g., regulations under the JOBS Act), do they count as "regulations?"  If the number of regulations truly is the perceived problem to be resolved, I presume they would.  The Director of the Office of Management and Budget is charged with implementing the executive order.  I assume that these and other questions will be addressed in forthcoming guidance.  

Suffice it to say, many questions remain . . . .

Having read Anne's post and written this one, my essential observation is that the Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs is best seen as a signaling device--the POTUS's way of telling those who support him on this issue that he is doing what he promised.  As a form of regulation in-and-of itself, the executive creates its own set of costs--as every rule change does.  I can only hope that in the end, after all of the guidance on this executive order has issued, any benefits exceed the harms and nothing essential is destroyed in the process.

http://lawprofessors.typepad.com/business_law/2017/02/cleaning-out-the-regulatory-closet-an-analogy-for-consideration-.html

Anne Tucker, Current Affairs, Joan Heminway | Permalink

Comments

The one-in-two-out thing seems to be setting an organizational goal rather than a strict numerical ratio. After all, it would be easy to create one new EPA regulation requiring all American factories to emit zero carbon by the end of 2018, while eliminating two minor regulations dealing with proper labeling of matchbooks and ramen soup cups. I seriously doubt that’s what the president intends. What the EO seems to be doing is compelling an agency that hasn’t done that to do it before they can issue a new one.

When you write, “By waiting until a new regulation is proposed to make an adjustment in existing rules, we delay action to resolve any over-regulation problem that we may have,” you’re obviously correct. Agencies should certainly be routinely policing their own excessive regulation. Doubtless many of the new Cabinet and administrative officials—who have routinely criticized regulatory overreach—will be trying to do that. But I recall a few presidencies that promised to cut regulation, and somehow those promises never seemed to come about. Given that agencies with civil service protections and entrenched agency constituencies have generally failed to do this voluntarily, there’s now a stick. “Okay, there’s something you really want to do. Show me that you’re cutting something significant and I may agree that you can do it.”

I doubt that agencies will keep in place rules they were already planning to dismantle. After all, Trump is a business guy. He's presumably bright enough to understand it when the agency says, "Look, we didn't even wait! We've already slashed a bunch of regs! Can we bank them for the future?" Is there any reason to think he'd say "no"?

Posted by: Frank Snyder | Feb 6, 2017 8:50:42 AM

Frank, I appreciate the comments. I think you see well what I was saying.

And I am glad that you have confidence that both the agencies and the POTUS will "do the right thing" when it comes to implementation of this EO. I do hope it's more than a marketing ploy. And, assuming it is, I further hope that the regulatory and government actors exercise their authority under its mandate responsibly.

Posted by: joanheminway | Feb 6, 2017 8:58:13 AM

I look forward to Congress’ exercise of the Congressional Review Act to repeal the “Midnight Rules.”

An informative piece was issued by the Congressional Research Service. It is titled
“Counting Regulations: An Overview of Rulemaking, Types of Federal Regulations, and Pages in the Federal Register” available at: https://fas.org/sgp/crs/misc/R43056.pdf (Oct. 4., 2016).

Posted by: Tom N. | Feb 7, 2017 10:41:48 AM

I agree. I note, though, that "marketing" by the CEO is an extremely good thing when the goal is to sell a product, and government is a product. I've worked with companies where the CEO has very detailed rules and objectives for everybody in the company, and with those whose visionary leaders articulate visions. Both approaches can work. The problem with the first is that one has to be very clear about the detailed instructions and careful about how things get measured. The problem with the second is that if the vision isn't clear enough, the troops figure out ways around it.

In my experience the first approach works better in organizations where the problems are relatively simple, the objectives are clear, and it's easy to measure progress. The latter works better in fast-moving industries where the situation is continually in flux.

Posted by: Frank Snyder | Feb 7, 2017 11:33:03 AM

Tom N. and Frank, thanks for these additional thoughts and reference points.

Tom, I am not sure that I fully or completely understand your reference to "Midnight Rules." Feel free to specify what you think is included in that term . . . . I could guess, but I'd rather not!

And Frank, I understand your dichotomy. I wonder whether you see our government as being more analogous to the business with having relatively simple problems or whether it's more analogous to a business in a fast-moving industry . . . . I am not sure it is well analogized to either . . . .

Posted by: joanheminway | Feb 7, 2017 1:10:34 PM

Very helpful analogy Joan. This post furthers my thinking on the Executive Order and the issues to come.

Posted by: Anne Tucker | Feb 8, 2017 6:23:25 AM

So glad you found this helpful. And, thanks, Anne, for establishing the foundation for this post, which I found inspirational. I will look forward to hearing any further insights that you may have, here or in private messages.

Posted by: joanheminway | Feb 8, 2017 7:05:08 AM

“Midnight rules or regulations” are those rules rushed through before the conclusion of an Administration. (Shadows of Marbury v. Madison and delivery of “midnight” commissions). The Washington Times stated that the Obama Administration issued more “Midnight Regulations” than any prior Administration. From November 8 to Inauguration Day, purportedly 145 “Midnight Regulations” were issued.
http://www.washingtontimes.com/news/2017/jan/5/obama-issuing-record-number-midnight-regulations/.

Over the previous Administration’s eight year term, it has been asserted that 20,642 new regulations were added. http://dailysignal.com/2016/05/23/20642-new-regulations-added-in-the-obama-presidency/ (Heritage Foundation) (calculated at 201,046 pages in the Federal Register and sourced from the CRS Report previously posted). The George Washington University Regulatory Studies Center provides a resource to regulatory statistics which, in many cases, goes back to 1936 (started in 1935) and provides a comparative of regulatory growth under the last three Presidents.
https://regulatorystudies.columbian.gwu.edu/reg-stats#Economically Significant Rules Published Across Administrations, Equivalent Periods

In 2016, the Competitive Enterprise Institute asserted that 3,853 new regulations were added which equated to 97,000 pages in the Federal Register.
http://www.forbes.com/sites/waynecrews/2016/12/30/obamas-legacy-2016-ends-with-a-record-shattering-regulatory-rulebook/#29834920364d

Although I certainly agree that a “two-fer” rule is not a methodical or thoughtful process addressing the constantly burgeoning regulatory state, it will be a Herculean task to “root out” and match these regulations and rules. I concur that the EO is a signaling device which should act to curtail bureaucratic issuance in the short term.

Also, of note, there was a comment on the exercise of the Congressional Review Act on the Constitutional Law Prof Blog and that just the current overrides will “set a new record.”
http://lawprofessors.typepad.com/conlaw/2017/02/obama-era-regs-on-the-chopping-block.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2FgBWJ+%28Constitutional+Law+Prof+Blog%29

Posted by: Tom N | Feb 8, 2017 9:01:05 AM

Thanks, Tom N. I appreciate the information you shared, and I thank you also for adding the definition of "Midnight Rules" into your additional comment. I actually did know what they are, but readers may not.

I had thought that you were referring to specific "Midnight Rules" that you wanted to see rolled back. Based on your most recent comment, it seems that you may advocate the rescission of all of the "Midnight Rules" instituted by the prior administration. Just for the record, I would want to review each one and assess it on its merits.

Posted by: joanheminway | Feb 8, 2017 9:36:49 AM

Joan: That's why I set out the volume of regulations.

Posted by: Tom N. | Feb 8, 2017 10:58:44 AM

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