WHAT IS DEREGULATION?

Federal regulations (“regs”) have been around for quite a while.  Regs are issued by federal agencies rather than by Congress, but they look and operate just like laws adopted by Congress:  the government can fine you or seize your property or even jail you if you violate certain regs or certain laws.  Both laws and regs are rules:  each compels or prohibits conduct and can carry punishments for violations.  Laws regulate, and regs regulate.  The most-significant difference is that laws stand on their own, but every reg relates to a particular law and is supposed to explain or interpret that law or add processes for demonstrating compliance; you cannot have a reg without a law that is its source.  Executive Orders, governance by “a pen and a phone,” are just an alternative format for regs – they are presented by the White House itself, rather than by federal agencies, but they function just as regs do.

When conservatives argue for deregulation, there is ambiguity:  they might seek a reduction in the severity of a particular rule (“Don’t set such elevated MPG requirements for vehicles”), or they might want a reduction in its complexity (“Don’t require 1,000 pages of forms to support the MPG ratings you claim”).   Whether a rule is articulated as an Act of Congress (a law) or as an addition to the Code of Federal Regulations (a reg), is very important to political analysts and constitutional lawyers, though the distinction is not as important to economists.  When Mr. Trump proposes “deregulation” of the financial sector, does that mean he would lighten the substantive impact of the Dodd Frank Act (DFA) and the DFA regs, or reduce their volume and complexity, or both?  Is he just another politician who wants to alter the rules so that they favor the consequences he prefers?  Or is he interested in transforming our government by shrinking it, by moving it away from the micromanaging specificity of contemporary laws and regs and toward simpler laws and regs that articulate general principles but leave it to the judiciary (not the White House or Congress) to apply those principles to individual cases?

Here is the political case against regs:  they are constitutionally-suspect because they alter the laws they purport only to explain or interpret, and thus they are, in effect, legislation by the wrong branch of the government – especially where the affected law is so vague that it is little more than an outline, virtually a PowerPoint presentation of topics (viz, the ACA).  Here is the social and economic case against regs (and unwieldy laws, for that matter):  (i) they undermine the “Rule of Law” because they are so complex that normal people and small businesses have no idea of whether they are in violation; and (ii) they  burden the economy by driving up costs, by discouraging innovation and entrepreneurial behavior, and by diverting resources away from their most-productive uses.

Just how detailed and complex are regs?  Consider:  according to Davis Polk & Wardwell LLP, the DFA, as of July 21, 2015, consisted of more than 800 pages, but the 15 (!) federal agencies charged with writing regs for Dodd-Frank had already published over 22,000 pages of regulatory content pertaining to Wall Street reform, and they were far from done – the SEC published massive changes in July of 2016.  See https://corpgov.law.harvard.edu/contributor/gabriel-rosenberg/   .  Getting the idea?

Conservative politicians and economists believe the purpose of government-by-micromanagement (regs or enormous laws), its intended outcome, is central-planning, which is the identifying marker of extreme-leftist governments.  In the conservative view (best articulated by Hayek), the “Rule of Law”  exists only when you have laws that are clear, concise, understandable by all, and enforced with dispatch and without discrimination based on whose ox might be gored.  Per Hayek, if you do not have a Rule of Law, you have corruption and an underperforming economy.  Conservatives submit that America, because of its almost unintelligible (and largely unconstitutional) body of regs, Executive Orders, and laws, no longer has a Rule of Law, that we have been overtaken by a revolution that began with Herbert Hoover but was expanded exponentially by Barack Obama and has transformed America into a centrally-planned state, a corrupt and economically-stagnant state.

Is there an antidote, a technique for a counterrevolution?  How about replacing our mountains of micromanagement with simplified laws that avoid the conceit of trying to anticipate every possible application of them and instead say, for example, “do not offer a product that is not reasonably safe,” “do not generate industrial waste that is unreasonably hazardous,” or “do not operate a commercial bank without a reasonable amount of capital and a reasonable limit on debt” – ? (Maybe not quite that simply, but you get the idea.)  How about specifying that the determination of whether a particular action or condition is unreasonable must involve a consideration of the social and economic impact of its proscription?  How about letting the courts determine what is “reasonable” in any particular case, based upon judicial precedent, experience, and common sense.  For example, how about a concise program for reforming the Dodd Frank Act, one that would require few regs (or none) and a lot fewer than 22,000 pages, like this excellent proposal written by Prof. John Cochrane of Hoover:    http://johnhcochrane.blogspot.com/2016/11/a-better-choice.html

How could this be accomplished?  In two steps:  (i) cancel all extant regs and cram their text into re-stated versions of the respective Acts of Congress to which they relate; and then (ii) clean up these restated laws by abandoning the micromanagement model (what lawyers call the ‘civil code’ model) and going back to the fundamental-rules model (the Common Law model).  Is that feasible, given that  Congress does not have sufficient staff to accomplish the task?  Yes, if we downsize the federal agencies  by transferring the key members of the agency staffs to the payrolls of individual senators or representatives, or congressional committees, or Congress as a whole.

Is it already too late to restore a Rule of Law and recreate a dynamic economy?  Could we find alternative employment for the legions, the armies, of lawyers and federal employees who would be displaced by reform?

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