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Press Release

Watchdogs and Regulators


It is late spring in Washington and spending is the topic of the season. Congress is currently struggling to pass some $30 billion in supplemental spending for 2002 as well as a federal budget for 2003 that includes over $700 billion in discretionary spending. These spending battles are highly publicized, and budget hawks are quick to highlight the pork tucked away in these spending bills. Yet, at the same time, almost 130,000 federal regulators are quietly finalizing over 4,000 new rules and regulations that are estimated to cost Americans more than $800 billion this year. Despite the fact that the regulatory burden is greater than discretionary spending, it is rare for regulations to receive the public scrutiny devoted to federal spending.

The lack of public interest and oversight of the regulatory process can lead to significant costs for the American public while providing few benefits. The burden of federal regulation was acknowledged as a potential strain on the economy over 30 years ago, and both Republican and Democrat administrations have worked to establish oversight of federal rulemaking. As the federal government has grown in size and complexity, centralized regulatory review has become an integral tool of the executive branch's efforts to ensure that policies are consistent across agencies and reflect the administration's views.

Increased levels of congressional oversight have made White House regulatory review even more important. President Richard Nixon's Quality of Life review was the first effort to coordinate regulations across agencies. These efforts at White House review were continued under President Gerald Ford through the use of Inflation Impact Statements. President Jimmy Carter then established the Improving Government Regulations Program, which relied on a number of offices within the Executive Office of the President to evaluate the impact and cost-effectiveness of regulatory activities.

When President Ronald Reagan was elected, he established a more formal procedure for regulatory review and analysis. His executive order was the foundation for regulatory review and analysis conducted throughout the 1980s and early 1990s. Under the executive order, the Office of Information and Regulatory Affairs within the Office of Management and Budget was tasked with centralized regulatory review. In effect, the OIRA was established as a watchdog to ensure that the benefits provided by a regulation are greater than the costs imposed by the regulation. President Reagan's review process provided the initial enforcement measures to require benefit-cost analysis as an integral part of the rulemaking process. As with his predecessors, President Clinton has recognized the importance of centralized regulatory review. While he indicated support for the principles of cost-benefit analysis, Clinton released a new executive order that boosted the agencies role in the review process relative to that of OIRA.

Centralized review has established consistent practices for the use of cost-benefit analysis as well as the use of performance standards, both of which promote regulations that impose lower costs on society. Burdens on the economy are reduced further by OIRA's efforts to reduce excessive or redundant paperwork. Equally important, centralized review allows a more balance evaluation of regulations, with a broader range of interests represented. Agency regulations are tailored towards the interests of the groups that they regulate. As industries press for rules that increase barriers to competition consumers suffer through higher prices and reduced output, making it difficult to demonstrate that benefits exceed costs. A more centralized review balances a greater number of interests, requiring a demonstration that the benefits of the rulemaking do, in fact, exceed the costs.

However, OIRA’s effectiveness can be limited by the extent to which the administration emphasizes (or de-emphasizes) regulatory review. Under President Clinton for example, OIRA returned an average of only two rules per year, compared to 31 rules per year for the previous decade, according to James Gattuso at the Heritage Foundation. This is reflected in overall regulatory costs, which increased by 16 percent from 1990 to 2000, as noted by the Cato Institute’s Wayne Crews.

Indeed, the transition in views toward regulation can be seen in the following graph, which also demonstrates the attitude toward regulation prevalent in the administration. The graph tracks the number of regulators per watchdog, or regulatory staffing levels relative to the staff size of OIRA. The number of regulators per watchdog increases throughout the graph, although less sharply after 1995. It appears that the federal government continues to place more emphasis on the regulators than the watchdogs.

Under President George W. Bush, OIRA has re-asserted itself, to some degree. Twenty rules were returned last year, and new standards for cost-benefit analysis have been adopted. Further, OIRA has begun to issue “prompt” letters proactively, suggesting agency action on various rules. These signs are encouraging and indicate that the Bush administration is establishing the institutions necessary to more effectively review regulations. However, agencies continue to regulate at an aggressive pace, with significant costs to consumers.

The Bush administration must increase its efforts to reduce the regulatory burden. In effect, regulations are a hidden tax that cost the average household more than $8,000 per year. Congressional debates over similar levels of discretionary spending draw attention from the media and policy community. Yet federal regulators continue to finalize rules at a clip that can impose substantial costs on the economy. With the stock market sputtering, the Bush administration should not overlook opportunities to eliminate unnecessary regulations and avoid costly new regulatory regimes that hamper economic growth.