Professor Jody Freeman on Trump’s “2 for 1” Executive Order

January 30, 2017

Trump’s new Executive Order titled “Reducing Regulation and Controlling Regulatory Costs” requires that two rules be “identified for elimination” for every new one proposed. This policy of “2 for 1” regulations is arbitrary, not implementable, and a terrible idea. The purpose of an order like this is to strangle even the most beneficial rules under the guise of cutting red tape.

Most major public health, consumer protection, workplace safety and other rules do cost money, but they also produce enormous social benefits which dramatically outweigh their costs. This is true of major air pollution rules for example—according to studies done by the Office of Management and Budget.

The Order is vague in many respects, and it calls on the Director of OMB to issue additional guidance on how to implement it, so the details of its operation are to come. The Order also includes a powerful caveat which is repeated several times—that it will be implemented “to the extent permitted by law.” So, in the end, this Order may not block rules that are legally required by statute. A president can’t order his executive agencies to disobey the law in any event, and if the agencies try to disobey statutes, they will be called to account by affected parties who will file lawsuits challenging their unlawful actions.

But even if it is fairly toothless in the end, the Order will be a weapon that OMB can use to harass agencies and slow regulation. Delaying important new rules that are necessary to protect public health and welfare can have severe, even disastrous, consequences: think of tainted food, toxic spills, unavailable medicines, unsafe trains and planes.

And requiring 2 rules actually be eliminated (not just “identified for elimination”) for every 1 rule adopted regardless of the net benefits, would be entirely arbitrary. All three rules might be easily cost-justified and their benefits might drastically outweigh their costs. Notably, the Order focuses only on cost—it purports to impose a cap on total regulatory costs so agencies may not add anything to the cost side of the ledger. But this ignores completely the huge societal benefits that come from many public health, safety and consumer protection rules.

The Order is also entirely unnecessary. Existing Executive Orders signed by other presidents already require “significant” agency rules to go through a rigorous cost-benefit analysis overseen by OMB (specifically the Office of Information and Regulatory Affairs within OMB, which conducts detailed reviews) to ensure their benefits outweigh their costs. And existing Executive Order already requires agencies to look back at older rules and consider whether they are still warranted.

The Order’s breadth is striking. It does not define “agency,” and so appears to include independent regulatory agencies, which have never been subject to centralized regulatory review before, and which can be expected to resist White House control. (The Press has reported that the president said, just before signing it, that the Order was not meant to cover agencies like the Securities and Exchange Commission, but that is not reflected in the Order itself). The Order also uses a definition of “rule” that would include much more than “notice and comment” or so-called “legislative” rules but also guidance documents, policy statements and other informal agency documents meant to alert industry about the direction of agency policy, which must now, presumably, be delayed at best and subject to the 2 for 1 “offset” at worst.

A former government colleague and friend of mine suggested this hypothetical to illustrate how Trump’s order actually works against sensible regulation: If an agency wants to issue a rule that is expected to have $1 million in regulatory costs, but is expected to have benefits of $1 billion (1,000 times as much), the agency could not issue that regulation unless it agrees to get rid of at least two regulations with at least $1 million in total cost. The net benefits (benefits minus costs) of the rule being issued or the rules being eliminated do not matter. And, because OMB’s annual reports show that virtually all rules issued in the past 10-15 years have greater benefits than costs (except for a few that were specifically required by Congress), eliminating an existing rule will likely reduce net benefits.

In sum, Trump’s new Executive Order on agency rules is arbitrary, contrary to the public interest and actually works against sound economic principles of regulation.

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