For the second time in as many Congresses, the House of Representatives passed the Regulatory Accountability Act, the first-ever major overhaul of the Administrative Procedure Act. The Senate, however, has yet to give the bill so much as a hearing.
Congress frequently passes legislation authorizing or requiring some type of regulation, but it then allows regulatory agencies to conduct their analysis to fill in the details. Unfortunately, a lot of the “expert” agencies do not demonstrate as much expertise as one might expect when it comes to answering basic questions such as identifying the systematic cause of the problem they are trying to solve, developing alternative solutions or assessing the consequences of alternative solutions. Significant improvement will likely require legislative changes to the regulatory process.
Since 2008, the Mercatus Center’s Regulatory Report Card has evaluated the quality of economic analysis those agencies conduct when they propose “economically significant” regulations — generally, regulations with annual benefits, costs or other economic effects exceeding $100 million. For each criterion, trained evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices).
Expert agencies should be able to answer all of these questions before they regulate. But the average scores on these four crucial aspects of regulatory analysis over the five-year period covered hover between 2 and 3 out of 5 possible points. A score of 2 means the agency supported its claims with very little analysis or evidence. A score of 3 means there was some analysis or evidence, but still a lot of missing information. So on average, the economic analysis accompanying agency regulations is seriously incomplete.
The Regulatory Accountability Act seeks to improve the quality of agency analysis by requiring agencies to solicit comment on their regulatory impact analysis in an advance notice of proposed rule-making for regulations with economic impact exceeding $100 million. Regulators would also have to conduct trial-like public hearings after proposing regulations costing more than $1 billion annually. Both provisions would give the public greater opportunity to scrutinize and challenge agencies’ analysis before regulations take effect.
Our research suggests that these requirements would improve the quality of regulatory analysis and prompt agencies to better explain how the analysis informed their decisions. In a working paper recently released by the Mercatus Center, we find that agencies conduct higher-quality regulatory analysis when they: (1) previously sought public comment on an earlier draft of the regulation and accompanying analysis, (2) issued a formal public request for information or (3) consulted with state governments. When agencies commit to holding a public hearing on a proposed regulation, they do a better job of explaining how the analysis informed their decisions — probably because they know they will have to defend the regulation publicly.
We expect federal regulation to accomplish a lot of important things, such as protecting us from financial fraud, preventing workplace injuries, preserving clean air and deterring terrorist attacks. And regulation also requires sacrifices; there is no free lunch. Depending on the regulation, consumers may pay more, workers may receive less, our retirement savings may grow more slowly due to reduced corporate profits and we may have less privacy or less personal freedom.
Given these significant trade-offs, Congress and the public should expect expert agencies to provide an evidence-based assessment of these effects — but agency analysis often falls short. Real improvement requires regulatory process reform.
Jerry Ellig is a senior research fellow with the Mercatus Center at George Mason University. Rosemarie Fike is a doctoral candidate in economics at Florida State University. They are co-authors of a working paper released by the Mercatus Center, “Regulatory Process, Regulatory Reform, and the Quality of Regulatory Impact Analysis.”