Last week, President Bush took some long overdue action to constrain the growing burden of federal regulation on the economy. Predictably, Democrats howl that Republicans are endangering all Americans by leaving them to the mercies of greedy corporations. But they would be well advised not to block Bush’s order, because it will come in handy when Democrats retake the White House.
Liberals are so convinced that Bush is the most conservative president in American history, they have long overlooked his many transgressions from conservative orthodoxy, well documented in the new book, "Leviathan on the Right" by Michael Tanner. One has been his approach to government regulation. Contrary to the popular perception, Bush has been one of the most pro-regulation presidents—far more so than Democrat Bill Clinton, who, in many ways, was a better friend to the free market than Bush has been.
Bush started out on the right course. He appointed John D. Graham as the regulatory czar at the Office of Management and Budget (OMB), and Tim Muris to run the Federal Trade Commission. Both were well respected by free marketeers for understanding the importance of cost-benefit analysis to regulatory policy. Free marketeers also applauded when Bush renounced the Kyoto Treaty on global warming and blocked all of the “midnight regulations” imposed in the last days of the Clinton administration.
Unfortunately, the White House later quietly allowed all of Clinton’s regulations to go through. “Principle appeared to give way to politics,” wrote George Mason University economist Susan Dudley, “and the final disposition of many of the…midnight regulations…proved little different from the Clinton version.”
By 2002, just one year into the Bush Administration, there were clear signs of backsliding. A government report endorsed the view that human activity was a principal cause of global warming and the administration signaled that it was going to become more aggressive about issuing new regulations. Said OMB’s Graham, “There’s no allergy to regulation” at the White House. It just wanted to ensure that regulations were efficient and effective. But regulation itself was justified by “the acknowledged limits of capitalism,” Graham asserted.
When the Enron scandal broke, Bush threw all of his free market principles to the wind and endorsed the biggest expansion of government regulation in decades by signing the Sarbanes-Oxley bill. Had this legislation been in place years earlier, it would not have stopped Enron from doing the things that got it in trouble. Yet it flew through Congress under pressure to “do something” about the various corporate scandals making headlines daily.
Experts in securities law predicted that the Sarbanes-Oxley bill would do nothing except impose a vast paperwork burden on public companies without doing anything to aid investors. They predicted that companies would go private to avoid complying with the new law and move their financing from New York to London and other money centers. This has indeed been the case. Even liberal Senator Charles Schumer, New York Democrat, now says that Sarbanes-Oxley must be reformed to reduce its compliance cost.
By 2003, OMB was watering down the requirement that agencies find evidence of market failure before issuing new regulations. Writing in Regulation magazine, Ms. Dudley complained that the new policy was “inconsistent with an administration philosophy that embraces markets and limited government.”
According to a report by the Small Business Administration, by 2004, the burden of government regulation on the economy reached $1.1 trillion—$10,172 per American household. A recent report from the Competitive Enterprise Institute found the regulatory onslaught continuing through 2006, with many new regulations still in the pipeline.
Fears about global warming may soon stimulate the same kind of legislative frenzy that gave us the ill-advised Sarbanes-Oxley bill. Thus there is a critical need for a reexamination of federal regulatory policy. We must ensure that the government’s command-and-control power is only used as a last resort and that regulations are well designed to be efficient and impose as little economic burden as necessary to achieve their legitimate purpose. Ideally, we should have some sort of regulatory budget, so that old regulations are jettisoned when no longer necessary and to accommodate the burden of new regulations.
Belatedly, Bush is now doing something to ease the regulatory burden. He has nominated Ms. Dudley to be OMB’s regulation czar and put in place a mechanism that will improve its regulatory oversight. A key provision of Bush’s new executive order is to restore the requirement that agencies impose new regulations only after finding evidence of market failure.
Although Democrats are complaining about the Bush initiative, they should remember that deregulation has a solid Democratic pedigree. Jimmy Carter deregulated the airline and trucking industries, saving consumers billions of dollars every year. The next Democratic president may find Bush’s new rules helpful when he or she is forced to deal with the problem of regulation.