Regulation in the United States became far more complex over the past several decades as new regulatory agencies with ambitious agendas were created. In response, Congress and recent presidents have implemented new regulatory oversight measures, with varying success. Regulatory agencies are often required to produce benefit-cost analyses for proposed changes to the regulatory landscape, but the quality of these analyses is usually disappointing. Even when the analyses are accurate, agencies sometimes forget the “first principle” of regulation: it ought to identify and correct a failure in the market being regulated. In the absence of a market failure, there is no need to regulate.
In a new study for the Mercatus Center at George Mason University, economists Thomas D. Hopkins, Benjamin Miller, and Laura Stanley look at regulatory history from the 1970s and ’80s to identify common themes. Using more than 300 filings of the Council on Wage and Price Stability (CWPS), most of which are now available on the Mercatus website, the authors detect persistent deficiencies in the economic analysis regulators often use to justify new regulation. They conclude that issues similar to those addressed by CWPS 40 years ago are at the forefront of the regulatory debate today. If regulatory agencies were to perform bona fide benefit-cost analysis while also identifying a market failure, this would be a constructive and significant step toward achieving greater regulatory efficiency.
The basic lesson from examining the work of the CWPS, as well as recent regulatory developments, is that better consideration of a proposed rule’s economic efficiency by executive branch reviewers, as well as an independent peer review process with public access, would be a significant step toward achieving efficiency within the US regulatory system. These reforms would encourage regulators to adhere to key principles of benefit-cost analysis and to identify an actual market failure worthy of government regulation, if one exists.