The Four Pillars of Regulatory Reform

Try this one weird trick and watch your economy boom. Actually, it's four tricks, and they aren't weird.

Most jurisdictions in the US (federal, state, county, and municipal) as well as most modern democracies in the rest of the world have regulatory codes that have quietly accumulated for decades. For proof, see this video of me stacking up federal regulations, if you haven’t yet….

If you’re reading this, you’re likely well aware that such regulatory accumulation is not benign — creating undesirable effects on economic growth, new business formation, consumer prices, and even income inequality.

What can policymakers do about it? I often talk about “regulatory reform,” as if everyone knows what that means. But I shouldn’t make that assumption. Here’s what I mean by regulatory reform (and I think these apply to any jurisdiction — national, subnational, local — and even to corporations and other organizations that have internal regulations):

Create a mechanism that forces red tape reduction. This requires a transparent and conspicuous commitment by the reforming government. The mechanism can take the shape of a targeted reduction (e.g., “cut regulation by 25%”), regulatory sunsetting, or a 1-in, X-out pay-as-you-go scheme (e.g., Trump I’s 1-in, 2-out or Trump II’s 1-in, 10-out executive orders). For a concrete model, see my testimony on Virginia’s approach to reducing regulatory burden, and the growth results from British Columbia’s regulatory budgeting experiment.

Limit the creation of new regulations to those that make sense. One approach for this is REINS-style legislation, where the legislature actively votes up-or-down on any new regulation that exceeds some pre-determined significance threshold (e.g., any regulation expected to cost more than $1 million or $10 million per year).

Allocate some resources to the production of data and analysis. Call me biased because of my economics background, but I think that cost-benefit analyses can be used to inform regulatory design itself as well as legislators’ votes (if a REINS-style law exists) and to guide red tape reduction efforts. Independence is key here — the people producing the analysis shouldn’t have incentive to cook the books one way or another. At some point, we should use AI to produce these analyses, so long as we have verified that the AI produces good analyses. For the state of play (and how often analysis falls short), see my explainer Regulation 360: Why We Must Reform Our Regulatory System (and How to Do It).

Set up an office to oversee everything. In 2001, when British Columbia set out to cut red tape by 25%, it created a new office called the Ministry of Deregulation (which was subsequently renamed). Virginia set up an Office of Regulatory Management. In short, it needs to be someone’s job to make sure that the regulatory reform doesn’t lose steam when the political winds shift. I lay out this institutional design in Virginia’s Approach to Reducing Regulatory Burden.

And by the way, I really think some state needs to create a position called the Minister of Deregulation. I’d be interested. I can’t imagine a better job title.