The Trump Administration is already a jumble of economic contradictions, but the “great” side of the ledger got an important new entry on Monday. President Trump signed an executive order adopting a “two-for-one” regulatory budget that will help accelerate growth and innovation.
The Obama years were a boom era for rule-making, but the truth is that obsolete and onerous rules have been accumulating for decades. In a working paper for George Mason’s Mercatus Center, Bentley Coffey,Patrick McLaughlin and Pietro Peretto estimate that the economy would be about 25% larger if the level of U.S. regulation had stayed constant since 1980. That’s now more than $4 trillion a year, or $13,000 per person.
The Trump order aims to prevent such waste by requiring the agencies to repeal two old rules for every new one they publish. This is in some sense a gimmick, since some regulations are far more significant, costly or distorting of investment choices than others. But the text of the order suggests that for every dollar of new cost imposed on the private economy, each agency will have to find two dollars of burden to relieve.
Democrats are freaking out about poisonous milk and killer toys, though many civilized countries use such budgets to manage the regulatory state and stay competitive. Canada requires every rule that creates another hour of paperwork for business compliance to be offset one for one. The United Kingdom and Australia have harder versions that require the costs of new rules to be offset by deregulation of comparable net value.
The permanent bureaucracy lives to justify its own existence, regardless of which party holds the White House, and rules inevitably beget more rules. Mr. Trump’s order starts to change the institutional incentives.
Under a two-for-one policy, each individual department will need to scrutinize its own books in search of offsets and rules needing modernization, which will make deregulation as high a priority as rule-making. The Environmental Protection Agency can’t poach savings uncovered at, say, the Fish and Wildlife Service. This could lead to more realistic cost-benefit tests, focus the bureaucracy on trade-offs and strengthen regulatory accountability.