This Week in Ridiculous Regulations

The big news this week was the release of the 2018 edition of CEI’s annual report on regulatory costs, “10,000 Commandments”. Agencies continued to provide fodder for next year’s edition with 49 proposed regulations and 61 final regulations last week, ranging from clam insurance to wireless signal boosters.

On to the data:

  • Last week, 61 new final regulations were published in the Federal Register, after 72 the previous week.
  • That’s the equivalent of a new regulation every two hours and 45 minutes.
  • Federal agencies have issued 958 final regulations in 2017. At that pace, there will be 3,111 new final regulations. Last year’s total was 3,281 regulations.
  • Last week, 1,827 new pages were added to the Federal Register, after 1,161 pages the previous week.
  • The 2018 Federal Register totals 17,977 pages. It is on pace for 58,367 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. One such rule has been published this year, none in the last week.
  • The running compliance cost tally for 2016’s economically significant regulations is $115 million.
  • Agencies have published 33 final rules meeting the broader definition of “significant” so far this year.
  • In 2018, 154 new rules affect small businesses; 8 of them are classified as significant.

Highlights from selected final rules published last week:

For more data, see “10,000 Commandments” and follow @10KC and @RegoftheDay on Twitter.

Advertisements

Lessons for Congress from ‘10,000 Commandments’: Regulatory Budgets

One of the lessons learned from this year’s “10,000 Commandments” study is that Congress needs to be more involved in the regulatory process. It needs to make sure that agencies only regulate when legislation tells them to, and it needs to vet major new regulations. Over at USA Today, study author Wayne Crews and I make the case that Congress should also establish an annual regulatory budget:

Just as the federal government releases an annual spending budget, an annual regulatory budget would allow each federal agency a certain amount of costs that they could impose on American businesses and consumers. This would force agencies to prioritize rules that are efficient and effective, and ditch rules that are outdated, burdensome or fail to accomplish their goals.

As it is now, agencies largely police themselves, allowing them to get away with number-fudging and skewed assumptions without adequate oversight or accountability. To date, Congress has been unwilling to step in, preferring to blame unelected agencies when a regulation is unpopular or controversial. A regulatory budget would restore some accountability to agency behavior, while allowing Congress to set the rules of the road.

See the full article here. And read the brand new “10,000 Commandments” for 2018 here.

‘10,000 Commandments’ at 25: What Have We Learned, What’s to Come?

As my colleague Richard Morrison wrote yesterday, this year marks the 25thanniversary of Wayne Crews’ first “10,000 Commandments” report, published in 1993 by the Citizens for a Sound Economy Foundation (the brand new 2018 edition is here). A lot has happened since then:

  • Since 1993, federal agencies have issued 101,380 new regulations.
  • The Code of Federal Regulations gained more than 50,000 pages, and now stands at 186,374 pages, spread across 242 volumes.
  • From 1997-2017, federal agencies issued 16,275 new regulations that affect small businesses.
  • A 1992 Regulatory Information Service Center study estimated the total regulatory burden at $543 billion dollars ($976 billion in 2017 dollars). 10,000 Commandments’ estimate for 2017 is $1.9 trillion.

If there is a lesson to be learned from this astounding growth, it is that the rulemaking process itself needs new rules. Under the current system, agencies are not supposed to regulate willy-nilly; they have to act according to congressional legislation. But it doesn’t work that way in practice. Current procedures have large loopholes that allow agencies to dodge these legal requirements. Many controversial rules, from net neutrality to power plants, are either issued unilaterally via the president’s pen and phone, or take the form of regulatory “dark matter”: guidance documents, Federal Register notices, sue-and-settle court cases, and more.

As the old saying goes, if you want better results, you need better rules of the game. For the regulatory state, this means more transparency and more accountability to the other two branches of government, and to the public.

There have been some heartening developments on this front recently. Since taking office, President Trump has issued a number of executive orders to temper such rapid regulatory growth. Tactics range from a “one-in-two-out” policy for new rules to capping net new regulatory costs at zero. The trouble is that the next president can undo all of these reforms with the stroke of a pen. Congress needs to make them permanent with legislation.

So far, they have been unwilling. A half a dozen or so reform bills have passed the House of Representatives. But the Senate has ignored them, despite a president from the same party who appears willing to sign them into law. Congress has revived the Congressional Review Act to get rid of more than a dozen onerous regulations—out of several thousand candidates. While it is nice to get rid of this or that dysfunctional rule, true reform has to work on the rulemaking process itself. Victories have been few on that front.

With a possible party change in one or both chambers of Congress this November, the time to pass structural reform legislation might be now or never. If the Senate says “never,” then job number one for reformers is to keep the ideas alive. Congress should continue to reintroduce bills such as the REINS Act and the Regulatory Improvement Act every session until political winds move in a more favorable direction, and they can finally pass both chambers and the president’s desk.

Wayne has ably documented the regulatory state for twenty-five years and running. But what will the next twenty-five years of “10,000 Commandments” look like? From here, the future looks precarious, but there is reason to be hopeful about reducing Washington’s regulatory bootprint on consumer choice and the economy. With persistence, good ideas, and a little luck, the 2043 edition “10,000 Commandments” will be much sunnier than this year’s.

For more info about the current state of the federal regulatory system and how to improve it, see the brand-new 2018 edition of 10,000 Commandments.”

Peter Navarro’s Economic Ignorance on Trade

Trump economic adviser and Death by China author Peter Navarro’s recent column in The Wall Street Journal, “China’s Faux Comparative Advantage,” is a doozy. This is not a compliment; it is dangerous that someone so uninformed about basic economics has the president’s ear. Navarro’s mercantilism is the economic equivalent of Ptolemaic astronomy, and should be treated as such—a historical curiosity and an obstacle to human progress. Navarro’s thinking on trade suffers from three big-picture errors. This post will look at those, then see how they apply to his column. The result is not pretty.

The first big picture flaw is that mercantilism. It is an old economic doctrine, rooted in nationalism and what is euphemistically called anti-foreign bias. Mercantilist policies usually take the forms of trade barriers against foreign businesses, special favors for domestic businesses, and sometimes currency manipulation. They aim to maximize exports while minimizing imports from abroad. The result is that people have more money in their pockets from selling all those exports.

The tradeoff is that there is less stuff people can buy with that extra money, since imports are restricted and more goods and services are going overseas. Mercantilist policies not only reduce consumer choice and standard of living, but having more currency without more wealth to match it causes inflation and distorts the price system.

Adam Smith, as far back as 1776, wrote of “those vulgar prejudices which have been introduced by the mercantile system,” (pp. 597-98 of the Modern Library edition of “The Wealth of Nations”) and the “mean and malignant expedients of the mercantile system,” (p. 660), while noting that “in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer” (p. 715). Note that the word “consumer” does not appear in Navarro’s column.

Second, Navarro badly misunderstands the theory of comparative advantage. This has been a standard piece of the economist’s toolkit ever since David Ricardo published “Principles of Political Economy and Taxation,” 201 years ago. Yes, Navarro is that far behind the curve. Fortunately, Ricardo spells it all out in a mere nine pages (pp. 133-41 of the Liberty Fund edition, available for free here), using an easy-to-understand example of England and Portugal trading cloth and wine. And if that’s too much, George Mason University’s Don Boudreaux explains comparative advantage even more concisely here. The lesson is simple: do what you’re good at, and don’t do what you’re bad at. That way everyone can make more wealth using the same amount of resources.

Third, Navarro thinks in aggregates, not individuals, joining the Keynesian and Harvard-MIT traditions in error. Countries don’t trade with each other, people do. “China” and “America” do not trade with each other; people who live in China and people who live in America do.

Remember this every time Navarro’s boss tweets something like “We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead.” As Ludwig von Mises points out on p. 44 of “Human Action,“ “It is always single individuals who say We”. Also, domestic steel production is above its 40-year running average, according to the St. Louis Fed. Ditto aluminum.

Individuals would not trade with each other unless both parties expect to be better off. Otherwise they’d never make a deal in the first place. And in a world of more than two countries, those aggregate figures between any two countries almost never perfectly balance out in a given year. Americans don’t just trade with Chinese, they also trade with Canadians, Germans, Brazilians, Kenyans, and more. And those trades make a lot of sense for the people involved in the deals, even as they confuse and enrage aggregate-thinkers such as Navarro.

Now to go through Navarro’s column point by point.

“In large part because of China’s dominance in manufacturing, the U.S. last year ran a bilateral trade deficit in goods of $375 billion, or more than $1 billion a day.”Two things to pick apart here. One, China’s manufacturing output is roughly $5 trillion per year. The U.S., despite having roughly a quarter of China’s population, generated more than $6 trillion of manufacturing output last year, just shy of 2014’s all-time record. Moreover, China has to devote nearly half its GDP just to manufacturing to reach that figure, while the U.S. economy is so diversified that its manufacturing sector is less than a quarter of its GDP, even as it exceeds China’s by a trillion dollars in absolute terms.

So even with the Chinese government’s own mercantilist policies helping to increase exports, they do not dominate U.S. manufacturers. Also, much of what goes on in Chinese factories is simple assembly of components designed and manufactured elsewhere—my tablet, for example, says on the back, “Designed by Apple in California, Assembled in China”. Are such products really Chinese-made if the design and components all come from elsewhere? That is a difficult question to answer.

The second flaw in Navarro’s single sentence—an impressive achievement—is the trade deficit fallacy. For example, I run a massive trade deficit with my local grocery store. I purchase thousands of dollars of groceries from them every year, but I don’t remember them ever buying a single thing from me. And yet, we’re both better off. I get groceries, and my grocer gets money to stay in business and make a profit. If this wasn’t a win-win relationship, we would not consent to trade with each other. My trade deficit with them has no bearing on human well-being; it is an accounting artifact. Writ large, the same reasoning applies to U.S.-China trade. If it didn’t, there would be no trading.

“Contrary to the textbook model, whereby currency adjustments help rebalance trade, the U.S. trade deficit with China has been persistent—more than $4 trillion cumulatively since 2002—and growing.” Navarro can use the word textbook as much as he wants—and he uses it four times in the span of 700 words—but it doesn’t mean what he says is true.

If anything, the Chinese government’s currency adjustments have had the opposite effect. An artificially cheap yuan means that not only do Chinese companies send more of their products overseas where Chinese consumers can’t use them, but imports become artificially expensive, even without additional tariffs. The result of these real-world currency adjustments is less consumer choice and higher prices for Chinese consumers. America’s government should not compound the Chinese government’s mistakes with its own. I don’t know what textbooks Navarro has been reading, but none that I’ve come across say anything remotely like what he alleges.

“To protect its market, China erects high tariff barriers—e.g., its auto tariff is 10 times that of the U.S. China has high nontariff barriers, too, including intrusive licensing requirements and foreign-ownership restrictions that keep the playing field tilted in favor of Chinese companies.” Navarro rightly wants the Chinese government to lower its trade barriers and open its markets. Current policies obviously hurt the Chinese people, though they seem of little or no concern to Navarro; he neglects to mention them in his article. China’s mercantilism also puts U.S. producers at an artificial disadvantage in one of the world’s biggest markets, which does concern him.

“China’s faux comparative advantage is the result of its state-directed investments, nonmarket economy, and disregard for the rule of law.” These three things are precisely the opposite of advantages for Chinese consumers and producers. State-directed investments prioritize politics over people, and usually have a lower rate of return to boot. China’s recent growth only began post-Mao, when its near-total state slowly began to tolerate some form of a market economy.

And until a reliable rule of law does arrive in China, legal uncertainty will limit what its wealth creating sector can achieve. The Chinese people still suffer from what economists Daron Acemoglu and James Robinson call “extractive institutions.” Until the Chinese government becomes less predatory, Western living standards will elude hundreds of millions of deserving people.  Time will tell which direction the Chinese government chooses, but all three of Navarro’s assertions here are wrong.

“Because high-technology acquisitions often generate spillover benefits for the Chinese military, its SWFs [Sovereign Wealth Funds, basically government-run investment portfolios] are often willing to pay distortive prices, far above what the free market would dictate.” The Chinese government is no saint when it comes to foreign policy, or how it runs its state-owned enterprises. But this is no reason for Navarro to get a case of the vapors—or to offer support for starting a trade war.

Regarding actual war, since Navarro seems to think is part of the Chinese government’s economic aims, not only does the U.S. have a larger, better-equipped military than China, it outspends the next eight largest militaries combined. Navarro’s national security arguments might appeal to some conservatives—and defense contractors. But mercantilism’s economic harms mean fewer resources are available for defense than would otherwise be the case. And as a foreign policy gesture roughly equivalent to a middle finger, mercantilism raises the risk of a war happening in the first place.

Many businesses love mercantilist policies. Trade barriers hobble foreign competitors, while subsidies, sweetheart financial deals, and other domestic favors let executives sit back in their chairs instead of rolling up their sleeves and making the best possible products for consumers at the lowest possible price. This is why nearly all economists agree that mercantilism hurts people.

“It is in the name of fair, reciprocal and ultimately free and prosperous trade that President Trump is standing up to China’s intellectual-property theft and other unfair trade practices.” Not by repeating the Chinese government’s mistakes, he’s not. Navarro and Trump’s belligerent, zero-sum approach to trade hurts both the U.S. and China. Rather than copying China’s failed policies, the U.S. government should lift its trade restrictions and encourage other governments to do the same. Sadly, this does not seem to be the current path, and Navarro is partly to blame.

He should take the same advice that Brett Favre once gave to a referee: take two weeks off, then quit.

This Week in Ridiculous Regulations

The highlights from this week’s round of 36 proposed regulations and 72 final regulations range from licensing government inventions to the Department of Redundancy Department’s new rule for fishing in the “Bering Sea subarea of the Bering Sea”.

On to the data:

  • Last week, 72 new final regulations were published in the Federal Register, after 70 the previous week.
  • That’s the equivalent of a new regulation every two hours and 20 minutes.
  • Federal agencies have issued 897 final regulations in 2017. At that pace, there will be 3,115 new final regulations. Last year’s total was 3,281 regulations.
  • Last week, 1,161 new pages were added to the Federal Register, after 1,202 pages the previous week.
  • The 2018 Federal Register totals 16,150 pages. It is on pace for 57,366 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. One such rule has been published this year, none in the last week.
  • The running compliance cost tally for 2016’s economically significant regulations is $115 million.
  • Agencies have published 30 final rules meeting the broader definition of “significant” so far this year.
  • In 2018, 145 new rules affect small businesses; 7 of them are classified as significant.

Highlights from selected final rules published last week:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

This Week in Ridiculous Regulations

It may not feel like Spring yet, but regulatory agencies have turned their fancies to rulemaking, with 45 proposed and 70 final regulations ranging from the size of oranges to yellow lances.

On to the data:

  • Last week, 70 new final regulations were published in the Federal Register, after 63 the previous week.
  • That’s the equivalent of a new regulation every two hours and 24 minutes.
  • Federal agencies have issued 825 final regulations in 2017. At that pace, there will be 3,079 new final regulations. Last year’s total was 3,281 regulations.
  • Last week, 1,202 new pages were added to the Federal Register, after 964 pages the previous week.
  • The 2018 Federal Register totals 15,374 pages. It is on pace for 57,366 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. One such rule has been published this year, none in the last week.
  • The running compliance cost tally for 2016’s economically significant regulations is $115 million.
  • Agencies have published 24 final rules meeting the broader definition of “significant” so far this year.
  • In 2018, 130 new rules affected small businesses; 7 of them are classified as significant.

Highlights from selected final rules published last week:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

This Week in Ridiculous Regulations

With a full quarter of 2018 in the books, agencies have issued just one economically significant rule—an increase in State Department fees amounting to $115 million this year, barely meeting the $100 million threshold for economic significance. Even so, agencies in the last week issued new regulations ranging from Chilean cherimoyas to migratory birds.

On to the data:

  • Last week, 63 new final regulations were published in the Federal Register, after 61 the previous week.
  • That’s the equivalent of a new regulation every two hours and 40 minutes.
  • Federal agencies have issued 755 final regulations in 2017. At that pace, there will be 3,045 new final regulations. Last year’s total was 3,281 regulations.
  • Last week, 964 new pages were added to the Federal Register, after 1,002 pages the previous week.
  • The 2018 Federal Register totals 14,172 pages. It is on pace for 57,146 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. One such rule has been published this year, none in the last week.
  • The running compliance cost tally for 2018’s economically significant regulations is $115 million.
  • Agencies have published 24 final rules meeting the broader definition of “significant” so far this year.
  • In 2018, 123 new rules affected small businesses; 7 of them are classified as significant.

Highlights from selected final rules published last week:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.