We need massive deregulation now
on both the federal and state level.
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This article is part of an extended series of articles giving policy reform advice to the Trump administration from the Progress-based perspective. If you have not yet done so, I would suggest:
First reading Priorities for the second Trump administration to understand the constraints that President Trump must operate within, and
Then reading the rest of the series from the “Table of Contents”.
A key theme of this Substack and my book series is to study the history of human material progress to identify policies and practices that promote future progress. A key finding is the danger of over-centralization. While there is no perfect amount of decentralization of power versus centralization of power, too much power concentrated in too few hands undermines the vast decentralized problem-solving network.
A key trend in both Europe and the United States has been the:
radical expansion of the EU and the US federal government, and
vast expansion of regulations.
This is running directly against the Third Key to Progress:
Decentralized political, economic, religious, and ideological power. It is of particular importance that elites are forced into transparent, non-violent competition that undermines their ability to forcibly extract wealth from the masses. This also allows citizens to freely choose among institutions based upon how much they have to offer to each individual and society in general.
We have seen a very clear trend over the last 60 years of centralized bureaucracies in Brussels and Washington DC implementing regulations with little accountability to legislatures or voters. Even if you leave aside the dangers of over-centralization, this is a troubling trend because:
Bureaucrats in Brussels and Washington DC simply do not have enough information to implement optimum regulations.
Those regulations are only loosely tied to legislation, so there is only limited accountability to voters.
Those bureaucrats are increasingly making decisions based on their personal ideological preferences.
And once a regulation is implemented, it is almost never eliminated if it fails to achieve its desired results. So over time, the number of regulations keeps accumulating regardless of their results.
Long-term economic growth should be the goal
I believe that the President and Congress can lay the policy foundations of long-term economic growth. I believe that long-term economic growth should be the key goal of government as prosperity makes it far easier for the rest of society to work to solve all the other problems.
I believe that key policy domains are central to unleashing long-term economic growth:
Energy (which is closely related to the Fifth Key to Progress: widespread use of fossil fuels).
Regulation (which is closely related to the Third Key to Progress: Decentralized political, economic, religious, and ideological power).
Corporate income taxes.
In other articles, I explain my proposed policy reforms for Energy and Corporate Income taxes. In this article, I will explain my proposed policy reform for radically lowering federal regulations. But first, let me explain why federal regulations are currently seriously holding back long-term widely-shared economic growth.
Costs of regulations to economic growth
While each individual regulation may have limited costs to society, the total costs of all regulations easily reaches trillions of dollars each year. Indeed, with the possible exception of taxes, regulations probably hurts the economy more than anything the government does.
The National Association of Manufacturers (NAM) estimates that “U.S. federal government regulations cost an estimated $3.079 trillion in 2022 (in 2023 dollars), an amount equal to 12% of U.S. GDP. These costs fall unevenly on the major sectors of the economy and on firms of different sizes; the findings indicate that compliance costs fall disproportionately on small businesses.”
Now obviously NAM is not a disinterested party, and they have a strong incentive to exaggerate the negative costs of federal regulations on their members. Their report does, however, gives evidence of the scale of the problem, particularly for the manufacturing sector.
If you believe that NAM is too biased, you might prefer the 2010 report by the Office of Advocacy within the US Small Business Administration (i.e. a part of the federal government itself). This report concluded that the cost of federal regulation in 2008 was about $1.75 trillion. And the number of regulations has greatly increased since that date, so presumably the costs have as well.
The negative consequences of regulation are particularly concentrated on small manufacturing companies. If the United States is to rebuild its manufacturing base, these small manufacturing companies will need to play a leading role.
The biggest beneficiaries of federal regulations are legal and accounting consultants:
Below are a few graphics from the outstanding George Washington University Regulatory Studies Center that show the scope of the problem and general trend towards more regulation:
I believe that radical deregulation on the state and federal levels is one of the most cost-effective means to promote long-term economic growth. And unfortunately, the problems just keep getting worse regardless of whether the President is Democrat or Republican.
Levels of regulation vary greatly by state
It is not clear that these regulations deliver the promised results to compensate for these immense costs. Since federal regulations do not vary within the nation, we can get a better idea of the positive effects of regulation by comparing states. States with low levels of regulation do not have obvious deficiencies in the quality of the natural environment, worker safety, financial stability, or other goals of regulations
As an example, let’s compare the number of regulations in Idaho (the state with the lowest number of regulations) versus California and other states with a very high number of regulations using the QuantGov database. In 2022:
Idaho had 36,612 restrictions, while:
California had 403,744 restrictions (more than 10 times the number!) In addition, New York, New Jersey, Texas, Ohio, and Illinois each have over 250,000 restrictions.
It is not clear to me that California and those other states have superior quality of the natural environment, worker safety, or financial stability. It is certainly not true that those states are ten times better than Idaho in those domains. Certainly, on economic performance over the last five years, Idaho beats all of those states, except Texas.
If you want to drill down into these numbers, I would suggest you use the QuantGov State Dashboard.
Let’s use Idaho as a model
Even among many conservatives and libertarians, there is the perception that deregulation is very difficult and time-consuming. I think they imagine a time-consuming process where every individual regulation goes through a complex cost-benefit process with inputs from every stakeholder organization.
In fact, very substantial cuts can be made in one year. The state of Idaho is proof of this. Unfortunately, this impressive achievement has received very little attention even among those who advocate for deregulation. Part of the reason is that it was implemented during the Covid pandemic and regulatory reform is not exactly exciting news material.
While estimates on the scale differ, the state of Idaho cut its regulations by somewhere between 35% and 95% in just a few years. Note: counting regulations is not as simple as it seems, so that is why the estimates vary widely.
Most of the cutting took place in just one year, 2019, and the deregulation process was interrupted by the Covid pandemic. In 2019 Governor Brad Little took office and made immediate deregulation a very high priority. Gov. Little immediately issued two executive orders:
Gov. Little then followed this up in 2020 (during a global pandemic no less) with the Zero-Based Regulation executive, which required:
A moratorium on new regulations to “create a more stable regulatory environment.”
A routine review of approximately 20% of all regulations every year.
Any new regulations could only be implemented if another regulation is eliminated.
The concept of “Zero-based regulations” was later made permanent when the Idaho state legislature passed the Administrative Procedure Act. As far as I know there is no fundamental reason why a similar approach cannot be adopted by the federal government and other state governments.
What is to be done?
I believe that the election of Donald Trump to be President offers a unique opportunity to massively deregulate the federal government. By following Idaho’s example, the roughly 25 states with Republican governors and massive Republican majorities in the state legislatures can do the same. This is likely the single most cost-effective means that the government can to do promote long-term economic growth.
Let me give you an idea of how this might work.
The President or Governor of a state should do the following:
An executive order that sets a goal to lower the total number of regulations and estimated costs to the economy by 50% in four years.
An executive order declaring a moratorium on new regulations for one year. At the end of one year, the President or Governor may extend the moratorium.
During the moratorium, the President or Governor should declare that it is a key part of the job responsibilities of all bureaucrats to identify regulations for elimination. This mandate should probably exclude front-line military and law enforcement officials.
(after the moratorium ends) For every new regulation added, that same department must eliminate three regulations.
An executive order declaring:
Every department head must report to the President weekly on their progress towards those goals. Success in this metric will be the primary determining factor in their continuing employment with the federal government.
Every sub-department head going all the way down to the lowest team leader must report to their department head weekly on their progress. Success in this metric will be the primary determining factor in their continuing employment with the federal government.
Every department head and sub-department head should work closely with industry experts to identify:
Regulations that are not achieving goals explicitly required by Congressional legislation (and, no, vague references do not count).
Regulations that can be rewritten to focus on goals rather than the means to achieve those goals.
Regulations that significantly and negatively affect:
Economic competitiveness
Infrastructure construction costs
Time to complete infrastructure projects
Wherever possible, regulations that remain after cuts should focus on results rather than the specific means by which private actors should achieve those results. They should not specify how the private actor is to achieve those goals.
Those targeted results should focus on maintaining minimum standards that have already been cost-effectively achieved by industry.
The targeted results should not be aspirational goals that force industry to constantly get better on, for example, worker safety, pollution emissions, etc. It is simply impossible for bureaucrats to know what results are feasible in a cost-effective manner if those results have never been achieved (for example, cut sulfur emissions by 10%). It is possible, however, for bureaucrats to set standards that force the bottom 50% in an industry to reach the standards already set by the top 50% in that same industry.
Let me just give one obvious example that affects us all: energy- and water-efficiency regulations for dishwashers. It is utterly preposterous that dishwashers now take far long to clean dishes, do a worse job of it, and stop working much earlier in their life-cycle than a few decades ago! And we have to pay for for all these luxuries. Dishwashers consume so little electricity and water that it is not even clear they need to be regulated at all. When was the last time a person died of a tragic dishwasher accident?While the regulatory process is being reformed, the President or Governor can designate specific energy, transportation, housing, or manufacturing infrastructure projects as exempt from current regulations or at least “fast-tracked” with strict deadlines for approval. This is to ensure that current projects are not slowed while the regulatory process is being overhauled.
The deregulation should focus on decreasing construction costs and time delays in the following sectors:
Energy permitting, exploration, construction, and distribution
Electricity generation, transmission, and distribution.
Transportation infrastructure permitting, construction and repair
Housing construction and land use
Agriculture production
Factory construction, particularly for factories that manufacture inputs for the above industries.
Permitting and construction for mining and refining of minerals critical to the above industries.
Web-base software shall be designed and implemented that enables:
Federal managers to track their employee’s progress in eliminating regulations
Citizens to flag specific specific regulations for action.
Federal employees and citizens to identify regulations not specifically required by Congressional legislation.
Federal employees shall receive financial bonuses based on the number of regulations eliminated.
When in doubt, cut it out
Many people seem to believe that if the deregulation process makes a mistake, this could lead to catastrophic results. Therefore, they propose a zero-risk process where if there is any possibility of bad results from deregulation, we should do nothing.
I disagree. I think that the evidence clearly shows that:
The vast majority of regulations inflict negative consequences on long-term economic growth.
The benefits to the natural environment, worker safety, and financial stability are very unclear. I have no doubt that some federal regulations offer net positive results, but it is very difficult to know which ones fit into this category. Even if a specific regulation offered net benefits when it was first implemented, this does not mean that that regulation still offers net benefits. Technological innovation, changing markets or business requirements can easily turn a net positive regulation into a net negative regulation twenty years later.
As I mentioned above, there is no clear variation in the quality of the natural environment, worker safety, and financial stability between states with low levels of state-level regulations and those states that have ten times the amount of state-level regulations.
Even regulations that offer net positive results can be rewritten to focus on results by transparent metrics rather than mandating the means to get there.
For example, worker safety regulations could easily be overhauled to set a mandated floor for worker injury or death rates that are currently the average for the industry. Then the industry has the flexibility to figure out the best method to achieve results that we already know are possible.As in most things in life, increased resources often lead to diminished returns.
It is not clear that we need to devote trillions of dollars per year to achieving a better natural environment or lower worker safety in a specific industry. Just mandating no worse results is a far better goal than constantly striving for better and better results.If we make a mistake and then realize that regulation is actually very cost-effective, then we have learned something. We can later re-implement those regulations. But we can never really understand which regulations are necessary until we roll a significant number of them back.
For all those reasons, I think cutting back federal and state regulations by 50% in four years will offer far more benefits to society than negative consequences.
This article is part of an extended series of articles giving policy reform advice to the Trump administration from the Progress-based perspective. You can view links to the other articles in the rest of the series from the “Table of Contents”.
Great article.
Start where you are: utilize the example of Idaho. Wise, well done, Michael.