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Some Ideas on How to Deregulate

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For perspective on regulation at the federal level, Sanders cites Clyde Wayne Crews, Jr., author of the annual Ten Thousand Commandments. “His 2015 survey estimated that federal regulation and intervention cost American consumers and businesses $1.88 trillion in 2014 owing to lost economic productivity and higher prices. Crews also estimated that agency officials issued 16 new regulations for every law dutifully enacted by Congress (in total, 3554 new regulations vs. 224 new laws). Meanwhile, there are an additional 3415 proposed new regulations in the works from 60 federal departments, agencies, and commissions.”

A serious problem with regulation is it creates a fourth branch of government that is not answerable to citizens. Agencies are run by bureaucrats and not elected officials, who serve by the consent of the governed. What’s more, legislators provide a deliberative process for vetting proposals. According to Sanders, “In North Carolina, 99.9 percent of agencies’ proposed new regulations take effect, whereas only about one in five proposed bills become law.”

Besides circumventing checks and balances, the proliferation of regulation is hurting the economy. Sanders referenced a number of studies, most impressive of which was a 2014 survey, by policy analyst and advisor John Hood, of 160 peer-reviewed studies of regulation over a twenty-five-year span. Over two-thirds concluded regulation was stunting economic performance, while only 3 percent concluded the opposite. Similarly, over three-fourths positively correlated freedom in general with economic growth.

The 2015 First in Freedom Index published by the JLF ranked North Carolina 36th among the states in regulatory freedom. “Certificate-of-need regulations, state benefits mandated on private health plans, burdensome insurance regulations for automobiles and homes, and extensive occupational licensing rules” were among North Carolina’s most onerous burdens. Occupational licensing is a load that disproportionately disadvantages populations already economically-challenged. Over 1100 professions are regulated by states, but only fifty-some are regulated in every state. A 2012 nationwide study by the Institute for Justice concluded the average cost to enter a low- to moderate-income occupation was $209 in fees, nine months of class time and tuition, and then costs to take a certification exam.

A Beacon Hill Institute Study by Paul Bachman, Michael Head, and Frank Conte found 25,000 regulations in thirty Titles of the North Carolina Administrative Code. The researchers narrowed their focus to the 10,000 regulations in the eight administrative titles, and then attempted to add up the costs of fees paid to the state, state budget appropriations, and private-sector costs of compliance. They concluded regulation was sucking considerably more than $3.1 billion out of the state’s productive sector. The number of regulations whose costs of compliance could not be fathomed far outnumbered the quantifiable ones. But, as a rule of thumb, compliance was running around 144 percent of fees. Opportunity costs were anybody’s guess, but one model estimated state regulations were taxing $25.5 billion out of the economy. This said nothing about the cost of federal regulations. The researchers also wanted to be clear their study was a first step. They would want any regulation to be subject to a cost-benefit analysis before eliminating it.

In a perfect world, regulations could “produce net economic benefits by clarifying property rights and removing uncertainty with regard to legal liabilities, helping producers direct economic resources more efficiently.” In other words, it doesn’t hurt anybody to reinforce all citizens’ rights to life with measures to improve horrible air quality. But regulations fall short on a number of fronts. Sanders shares a short list of reasons that included political maneuvers, special interest lobbies, co-opted agendas, “captured regulators” receiving kickbacks from cronies, misdiagnosis of problems and/or improper prescriptions for cures, and obsolescence of deadwood regulation. Sanders takes the “overproliferation” of regulation as evidence that cures are inefficient and enacted wrongfully.

A NC REINS Act would be but one regulatory reform. Other recommendations include requirements that new regulation include a cost-benefit analysis, an analysis of alternative proposals showing why a proposed rule is superior, and presentation a priori of goals and metrics for evaluating the rule’s success. Another tool would be regulatory reciprocity, which means an agency could only advance a new bill in exchange, for example, for retiring two existing rules. Sanders would further like all state regulation, not just environmental rules, to be no more stringent than federal regulations.

Introducing small business flexibility would be important because 98 percent of businesses in the state qualify as small. Small businesses don’t have the legal and compliance staffs that large corporation can afford. Small businesses opting to fund such departments do so by diverting a greater share of their resources away from production. Out of consideration, the United States and forty-four states have adopted more flexibility for small businesses in compliance, reporting, and deadlines; even granting exemptions from some requirements. Because North Carolina is not one of those states, adopting small business flexibility would be a cashless economic development incentive.

Another strategy, making mens rea the default position, would address overcriminalization – with fines, penalties, and imprisonment for violating any of a million regulations, the meaning of which law experts frequently dispute. Sanders explains mens rea is an English common-law tradition to “protect the unwitting lawbreaker. Under that tradition, the wrongful deed is not enough for conviction; it must accompany a guilty mind (mens rea). Especially with respect to regulation, mens rea protection has been increasingly overlooked or intentionally omitted.”

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