Look before You Leap: A Key Principle of Regulation

“Look before your leap” is such an ancient adage that you might think it would be second nature to those wise souls who write the laws and regulations we live under. Not quite. More than 100 years since the federal government wrote its first regulation, Congress is finally considering legislation telling regulatory agencies that they have to understand what causes a problem before writing a regulation to solve it. 

The House and Senate have both considered legislation that would require regulatory agencies to publish an analysis of the nature and significance of the problem they are trying to solve before proposing rules with significant economic impacts. The Early Participation in Regulations Act, sponsored by Sens. Lankford (R-Okla.), Heitkamp (D-N.D.) and Ayotte (R-N.H.), would implement this requirement. It is also contained in the Regulatory Accountability Act, which passed the House and was reported by the Senate Committee on Homeland Security and Governmental Affairs last fall. For those who think regulations should provide effective solutions to problems that actually exist, such reforms are long overdue. 

In September, for example, the Food and Drug Administration adopted a regulation requiring that companies that produce or handle animal food must have procedures in place to ensure that animal food is as safe as human food. Most of the available evidence, however, shows that the main contamination problem is with pet food, not all animal feed. The FDA imposed a regulation that is much broader and more costly than necessary to protect people and pets from impurities in pet food. 

Why does this happen? For more than three decades, executive orders have required executive branch regulatory agencies to assess the nature and cause of the problem they are trying to solve. But this analysis does not have to be published until the agency proposes a regulation in the Federal Register for public comment. 

The dirty little secret is that agencies often already decide what regulation they want to write before they ask their analysts to assess the problem. Interviews with agency economists reveal that they are often pressured to produce an analysis that supports the regulation, instead of performing analysis to help figure out whether or how to regulate. One of my colleagues at the Mercatus Center, Dr. Richard Williams, spent 27 years at the FDA. He recounts that when he estimated that the costs a regulation the agency wanted to impose exceeded benefits by a factor of 10, he was told on a Friday that if he could not “find” more benefits over the weekend, he did not need to bother coming back to work on Monday.  

Sometimes there’s virtually no assessment of the problem at all. The Regulatory Report Card project at the Mercatus Center at George Mason University evaluated the quality of economic analysis accompanying 130 major regulations proposed between 2008 and 2013. Half of these regulations were accompanied by no significant evidence demonstrating the existence, size, or cause of the problem. 

And these were important regulations. All had benefits, costs, or other economic effects exceeding $100 million annually. 

A rational regulatory system would require agencies to understand the nature and significance of the problem they’re addressing before they decide what regulations to write. One way to encourage agencies to do so is to require them to publish their analysis of the problem for public comment before they publish a proposed regulation. Pre-proposal publication of the analysis would also give the public a chance to offer suggestions for improvement of the analysis before the agency publishes a regulatory proposal it feels it must defend. 

In other words, regulators should look before they leap.