30-04-2025
Trump Orders Could Almost Motivate Regulatory Housekeeping
A room in need of housekeeping to restore order
Donald J. Trump is not the first president to express concern over the ever-growing stock of regulations that impose requirements and restrictions on businesses, workers, and consumers. Presidents Jimmy Carter, Ronald Reagan, and Bill Clinton all issued executive orders (EOs) directing department and agency heads to evaluate the benefits and costs of existing, as well as new, regulations. President Obama issued two executive orders emphasizing the importance of reducing regulatory burdens and importantly, planning for ex-post evaluation at the time regulations are issued. Congress has shown bipartisan interest in retrospective review of regulations, as well. But so far, these have had little impact, and regulations continue to accumulate with each administration.
This lack of focus on evaluation is likely due both to the difficulty of doing ex-post analysis well, and the limited incentives to evaluate actual regulatory impacts. Of course, predicting regulatory impacts before a rule is issued is also hard, but presidential orders require agencies to conduct ex-ante analysis before taking new actions. Once a regulation is in place, however, the motivation to review it just isn't the same, and agency staff are usually more interested in pursuing new actions than evaluating whether an existing regulation is working as predicted. Further dampening incentives, once regulated parties have invested to comply with regulation, they are often reluctant to lose any competitive advantage by seeing it removed.
If implemented thoughtfully, several of Trump's recent orders could begin to alter agency incentives. (This is a big 'if' that I'll return to in a moment.) First, EO 14192 imposes an incremental regulatory budget on agencies. To issue a new regulation, they must both 1) identify 10 to remove and 2) more than offset the costs of each new rule with regulatory cost reductions elsewhere. I have noted before that the 10-for-1 component of the order can likely be met with creative accounting, e.g., by removing ten minor guidance documents to offset one significant rule. But even that could provide incentives to cull the stock of existing requirements to identify those that are no longer necessary. Finding real cost reductions to meet this year's incremental regulatory budget of less than zero will require a more genuine effort to identify existing regulations where costs exceed benefits. If taken seriously, that effort could yield savings.
EO 14267, 'Reducing Anti-Competitive Regulatory Barriers,' directs agencies to identify 'regulations that reduce competition, entrepreneurship, and innovation—as well as the benefits they create for American consumers.' Agencies have three months to submit lists of such regulations to the White House, Department of Justice and Office of Management and Budget. Historical evidence suggests that such an initiative could unleash innovation to the benefit of consumers. The bipartisan deregulation effort of the 1970s and 1980s eliminated anticompetitive regulations that protected market power and posed barriers to entry, leading to dramatic increases in social welfare. Like the actions of 50 years ago, this initiative may enjoy some bipartisan support, as both the Obama and Biden administrations were also concerned with regulations that reduce competition.
EO 14270, 'Zero-Based Regulatory Budgeting To Unleash American Energy,' directs certain agencies to 'incorporate a sunset provision into their regulations governing energy production to the extent permitted by law, thus compelling those agencies to reexamine their regulations periodically to ensure that those rules serve the public good.' Unlike agencies' on-budget programs, which Congress must reauthorize periodically, once a regulation is on the books, it stays in effect unless explicitly rescinded through the notice-and-comment rulemaking process. Observers have suggested that, by shifting the default such that regulations expire unless affirmatively renewed, sunset provisions could provide incentives for periodic review of regulations' actual outcomes and a more cost-effective set of rules. For this to work, agencies should establish the sunset date when the rule is issued, however, and commit to gathering information to determine whether it should be renewed.
I have used 'if' a lot so far. These initiatives have the potential to change agency incentives to improve retrospective evaluation, but to be successful, they must be implemented with that goal in mind. These and other orders give agencies very tight deadlines for acting, and some even direct them to eschew seeking input that could provide valuable information about impacts on the ground. Meaningful review of regulatory impacts—both positive and negative—will not be easy. Once a regulation is in place, it is difficult to estimate what the outcomes would have been without it. To illustrate, would air emissions have increased directly with economic and population growth, or would technological change and citizen preferences have driven emissions lower? How did changes in air quality affect measurable public health outcomes? What activities or innovations were foregone to achieve regulatory goals?
Alone, these orders are unlikely to force the kind of analysis needed. The incremental regulatory budget will likely slow the pace of new regulations, without forcing agencies to tackle the challenging task of seriously reviewing the impacts of regulations on the books. The competition order might identify some anticompetitive rules and it explicitly calls for public input. However, the timeline is very tight, and vested interests who benefit from anticompetitive rules may be the loudest voices who prevail in the end. The blanket sunset provision inserted into all existing energy rules will not incentivize careful review of each to understand whether they are having desired impacts at reasonable cost. Further, automatically sunsetted rules will likely face legal challenges, limiting the durability of those actions.
While I hope that these orders can finally do what previous presidents have tried—to ingrain in regulatory agencies an evaluation mindset—I am not optimistic that they will without a more conscientious effort.
