signs labeled arrogance and humility
President Biden’s modernizing regulatory review actions, including proposed revisions to OMB Circular A-4 on regulatory impact analysis, are the most significant changes to regulatory practice since President Clinton’s 30 years ago. In this third in a series of Forbes commentaries on these changes, I highlight troubling ways in which the draft circular reflects much less humility than existing guidance regarding the government’s ability to address problems.
First, identify the problem.
President Clinton’s Executive Order 12866, which turns 30 in September, still governs regulatory procedures and analysis. It directs an agency considering regulation to first “identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem.” Demanding that agencies clearly articulate a “compelling public need” before regulating is essential because regulations risk being driven by special-interests and the “tunnel vision” of single-mission regulators to the detriment of the broader social good. Requiring this first step in regulatory analysis reflects an awareness that not all problems require a government solution, and that government actions (“public institutions”) may themselves contribute to social problems.
While retaining the requirement that agencies first identify a problem, the 2023 Draft Circular is expansive enough not to provide a principled constraint on agency action. In comments I filed with OMB on the draft, I expressed concern that the draft guidance lacks the humility implicit in Executive Order 12866 and suggest ways to focus regulations on where they can have positive outcomes.
Washington knows best.
Draft Circular A-4 encourages agencies to override state, local, territorial, and tribal governments if they don’t do what federal officials think they should. This heavy-handed approach is misguided on policy as well as legal grounds. Policies that respect the diversity of preferences and circumstances across the country are likely to have more successful outcomes than top-down approaches. OMB should emphasize the learning value of deferring to other levels of government and encourage natural experiments, which are essential to evaluating how well regulatory programs meet stated goals. A one-size top-down approach cuts off opportunities to test different approaches and ignores the situational knowledge that smaller governmental units have.
Overriding state preferences may also make a regulation more vulnerable to legal challenge, especially as courts are increasingly expecting federal agencies to demonstrate clear statutory authority for their actions. In Sackett v. EPA 2023, the Supreme Court recently affirmed that it “require[s] Congress to enact exceedingly clear language if it wishes to significantly alter the balance between federal and state power and the power of the Government over private property.”
Don't trust individual judgments.
Behavioral sciences have matured since Circular A-4 was last published 20 years ago, and my comment supports using its insights to craft “nudges” to help individuals overcome biases and make choices that improve their well-being.
However, the revised Circular has the hubris to justify decisions to override individual choices on the assumption that individual biases make them unreliable judges of their own welfare. This is a marked departure from previous guidance and the governing Clinton executive order.
Regulatory policies, by definition, substitute the judgment of government regulators for those of individuals, which may be appropriate when transactions have material consequences beyond the individuals involved. But the draft guidance is flawed in encouraging regulators to override individual choices without clear evidence that individuals not only behave irrationally but do not learn in that specific situation. The guidance should also acknowledge that government decision-makers may suffer from similar, if not more, problematic biases.
Repeat the same mistakes and expect a different outcome.
The revised draft Circular A-4 abandons the “presumption against economic regulation” explicit in both the current and previous guidelines. Economic forms of regulation include price controls, production quotas, and mandatory uniform standards. We have long known that economic regulation disrupts competition, encourages special interest lobbying, and produces outcomes that benefit organized interests at the expense of less powerful and more diffuse interests. Encouragement of such forms of regulation not only fails to learn from past actions, but runs counter to the Biden administration’s expressed concern for underrepresented communities.
Also gone from the revised draft is the recognition that “government actions can be unintentionally harmful, and even useful regulations can impede market efficiency.” Instead, it demands that competitive markets be “well-functioning” without making the same demand of government actions and without acknowledging the evidence that regulatory interventions are often far from well-functioning.
Overall, OMB’s draft revisions to Circular A-4 reflect less respect for market forces, individual decisions, or state and local knowledge and preferences than prior guidance, and they give agencies much more latitude for intervening in private exchanges and decisions. My comments filed with OMB offer specific recommendations for correcting those issues in the final circular.
