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Our Regulatory State

Christopher DeMuth

Washington is in a regulatory growth spurt. Hundreds of rulemaking proceedings are underway or impending under the Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the Patient Protection and Affordable Care Act (Obamacare), both enacted in 2010. The Environmental Protection Agency is pursuing many hugely expensive pollution-control initiatives. The Federal Communications Commission wants to regulate the internet. Agencies are tightening highway fuel-economy standards and banning the incandescent light bulb. Price controls are making a comeback in health insurance and debit cards.

Congressional Republicans are up in arms, and their charges of over-regulation are justified. The Obama administration’s confidence in central planning is as manifest in its regulatory policies as in its taxing and spending policies. The administration is clearly comfortable with executive government, as in its dispensation of waivers from the requirements of the Obamacare and No Child Left Behind statutes, as well as in its $20 billion compensation program for people affected by the BP oil spill (a program that had no statutory basis at all). The administration uses regulatory authorities to pursue unspoken policies, such as hobbling carbon-based energy production (evident in the rejection of the environmentally benign Keystone XL pipeline) and promoting labor unions (demonstrated by its campaigns to stop Boeing from building airplanes in South Carolina and to overrule state constitutions that guarantee the secret ballot in union elections).

Yet the apparent partisan divide over regulation is illusory. The modern regulatory state is a bipartisan enterprise: During the half-century before President Obama’s election, the greatest growth in regulation came under Presidents Richard Nixon and George W. Bush. And the Bush administration set the stage for many of the Obama initiatives that Republicans are now attacking. Dodd-Frank’s policy of designating some financial firms as “too big to fail” is a codification of the Paulson-Bernanke bailout approach of 2008. It was the Bush Treasury Department that first proposed a financial consumer-protection agency, and the Bush Environmental Protection Agency that first proposed regulating greenhouse gases under the Clean Air Act. The Obama energy rules were authorized and in some cases, such as the light-bulb ban, required by a 2007 statute that President Bush vigorously championed. Only Obamacare is a distinctively Democratic departure.

The profusion of regulation is primarily an institutional phenomenon, and only incidentally an ideological one. The regulatory agency developed in the Progressive and New Deal eras and upgraded in the 1970s has proved to be the most potent institutional innovation in American government since the Constitution. The Constitution was designed to make lawmaking cumbersome, representative, and consensual; the regulatory agency was a workaround, designed to make lawmaking efficient, specialized, and purposeful. It was a way to accommodate growing demands for government intervention in the face of the constitutional bias for limited government.

Since the elections of 2010, congressional Republicans have been much less successful in restraining the growth of regulation where the executive branch makes policy pretty much on its own than in restraining the growth of taxing, spending, and borrowing, all of which require periodic legislation. But this failure has been instructive: It has inspired Republicans (and some Democrats) to propose a series of reforms to the regulatory process itself, aimed at limiting the independence of executive-branch policymaking.

To understand the promise and perils of these proposals, we must examine how the regulatory state accumulated its extraordinary powers in the first place and how those powers have created serious political and economic dilemmas. . . .

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