Seeing Red

Agencies are caught in the regulatory reduction squeeze.

When Congress and the White House don't agree on policy issues, federal agencies often get caught in the middle. But sometimes officials feel the squeeze even when there is substantial agreement between their political overseers at both ends of Pennsylvania Avenue.

A case in point is what's happening in the regulatory arena, where leaders from all ends of the political spectrum are vying to see who can be the bigger red-tape cutters. In mid-January, President Obama ordered a governmentwide review of federal regulations, giving agencies 120 days to review their rules to see if they should be modified, streamlined, or eliminated. His administration, he said, "is making it our mission to root out regulations that conflict, that are not worth the cost, or that are just plain dumb."

Not to be outdone, House Republicans launched their own regulatory reduction crusade. House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., solicited feedback from businesses on questionable regulations, and held a hearing to air their concerns. House leaders geared up to push a resolution instructing all major committees to "inventory and review existing, pending and proposed regulations and orders from agencies of the federal government, particularly with respect to their effect on jobs and economic growth."

Senators weren't about to be left behind. As Elizabeth Newell points out in her Management Matters column in this issue, Sen. Mark Warner, D-Va., has made the case recently for cutting back on what he characterizes as regulatory excess. Noting that the government lacks a formal process for paring back regulations, he proposed a simple system recently adopted in Great Britain: For every new rule an agency proposes, an old one must be eliminated. Such a radical approach was necessary, he said, because the current system actually rewards agencies that add more and more regulations with higher status and bigger budgets.

But as Timothy B. Clark points out in Perspectives this month, even if regulators simply wanted to enact more and more rules, there are countervailing pressures. The recent national commission appointed to look at the causes of the 2008 financial crisis, he writes, described the huge roadblocks placed in the way of efforts by federal officials to regulate questionable practices. Financial firms and even government-sponsored enterprises Fannie Mae and Freddie Mac spent hundreds of millions of dollars on lobbying efforts. The result? Intense pressure from lawmakers to limit efforts by the Securities and Exchange Commission to impose new rules.

Certainly, paring back regulatory excess is a laudable goal. But assuming that federal regulators have unchecked power is, at best, naïve.