How to make big government agile again
President Obama has passed many huge expansions of federal government authority, like ObamaCare and the Dodd-Frank financial reform bill, but getting such laws actually implemented was a tremendous struggle. The Volcker Rule, which prohibits certain forms of speculation by commercial banks, took nearly four years to be finalized, and hasn't taken full effect yet — and banks just asked for another five-year grace period before they have to comply. Elsewhere, the Commodity Futures Trading Commission recently delayed regulation of cross-border derivative contracts for an entire year.
We may well hit the next financial crisis before the regulatory response to the last one is fully implemented. Why? Legal scholars finger a culprit called "regulatory ossification," referring to the grinding slowness of today's federal rule-writing apparatus — largely because regulatory agencies are strangled by endless paperwork and frivolous lawsuits.
Fully tackling this problem will probably require congressional action. Luckily, there are many things a president can do to partially alleviate the problem. Since she's looking increasingly likely to take the White House, Hillary Clinton would be well advised to start taking this problem seriously.
One of the finest pieces of policy journalism ever written is "He Who Makes the Rules," by Haley Sweetland Edwards. It's an in-depth look at the bureaucratic trench warfare that causes the years-long delays in rulemaking. Laws like Dodd-Frank generally don't contain specific regulations saying what must happen; instead they instruct federal agencies to write rules within specific parameters, with the overall process governed by the 1946 Administrative Procedure Act.
Edwards' article goes well with work by Thomas McGarity, a professor at the University of Texas School of Law. In a Duke Law Review article and testimony before Congress, he explains where things went wrong. The APA process was supposed to allow for public comment and participation in rule-writing, while maintaining an efficient federal bureaucracy. But over time, as rule-writing got new requirements for economic justification, environmental impact studies, and the adoption of the legal "hard look doctrine" (making it easier to challenge regulations on procedural grounds), it has become tremendously burdensome for agencies.
Fulfilling those requirements, which require mountains of expert work, "takes an enormous amount of resources," McGarity told The Week. When Republicans control Congress, and hence most agencies are constantly half-starved for funds, it's even harder. The Occupational Safety and Health Administration, for example, has been all but hamstrung in the Obama years.
To be sure, many minor rules are written and issued with little fanfare or delay. But ones that affect the operations and profits of big institutions — the ones that really matter — suffer from all-out legal and procedural attacks. That's how some centerpiece parts of Dodd-Frank can be still on hold after over six years.
Removing some of these obstacles, like the special regulatory review panel for small business established by Congress in the '90s (that has since been captured by big business) will require new laws be passed.
But the president can do quite a lot. Many requirements for onerous studies could be repealed by executive orders, says McGarity. More importantly, key positions overseeing the regulatory bureaucracy could be filled by someone sympathetic to the agency perspective, rather than the industries they regulate.
President Obama did an abysmal job of this during his first term, appointing economist Cass Sunstein as the chief of the Office of Information and Regulatory Affairs, which oversees the regulatory apparatus. The administration did issue many important rules during his tenure, but it also spent a vastly disproportionate amount of time meeting with industry representatives, and effectively slow-walked many critical regulations — particularly EPA ones. For someone concerned with timely action on big finance or climate change, Sunstein was a manifest failure.
At root, this is an ideological problem. Sunstein is a 1970s neoliberal who thinks that regulation is usually an economic drag, and should only be implemented after you prove in 19 different ways that it won't be an undue burden. And four years out of government, he's still peddling proposals for cutting "red tape" which involve forcing agencies to carry out even more expensive, complex studies, and writing into law other requirements that are currently executive orders — making the problem worse.
As Elizabeth Warren pointed out in a recent speech, what is needed is someone with the opposite view — that regulations are a huge net benefit that are absolutely critical to protecting the American economy and citizenry. Slow-walking regulation of finance or climate change with onerous cost-benefit nitpicking when Wall Street just obliterated the economy and American cities are suffering clockwork weather disasters is completely idiotic.
So given that Republicans stand a good chance of hanging onto Congress, if Hillary Clinton wants to achieve anything during her presidency, appointing people who believe in quality government to key regulatory posts might be the single smartest and easiest step she could take.