Monday, January 30, 2017

Trump's Two-for-One Special

by Michael Dorf

After a weekend spent parsing President Trump's evil executive orders, it is a pleasure to consider one that is possibly merely stupid. Today Trump issued an EO that requires, to the extent permitted by law, that each time a federal agency promulgates a new reg, it must eliminate at least two old ones, and the cost of the new reg must not exceed the cost of the eliminated regs.

On its face, the 2-for-1 requirement is easily evaded. Suppose you run NHTSA and you have on the books a reg requiring that new cars be equipped with airbags and another reg requiring that new cars be equipped with backup cameras. You want to add a reg requiring that new cars be equipped with vehicle proximity sensors that alert the driver of a nearby car that could lead to an accident. You scour the existing regs and can't find any that you think should be eliminated. As I read the EO, there is nothing to stop you from "eliminating" the airbag reg and the backup camera reg, and then replacing them with a new reg requiring airbags, backup cameras, and vehicle proximity sensors. Presto! Two regs replaced by one that is really three!

To be sure, the EO authorizes the Director of OMB to formulate "standards for determining what qualifies as new and offsetting regulations." Presumably there will be some effort going into figuring out when a new reg is "really" an old reg plus a new reg. But given that most regs do more than one thing, this process may be more complicated than it at first appears.

The real bite of the EO probably comes from the cost limits, but here too it could be circumventable. What is the cost of my hypothetical vehicle proximity sensor reg? Suppose that once manufacturing is scaled up, it costs a car compnay $300 per vehicle to add proximity sensors. But suppose also that once they buy the new cars consumers discover that they really like the proximity sensors, so much so that at the margin, a person who could afford a car costing at most $20,000 will choose to forgo $300 worth of options he otherwise would have purchased (a sun roof, say, or a deluxe stereo system). As a result, there is no suppression of demand for new cars and thus the car companies are able to pass on all of the extra $300 in compliance costs to the customers. The net cost of the reg is $0.

And that doesn't even take account of social benefits, like the fact that the proximity sensors save lives of drivers and passengers as well as reduce medical and other financial costs of accidents. Under President Clinton's EO 12866, which updated Reagan administration policies, new regs are already subject to centralized OIRA cost-benefit analysis. Thus, any reg that can survive OIRA review can be said to necessarily have at most zero net cost, because its benefits must outweigh its costs. So it's possible that the cost provisions of Trump's 2-for-1 EO do literally nothing.

Now to be candid, I doubt that the Trump OMB will construe the EO that way. Because the EO repeatedly refers to "costs" without ever referring to benefits, OMB will likely say that a reg can only survive if its costs do not exceed the costs of the two or more regs it replaces, without any regard to benefits of either the eliminated or the new regs. What's more, we can expect the Trump OMB to take a narrow view of compliance costs. In my example above, OMB could score the proximity sensor reg as having a cost of $300 because that's the cost of manufacturing, even though the car companies (in my hypo) fully recoup that cost.

But even though that's what the Trump OMB is likely to do, the EO itself doesn't require that approach. Consider another example. Suppose that a reg says that new car bodies must be made from high-strength aluminum. Suppose the cost of such aluminum per car is $1000. Suppose further that prior to the reg, car bodies were made from steel, also at a cost of $1,000 per car. We can imagine Trump's OMB scoring the aluminum reg as "costing $1000" but that's idiotic, given that the real net cost is $0. And there's no sound economic reason to distinguish the net cost appraisal in this example from the net cost appraisal in my proximity sensor example.

So, yes, expect the Trump OMB to use the 2-for-1 EO as a cudgel to block regulation, but don't attribute that to the text of the EO, which is every bit as badly constructed as the more evil EOs on immigration released on Friday. And also, as Dan Farber points out, don't expect the EO to have much practical impact because it probably only affects discretionary rules, which Trump wasn't going to issue anyway.


Shag from Brookline said...

As I read this post, I thought of FDA regs and how the application of this EO might cause serious health and death issues, perhaps more so than Mike's examples. Should costs be offset by the benefits to life and limb?

Michael C. Dorf said...

Prof. Lewis Grossman asked me to post this on his behalf due to a computer glitch:

This Executive Order--requiring that every agency eliminate two rules for every new one issued--is sheer idiocy. Observe that it applies not only to notice-and-comment rules, but also to interpretative rules and general statements of policy (which are exempt from notice-and-comment rule making by section 553 of the Administrative Procedure Act, but are subject to their own "good guidance practices"). Such "exempt" rules are often fashioned as "guidance documents." FDA, for example, issues many more guidance documents than notice-and comment rules. Some FDA guidance documents are cost-imposing binding rules in disguise (even though they are, as a formal matter, not binding). But many other types of guidance documents are welcomed by industry. They provide safe harbors from regulation, offer useful information about how to manufacture products safely, and facilitate procedures that industry wants to complete with minimal delay, ambiguity, or conflict--such as drug approvals. Whom does eliminating such guidance documents help? Notably, some guidance documents have a deregulatory effect; FDA has repeatedly used this vehicle to announce its exercise of “enforcement discretion” over whole segments of certain industries.

Consider also that food additive approvals and animal drug approvals are issued as rules. Will FDA have to eliminate two rules for every one of these products it approves? And how about rules that Congress requires agencies to issue? Statutes frequently mandate that agencies undertake notice-and-comment rule making or, increasingly, the issuance of guidances. For instance, the recently enacted "21st Century Cures Act" requires FDA to issue numerous guidance documents. Will the agency have to eliminate two existing rules for each one of these new guidances?

Thank goodness that the E.O. permits the OMB Director to exempt "categories" of regulations. He's going to be busy. Or perhaps not. Maybe chaos is the point.

Shag from Brookline said...

My reference to FDA regs. (an area I haven't gotten into in decades) is concerned with responding to, as was the case last year, possible pandemics. As a longtime progressive, I'm used to two steps forward, one step back. I appreciate Prof. G's comment.

Fortunately Bill Maher's "New Rule" is outside the purview of the 1st A speech clause. Perhaps using Maher's methods is one way to expose Trump's leather bound EOs.

Zachary Wurtzebach said...

So stupid.

Without mentioning benefits, can you define costs ONLY in terms of financial costs of compliance for regulated parties, as the EO seems to imply? I feel like that will run afoul of other statutory legislation when implemented in enviro contexts. And even if they exempt "categories" of regulations, maybe focusing only on ones with big ($100s of millions) impact, getting rid of big enviro regs is hard--can take years, with lots of needed attention on process. So, if and when the GOP wants a new industry friendly reg at EPA--and they will--, EPA will also have to get rid of at least one other reg as well? And effectively following procedurals for all 2 or three will be hard if and when Trump admin slashes staffing by 2/3.

There's no way this does anything else besides cause a complete clusterfuck. Have fun writing the directives for this one, OMB.

Asher Steinberg said...

Re: Farber's point, aren't all the new rules that the Trump administration is bound to issue reversing Obama administration rules discretionary? So for example, Obama's Department of Labor issued a rule, narrowly upheld by the Ninth Circuit (ten judges dissented from the denial of en banc), banning restaurants from requiring their waiters to share their tips with kitchen staff and busboys. One would imagine that Secretary Pudzer, née Hardee's, will want to rescind this rule. But an agency can't just "rescind" a rule once it's final; they have to go through rulemaking and make a new rule reversing course. I suspect there are dozens if not hundreds of rules like the tip-credit rule that the Trump administration would like to rescind, and in each such case it will have to issue a discretionary rule.