The Deep Incoherence of Trump’s Executive Order on Regulation, by Jonathan S. Masur

by Guest Blogger — Tuesday, Feb. 7, 2017

President Trump’s “Executive Order on Reducing Regulation and Controlling Regulatory Costs” has received a fair amount of attention for its “2-for-1” formula: if an agency wishes to promulgate a new regulation, it must “identify at least two existing regulations to be repealed.” But there is an additional requirement built into the executive order that has received less attention, which is the creation of a “regulatory budget.” Under the terms of the Order, “the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero.” That is, for every dollar of costs produced by a new regulation, an agency must simultaneously eliminate one dollar of costs from some other regulation (likely by repealing the regulation entirely).

Trump’s executive order has been widely condemned for its anti-regulatory bias. But it is not merely anti-regulatory—it is deeply confused at its core. The source of this confusion is the definition of “cost,” which the original executive order did not define. On Thursday, the White House released a supplemental guidance document interpreting the order and clarifying this and other points. The guidance document explained that “costs should be measured as the opportunity cost to society” in accordance with how they are defined in OMB Circular A-4.   But Circular A-4 defines cost very broadly, to include “all the relevant costs to society – whether public or private.” In particular, it notes that “[t]he opportunity cost of an alternative includes the value of the benefits forgone as a result of choosing that alternative.”

By this definition, if Trump repeals a regulation, the cost of having done so is the loss of whatever benefit the regulation is expected to produce—lives saved, injuries avoided, etc.—all of which are real economic costs. Deregulation doesn’t save costs; it produces more costs in the form of foregone benefits. That means that if the Trump EPA wants to promulgate Environmental Regulation A that will produce $1000 in benefits and $100 in costs, it is not enough for the EPA to identify two other regulations, Regulations B and C, each of which originally produced $500 in benefits and $50 in costs, and repeal those. By Trump’s own definition, repealing Regulation B doesn’t save $50 in costs—it produces $500 in new costs. Every repealed regulation will produce additional costs, which will have to be balanced by repealing other regulations, which will produce additional costs, and so forth in infinite regress.

Realistically speaking, there are three possibilities for how this might be resolved:

  1. Paralyzed by this rule, Trump’s agencies will do nothing other than what they are ordered to do by statute. (This seems unlikely.)
  1. Trump will redefine costs to mean “net costs,” such that repealing a rule that produced more costs than benefits will be understood to create cost savings. The problem with this approach is that the vast majority of Obama-era regulations produced greater benefits than costs, and repealing them—which is surely what Trump wants to do—cannot be justified on these grounds.
  1. Explicitly or merely in practice, Trump will redefine costs to mean “resources expended by regulated parties to comply with regulation,” which is likely what he actually meant when the regulation was first written. The problem with this approach is that it lays bare the fact that Trump only cares about the money expended by firms and other regulated entities and does not care about the individuals whose lives are saved because of health, safety, and environmental regulation. Regardless of the accuracy of this description, it may not be the sort of thing that Trump wishes to advertise quite so publicly. But if he wishes to pursue a deregulatory agenda so uncompromising that it ignores whether or not a regulation produces greater benefits than costs, he may have no other choice.

Jonathan S. Masur is the John P. Wilson Professor of Law and David and Celia Hilliard Research Scholar, University of Chicago Law School. I thank Daniel Hemel and Jennifer Nou for helpful comments.

 

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