Episode Transcript
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Speaker 1 (00:05):
On this episode of news World. Shortly after taking office
in twenty twenty two, Virginia Governor Glenn Youngkin issued an
executive order setting the ambitious goal of cutting regulatory requirements
by twenty five percent by the end of his term.
As of this month, his administrations hit the target. In
Virginia's Office of Regulatory Management anticipates cutting nearly thirty three
(00:28):
percent with the end of his term. And what's the
return of the investment so far? At saving Virginia businesses
and citizens more than one billion, two hundred million dollars
a year. Virginia is showing the federal government the substantial
regulatory reform can be accomplished. Here to talk about how
Washington needs sacked in regulatory reform. I'm really pleased to
(00:50):
welcome my guest, Patrick McLachlin. He is a research fellow
at the Hoover Institution, where he leads the quant Government
Analytics Project with a focus on reg regulations and the
regulatory process. Patrick, Welcome and thank you for joining me
(01:15):
on newts World.
Speaker 2 (01:16):
It's my pleasure to be here.
Speaker 1 (01:17):
Thanks first of all, generators, our listeners, to the Hoover
Institution itself. Tell us a little bit about it.
Speaker 2 (01:24):
Er institution been around for quite a while.
Speaker 3 (01:26):
Was founded at Stanford University in the first half of
the twentieth century with a focus at the time on
peace and the post devastation of the First World War,
but expanded into a lot of other areas, economics.
Speaker 2 (01:40):
Being one of them.
Speaker 3 (01:41):
I am an economist by training, and so I've been
brought in there to work on research related to the
economics of regulation and deregulation. But Hoover Institution goes a
lot of different directions. It's a large shop, and it's
generally concerned with the overlap of public policy and things
like economics or historical knowledge history. I guess I should
(02:02):
say public policy oriented field of study.
Speaker 1 (02:06):
There's a certain elegance there. You have the afternoon wine
and cookies and a whole sense of people who are
not involved in a daily fight, but they're involved in
thinking about very big ideas and very long term impacts.
Speaker 2 (02:21):
Yeah, that's a good point.
Speaker 3 (02:22):
I've worked in other public policy oriented shops in the past,
and it really does seem like Hoover values the idea creation.
Speaker 2 (02:30):
That sometimes can only occur in a place like that.
Speaker 1 (02:33):
That's right. I did always surprises people in Washington where
the urgent drives out the important that really thinking takes time.
Speaker 2 (02:41):
I'm glad you said it. I'll relay that to my
boss over at Hoover.
Speaker 1 (02:45):
There you go, So you lead what's the rig data
and quant gov projects? Okay, you have to tell us
what are REGG data and quant gov projects?
Speaker 2 (02:55):
Sure?
Speaker 3 (02:56):
I think the easiest way to understand what I'm doing
in these product is to imagine going into a library.
You could probably do this in your town right now.
Go into a library and find the code of Federal
Regulations and just look how many volumes of books that is,
and you're going to see there's hundreds of volumes of books.
It's going to take up multiple shelves. And if you
(03:19):
wanted to have any sort of idea of what is
in all of these hundreds of thousands of pages of text,
you would have to have either some sort of table
of contents and index and go into specific spots, but
you still wouldn't know what everything else is, or you'd
have to use computer programs. And that is what the
quant of and reg data projects are. It's essentially using
(03:41):
computer programs to go through all of the volume of regulations,
not just at the federal level, but across all the
states and in some other countries as well, to better
understand what is on the books, how that's changed over time,
and how those changes affect our economy and outcomes for individuals.
Speaker 1 (03:59):
You indicate that around nineteen seventy there were about four
hundred thousand restrictive terms, terms of what you shall or
you shall not, you may not, and that's now jumped
to one point one million today. So, in a sense,
there are in government regulations so many different prohibitions and
(04:20):
enforcements that a normal citizen actually is almost always in
some way violating something.
Speaker 3 (04:27):
Yeah, you're pretty much guaranteed to be breaking a rule.
You might even be a criminal.
Speaker 1 (04:32):
Yeah, Attorney General Jackson told Roosevelt, I think about nineteen
thirty nine or forty that we now had so many
laws that you've virtually guaranteed that everybody is a criminal.
And that was back when it was much simpler and
much smaller. So why do you think the growth has
been from four hundred thousand and seventy to over one
point one million today? What is there in the system
(04:54):
as is evolved that leads it to that kind of
coercive language.
Speaker 2 (05:00):
There's I guess two things I would highlight.
Speaker 3 (05:02):
One is the whole Administrative Procedure Act, the process by
which regulations are made is bias towards the creation of
new regulations as opposed to managing the stock of regulations
on the books. There's a whole, well defined process for
making new rules, but there's not a defined process for
(05:24):
re examination of the existing ones at all.
Speaker 2 (05:26):
So there's that.
Speaker 3 (05:28):
And then the second thing is if you look back
over time, there's, as you've already highlighted, a tendency for
regulations to grow, but that growth rate does change a lot.
With aw massive growth in the nineteen seventies, and that
was driven by the creation of new regulatory agencies.
Speaker 2 (05:44):
The EPA, for example, was created then, so that's a
big driver.
Speaker 3 (05:48):
Even in later years, we saw in the first Obama
administration very rapid growth, and that was driven by the
creation of the CFPB, you know, post Dot Frankness Consumer
Financial Protection Bureau. So it's the creation of new agencies
along the way will create spikes in the growth of regulation.
Speaker 1 (06:06):
It always struck me that the actual cost of these
regulations is vastly greater then shows up in a direct accounting,
particularly for smaller businesses, they just take time. You can't
be focusing on your customers or on the next big
idea or productivity. You're focused on meeting the government's requirements.
Speaker 2 (06:28):
That's exactly right.
Speaker 3 (06:29):
It's the opportunity cost here that we need to be
thinking about. I co author to study on this, and
this is why I created this whole project in the
first place. I wanted to know what is the effect
of this accumulation of regulations on overall economic growth, Not
just looking at paperwork costs that occur here and there,
but looking at the opportunity costs, like what does the
(06:50):
entrepreneur who's doing that paperwork not do instead? So I
studied the patterns of business investments over time and how
regulatory accumulate affects that and found a substantial relationship there, statistically,
an economically significant relationship between the accumulation of regulations and
business investment. Now, business investment drives productivity growth, which in
(07:15):
turn drives overall economic growth, and so not to get
too deep in the weeds on this paper, but we
found that the effect of the build up of rules
slowed economic growth overall by nearly one percentage point annually.
Speaker 2 (07:29):
That's a massive effect.
Speaker 3 (07:31):
Losing nearly one percentage point from growth overall year after
year is a massive effect. And that's the sort of
hidden opportunity costs that we don't see without careful study
of the sort of second and third order effects of
regulatory accumulation.
Speaker 1 (07:45):
And you're asketimate if we had not had this regulatory
burden slowing everything down, how much bigger would the American
economy be today?
Speaker 3 (07:55):
In this study which we published in twenty twenty, we
projected that if we had held regulation constant at the
level observed in nineteen eighty, so, instead of seeing regulation
grow between nineteen eighty and twenty twelve, which was the
last year of data in this study, say we had
implemented some sort of one in one out regulatory budget
(08:15):
starting nineteen eighty, Instead, the economy would have been about
twenty five percent larger by the year twenty twelve. It's
about four trillion dollars and twenty twelve dollars.
Speaker 1 (08:24):
Bring that up to today, that would probably be somewhere
on the six or seven trillion dollar range.
Speaker 2 (08:29):
Yeah, definitely, the.
Speaker 1 (08:30):
Economy, once it's that much larger, would be that much
larger every single.
Speaker 2 (08:33):
Year, exactly. Yeah, we'd be that much more prosperous.
Speaker 1 (08:37):
So the tax consequence, so that would be something like
more than a trillion dollars of additional revenue with no
tax increase.
Speaker 2 (08:45):
I like where you're heading with this.
Speaker 3 (08:47):
I think there's a big effect on the tax base
of any sort of lost growth.
Speaker 2 (08:50):
That's right.
Speaker 1 (08:51):
I'm passionate about getting back to a balanced budget and
paying down the debt because it's utterly crazy that we're
currently spending over a trillion dollars a year just on
bond holders for the national debt, more than we pay
on defense, for example. I mean, it seems to me
there are two different things. One is there's the question
of just economic friction, and the second is there's a
(09:13):
question of where the center of decision making is. That
we have large, anonymous bureaucracies that write regulations which then
change how people function and which limit the ability to
have entrepreneurial creativity and to go out and try to
meet your customers in new and decisive ways because you
(09:33):
have to deal within a framework set by the government.
Speaker 3 (09:36):
Yeah, and so far we've been talking mostly about the first,
the economic friction portion of it, which I do hope
we don't lose sight of but the second is really
important as well, And in fact, I should mention I
just released another it's a database. So I also have
an affiliation with the Pacific Legal Foundation, and with them,
I released a database that tries to get at that
(09:57):
second point that you just highlighted, which is that oftentimes
the regulations maybe don't even stem from congressional mandates or
authorizations written by our elected officials and sometimes the unelected
bureaucrats as people like to call that, people working in
the agencies will go off in some direction that may
not have any relation whatsoever to congressional mandates. So this
(10:21):
database I've put together for Pacific Legal Foundation uses AI
to see if regulations have any direct or even vaguely
related connection to the statutes that they cite as their authorities.
And it's perhaps not surprising to you, but it was
surprising to me that there's quite a few regulations that
don't appear to be related to the statutes that they
(10:43):
cite as their authorities in the first place.
Speaker 2 (10:45):
So highlighting your second point, there's a problem, there.
Speaker 1 (11:03):
Wasn't that one of the provisions that the Supreme Court
came down on recently and saying that bureaucracies can't just
make up rules without any kind of legislative.
Speaker 3 (11:13):
Direction, right, So the demise of Chevron deference is what
you're talking about, right. This was the Lofer Bright case,
and so for about forty years since this case in
the eighties which created Chevron difference, there was a tie
in the interpretation of a statute between what say, a
regulator said and a company that's being regulated thought it said.
The tie would always go to the agency. That is,
(11:34):
difference was given to the agency's interpretation of the statute,
and that got thrown out the window with the lower
Bright ruling. That lower Bright ruling said Chevron defference. This
is the quote. Chevron defference is dead. So now if
an agency wants to interpret a statute in some way,
they have to justify it. They don't just get the
assumption that they're correct. So this ties back to why
(11:56):
I made this whole database in the first place. Really
wanted to understand where are the statutes that are very
vague and that leave a lot of discretion to the
agencies to make interpretations that maybe they would have held
up in Chevron difference days, but maybe these days are
much more susceptible to challenge, and so we're trying to
(12:16):
identify those.
Speaker 1 (12:18):
So in a sense, it shrinks the discretionary power of
the bureaucracy and returns more of the power back to
the elected officials.
Speaker 3 (12:26):
If the elected officials pick it up and run with this, right,
that is part of the problem here too. I think
for many years Congress has not been willing to engage
in the regulatory battles that they need to.
Speaker 1 (12:37):
I think back in the nineteen thirties where Sam Rayburn,
who was then share of the Energy and Commerce Committee,
really had a remarkably detailed understanding of what he was
trying to accomplish and passed legislation that was much more
explicit and delegated, much less than the modern congresses. The
(12:58):
modern Congress has sort of said to do in this
general direction. Now the bureaucracy can define what that means,
which just sloppy legislation.
Speaker 2 (13:06):
Yeah, I agree.
Speaker 3 (13:07):
There's a lot of legislation like that, the latter type
of vague type that just gives a general authorization to
do work in a big area for an agency, and
then the agency can take that and run with it
in a lot of different ways. You know, it's politically expedient,
I guess, to make that kind of legislation, But I
think the end result is even if in the short
run that doesn't lead to some sort of mission creep
(13:30):
on the agency's parts, in the long run you have
set that up for mission creep.
Speaker 1 (13:34):
Now you also have the problem that the bureaucracy is
inherently slow down the process of innovation and of new things.
And I think one of the examples was the Norfolk
Southern case. Can you sort of describe just how goofy
this was. Here's a pro safety innovation which the bureaucracy
is slowing down. They developed this new technique for a
(13:56):
visual tracks inspection and dramatic and the bureaucracy says no.
Speaker 3 (14:03):
The justifications elude me entirely for saying no other than
perhaps there's pressure from existing job holders and the unions
to keep the existing ways of doing track inspections the
status quo for the foreseeable future. But yeah, we have
this new technology, these wonderful machines that will go down tracks.
(14:23):
They can measure for fault cracks, etc. In the tracks
better than the human can do. They outperform on all
sorts of safety metrics and they're cheaper overall, but the
Federal Railroad Administration wouldn't allow that testing to even continue.
But I'm not sure where that stands.
Speaker 1 (14:40):
The other example is what Youngkin has done, where he
really has been very methodically aggressive and brings his CEO
skills to the governorship. Can you talk a little bit
about what you think why it's so different with Youngkin
doing it, and what you think the effect of it is.
Speaker 3 (14:57):
Yeah, I'm glad you brought that up before I go
too deep on what Virginia has done, which I do
think is probably close to best in class or maybe
best in class overall. That should make the point that
we are going through obviously a lot of change at
the federal level right now too. President Trump is trying
to implement a lot of similar changes. We're seeing how
(15:17):
it shakes out over time, and a lot of the
results are still to be determined. But we should acknowledge
that for as much as I said negative about the
federal lay of the land, there have been some positive
changes recently. Switching back to Virginia, though, so Governor youngk In.
One of his first actions when he took office was
to issue an executive order that mandated agencies reduced their
(15:40):
regulatory inventory by at least twenty five percent by the
end of his four year term. And he did this
by creating an Office of Regulatory Management that was sitting
inside the Executive Branch there in Virginia, and that office
was in charge of making sure first all the agencies
did a comprehensive inventory of their baseline and data.
Speaker 2 (16:02):
Actually already started.
Speaker 3 (16:03):
This a few years earlier under a different law, So
agencies had to have a starting point.
Speaker 2 (16:07):
This is really key.
Speaker 3 (16:09):
This is one difference between a lot of state approaches
and what.
Speaker 2 (16:12):
We see at the federal level.
Speaker 3 (16:14):
So have some data for where you are, measure where
you are as a starting point, and then you can
see are you achieving your goal in this case twenty
five percent reduction within four years? Without that baseline, how
are you going to measure progress? So this Office of
Regulatory Management established the baseline, worked with the agencies very
very cordially, I would say, to make sure that they're
(16:36):
looking in all of their regulations, also in all their
guidance documents, which also sometimes gets ignored at the federal
level depending on the administration, looking at things like third
party standards that are referenced by regulations. An example here
is the International Building Code is frequently probably in every state,
(16:58):
referenced as these standards that are used for constructing new buildings.
It doesn't mean that building code is republished in regulations necessarily.
It might be, it might not be, but it has
the force of law. So this is like a third
party set of standards books if you will, that become regulations.
So if you want to do a comprehensive inventory, you
need to look at those need to look at guidance
(17:19):
documents and the regulations themselves, which is what Virginia did.
Speaker 2 (17:23):
So that's setting the stage.
Speaker 3 (17:26):
The second thing they did was work with all those
agencies to figure out which regulations they could cut and
not create some sort of safety or environmental hazard.
Speaker 2 (17:36):
This does require a lot of work.
Speaker 3 (17:37):
This requires subject matter expertise, or requires the regulators themselves
to be bought in on the concept of streamlining and
red tape production and look for the stuff where they
can improve.
Speaker 2 (17:47):
Then give you an example here they.
Speaker 3 (17:49):
Looked at cosmetology licensing and the number of hours that
a cosmetologists would be cosmetologists has to go through training
in order to be a licensed cosmetology just the number
when Virginia started this off, it was either twelve hundred
or fifteen hundred hours, one of those two. And they
looked around at other states to say, do other states
(18:10):
have lower requirements for how much training a cosmetologists has
to go through? And they found that the mean state
has about one thousand hours. Some states have even less
for requirements. And then they said, do we see different outcomes?
Are they less safe because they have fewer hours required
in training? And they didn't see different outcomes, So they
lowered the number of hours required and that made a
(18:33):
big difference for all the people that were going to
go become cosmetologists in Virginia thereafter. So they worked on
that sort of thing, agency by agency to identify where
they can streamline, where they can cut back. And then
the third thing they did was make sure that there's
an economic analysis done for every single regulation, the ones
(18:54):
that they were going to get rid of, the ones
that they were going to put.
Speaker 2 (18:56):
Onto the books.
Speaker 3 (18:58):
All of this required for what's the cost, what's the benefit,
so you can make better decisions on what changes you
wanted to make. And this I think is really worth
highlighting because that doesn't exist pretty much anywhere else. At
the federal level, you do have cost benefit analysis applied
within regulatory impact analyses, but it's only applied to typically
(19:19):
less than three percent of all new rulemakings. The other
ninety seven percent we just fly in the dark. So
that was a big innovation. All of this worked together,
as you may have mentioned, to lead to not only
a twenty five percent reduction, but thirty three percent reduction
is where they're sitting at right now for Virginia, or
projected to be by the end of this year, and
the economic benefits are already being reaped I think by
(19:42):
the residents of Virginia. The biggest one was in housing.
They were able to get rid of some of the
regulations that were in the International Building Code. They decided
we don't actually need these things that they're effectively gold plating.
An example there is there have been a requirement for
bird safe windows on new construction, which a nice thing
to have perhaps, but it doesn't necessarily improve human safety.
(20:04):
And so that's the kind of thing that you could
cut away and that be an option for those who
can afford it, but not a requirement for those who
want to have more affordable housing.
Speaker 2 (20:13):
And that led to a lot of savings.
Speaker 1 (20:29):
This whole process of figuring out what are you trying
to accomplish and how do you measure the outcome, rather
than the process whose most bureaucracies actually can't tell you
what the outcome is. Jason Saal, who's his universitys Chicago
professor who's developed, starting with private philanthropy, a system of saying,
(20:50):
tell me what you're trying to accomplish, Now, let me
measure what does it cost per achievement, And he said
the scale is unbelievable. For example, in the private sector
is about five times less expensive than the federal government
to achieve the same level of achievement. Seens me a
lot of what you're doing and he's doing actually kind
(21:11):
of fit what I think is an emerging sense that
we need to go back and learn how to manage
the regulatory process in a way that we really haven't
and also managed the investments were making in terms of
the federal government. Now, when you look at Junkin and
Virginia from what you see around the country, has even
unusually successful or is he part of a wave of success?
Speaker 3 (21:33):
Definitely part of a wave, maybe towards the top end
of the innovations that have been used in that wave.
But we've seen other states cut similar amounts of regulation.
Idaho has cut over fifty percent since twenty eighteen. Ohio
has cut about twenty percent in the last few years.
And most of these states have made these changes by
(21:53):
executive order from the governor. Ohio was different. They did
it via legislation, So that's worth highlighting briefly. At least
Nebraska has made some cuts, Oklahoma has made some cuts.
Texas is starting down this road. They just created their
own agency to manage regulatory management better regulatory reduction, I
should say better. We'll see where that goes, but I
(22:14):
have high hopes for what Texas can do. So it's
a bit of a wave to address your question very directly.
But I do think what Virginia did is setting some
nice new examples to One thing that's worth highlighting for
Virginia also is.
Speaker 2 (22:27):
Their usage of AI and I think this.
Speaker 3 (22:29):
Is something that the federal reformers as well as state
level reformers are probably paying attention to.
Speaker 2 (22:37):
This goes back to the problem I was highlighting earlier.
Speaker 3 (22:39):
There's these economic analysis, for example, required for every single regulation.
Speaker 2 (22:43):
Well, that's an expensive process.
Speaker 3 (22:45):
And most states don't necessarily want to create new positions
within the agencies to perform these analyzes. The governor of Virginia,
Governor Younkin, put together a pilot program that has this
company called Vulcan Technologies, doing automated cost benefit analysis for
these regulations with AI.
Speaker 2 (23:06):
They're doing some other things too. They're using AI to.
Speaker 3 (23:08):
Identify where a regulation goes farther than what the statutory
requirement says. One of the problems they often ran into
in Virginia was an agency would say, well, we can't
cut regulations because there are statues that say we have
to have these regulations on the books, so there's no
room to deregulate. We're legally required. Well, this company made
(23:30):
an AI tool that goes back and says are you
really required or is it an option? And they can
identify where regulations are optional versus mandated and gave the
agency some room to work with there.
Speaker 1 (23:42):
Now, when you see all this deregulation across the country,
have there been occasions when in fact they're on a
stage too far and there have been negative side effects
turned out that the regulation was actually needed.
Speaker 3 (23:54):
We haven't seen that yet in this wave of red
tape reduction that's really been happening in the last decade,
so I think that's deliberate. Going back to Idaho, the
governor there was very careful to make sure he ordered
the agencies to cut regulations only when it wouldn't reduce health, safety,
or environmental outcomes. And even going back farther, the province
(24:16):
of British Columbia in Canada back in two thousand and
one to two thousand and four really was the pioneer
in this space. A newly elected government decided it needed
to cut regulations. They had promised in their campaign to
cut regulations by a third, and so when they got
into office, they implemented that promise and they ended up
cutting actually nearly forty percent over a three year period.
(24:37):
We didn't see any sort of negative environmental outcomes or
safety outcomes there either. We've been able to study this
now at length, but what we did see, by the way,
is very positive economic outcomes. The growth rate in BC
and British Columbia there increased because of the regulatory reduction
by just over one percentage point.
Speaker 2 (24:56):
Consistent with the point I made earlier.
Speaker 1 (24:58):
In your judgment. Administration could deregulate between one third and
forty percent. What would the impact on the American economy be.
Speaker 2 (25:07):
On growth rate?
Speaker 3 (25:08):
If we will cut that much, I think we'd see
about one percentage point added to the growth rate, So
instead of say three percent per year, we maybe get
closer to four percent per year. And then I think
we should take that step further and think about the
budgetary implications of that. If we were to deregulate have
greater growth, you'll have greater tax revenue to work with
(25:29):
in the budget, and you can do a lot more
of that space.
Speaker 1 (25:32):
People don't realize that one percent a year when it
applied to a system the size of the US economy
is a lot of money, and its compounding effect over
ten or twenty years is kind of astonishing.
Speaker 3 (25:44):
Right and right now, the budget process in DC largely
ignores both the drag that accumulated regulations are creating right now,
as well as the potential gains to growth of regulatory reform.
Speaker 2 (25:58):
I'd love to see that change somehow.
Speaker 3 (26:00):
Over the years that I've been working in this area,
I've seen several bills in Congress come but not necessarily
get passed, but that would propose some sort of regulatory
budget other sorts of regulatory reforms. But when it comes
to time to score, that doesn't seem to be getting
scored really because it's not fiscal.
Speaker 1 (26:17):
When they changed the Office of the Budget the Office
of Management and Budget, they were trying to get at
this very point, and I don't think that the Congressional
Budget Office has had a parallel evolution. And that's probably
something the two budget committees ought to look at, is
how do we find a way to quantify the economic
long term advantages of a leaner, less bureaucratic, and less regulatory,
(26:40):
overburdened kind of system. I think that's a very very
useful point, Patrick, I want to thank you for joining me.
I want to let our listeners know they can find
out more about the work you are doing at the
Hoover Institution by going to Hoover dot org. They can
also subscribe to your blog, Third Order about the Economics
of Regulation and Deregulation Substack by going to third Order
(27:03):
dot substack dot com. This has been a really positive
and brillian, encouraging conversation.
Speaker 3 (27:09):
I appreciate the opportunity to be on this did my
pleasure to chat with you.
Speaker 1 (27:16):
Thank you to my guests Patrick McLachlin. You can get
a link to his work at the Hoover Institution on
our show page at newtsworld dot com. Newtsworld is produced
by Ginglish three sixty and iHeartMedia. Our executive producer is
Guernsey Sloan. Our researcher is Rachel Peterson. The artwork for
the show was created by Steve Penley. Special thanks to
(27:37):
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This is Newtsworld.