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New Idea: Regulation Cap and Trade

by Roger Bourke White Jr., copyright Oct 2011


This idea was inspired by the complaint that too much of America's brightest and best talent ends up working in jobs that don't "add value" to our society -- adding value in this context means things such as manufacturing, inventing, the arts and sciences. What is sucking talent away from those areas is jobs that are profitable but don't add value. The iconic non-value adding jobs are "evil" bank financiers and lawyers.

Of course the financiers and lawyers will argue that they add a lot of value, and that's why they are paid so much.

And that is true... but why? Why are they adding so much value?

Digging a little deeper into that mystery lead to my newest crazy-like-a-fox idea: Regulation Cap and Trade.

Why Lawyers and Financiers are well paid

Modern America is a place with a lot of rules and regulations that heavily affect everyone’s day-to-day living and more heavily affect how businesses conduct their business.

Because Rule of Law is strong in America, designing rules and regulations is an important activity. We have well paid, clever lobbyists who help legislatures craft rules and regulations. Sometimes those are clear, but very often they’re too complex to be clear. This means that other clever, knowledgeable people need to study them, to discuss them with other clever, knowledgeable people, and then to test their theories about what the rules and regulations really mean.

The more that rules and regulations grow in importance and complexity and diminish in clarity, the more added value there is in spending time and cleverness paying attention to them, and then in providing advice that helps companies and people run their lives more efficiently. This is why so many brightest and best migrate into jobs that focus on rules and regulations and why such jobs in the law are well paid.

Besides being steered through regulatory thickets, businesses also need lots of money when they are growing and providing more products that customers want. The more raising money becomes a complex task -- which it has -- the more it becomes an area where the brightest and best are also effective. This is why others of our brightests and bests move into the upper reaches of banking and finance, and get paid well for doing so.

This has been the situation over many decades, and the trend has only grown stronger. In the second decade of the 21st century in America, it’s a difficult task to understand all the regulations surrounding running a business, providing health care, and raising money.

So ... how can we make the career areas that cope with complexity and importance to be less profitable, and instead attract our brightest and best to activities such as developing and adapting new technologies?

By reducing the complexity and importance of rules and regulations!

That short, sweet answer lies at the heart of the various limited government philosophies. But sadly, a bunch of citizens each saying “I'm for limited government” doesn't seem to produce limited government in practice.

For while that’s easy to say, government limits are difficult to measure. Moreover, there are always, always lots of citizens (often the same citizens) also clamoring, “Right now we need a new law to cover” this situation, that situation, and the other situation.

A few decades ago I, and others, came up with the idea of putting limits on how long a law can be enacted for. (My choice was, “You can only write a law that lasts for twenty years. If after twenty years it’s still a good law, then pass it again.”) This idea gained popularity for a while in the late 1970s as the “sunset provision movement”, but that movement faded without much result.

Nevertheless, regulation simplicity is still a good idea. So here’s my latest thought on simplifying rules and regulations and keeping them simplified over decades of legislation, inspired by that wonderful “green idea”, carbon cap and trade.

The Glorious (Thought) Experiment

I propose Regulation Cap and Trade.

The basic concept here is that the total regulatory burden on the nation by all the various governing agencies will be fixed on a certain date. After that, agencies that want to write new regulations will have to either kill or simplify old regulations in order to free up slots, or else bid to buy slots from agencies some of whose regulations are no longer needed or that they’re willing to kill in return for money.

With total regulatory complexity fixed, regulations cease to be the “creeping feature creature” they have been for decades, and dealing with government becomes a lot, lot simpler, which is a very good thing. People will less often need to hire the brightest and best to serve as shamans dealing with the chaotic, barely understandable spirit world of regulation, so these stars can be paid better for more tangibly productive activities, a really good thing for our society.

The hard part of implementation will be measuring the size of a regulation. It’s not an obvious concept, and so will likely be gamed until it is well figured out. No matter what the measure settled on, there will certainly be some use for the brightest and best in identifying which regulations can go, simplifying those that stay, and reducing the measured burden of new ones.

However, virtually any measurement system is better than no measurement system, and not having an obviously great system is no reason not to start experimenting with the concept.

So I propose we start this Glorious Experiment simply with a count of pages occupied, in a standard format -- font, font size, leading (the space between lines and/or paragraphs), and anything else that could be manipulated if not defined.

After the total page count of government rules and regulations has been measured, with any rule or regulation not included being automatically repealed, we have the page count cap and page count ownership. After that is determined, pages can be bought and sold. An agency can sell any pages that it deems it no longer needs, and anyone -- government agency, corporation, organization, or individual -- can bid for those that become available. Regulatory pages become an auction marketplace

The main players will be government agencies buying pages for their new rules or selling pages they no longer need in order to add to their revenue. Page buyers will also include corporations and individuals with various agendas: Speculating that pages will be more valuable for future resale, wanting to donate pages them back to support a regulatory cause, or trying to stop an agency from writing regulations by withholding pages. These last will have some effect, but are unlikely to totally stop regulation because there will be thousands of sources of pages.

An agency can also generate pages internally by discarding regulations or framing them in more compact language.

My feeling is that, once the kinks are ironed out, this system will provide a steady and ongoing incentive to produce rules and regulations with simple, easy to understand writing, because such writing is compact.

There might need to be some mechanism to prevent writing going past compact into dense, but I'll leave that to the linguists. After all, this is only a first pass at an idea. I recognize that even when perfected it can be gamed, just as any system can. But it perhaps it can become the foundation for a solution to the exponential regulation growth that America has been suffering under for decades.

And if it works well it will free up America’s brightest and best. As regulations become more transparent, the talent needed to figure them out will diminish, and the brightest and best would migrate out of the now lower-paying business of regulation creation and interpretation into activities that have become relatively more important and pay better. Things such as inventing, engineering, and other endeavors that grow the size of the American pie and make us all better off.


One way to get our brightest and best out of "non-productive" endeavors such as lawyering, financing and government regulation writing is to make these endeavors less important in running our businesses and lives.

One way to do that is to put a cap on how many regulations we can have as a nation. We set a limit and then we trade in rules and regulations -- before we add new rules and regulations we remove an equivalent number of less important rules and regulations.

This will simplify the legal and regulatory systems, which will make day-to-day living and conducting business in America much less dependant on understanding a growing mass of subtle rules and regulations and policies. Instead of thinking about rules and regulations we can be thinking about other things -- things which grow the size of the American pie -- things which will make our America a better place to live because there will be a lot more to it.


-- The End --

Update: The 18 Feb 12 edition of The Economist ran a series of articles with the theme "Over-regulated America" The home of laissez-faire is being suffocated by excessive and badly written regulation. They pointed out Dodd-Frank, Obama's healthcare reform, and Sarbanes-Oxley as iconic examples.

From the lead article, "Consider the Dodd-Frank law of 2010. Its aim was noble: to prevent another financial crisis. Its strategy was sensible, too: improve transparency, stop banks from taking excessive risks, prevent abusive financial practices and end “too big to fail” by authorizing regulators to seize any big, tottering financial firm and wind it down. This newspaper supported these goals at the time, and we still do. But Dodd-Frank is far too complex, and becoming more so. At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the “Volcker rule”, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions."

Other articles in that issue: The Dodd-Frank Act too big not to fail and Excessive Regulation tangled up in green tape.


Update: Here's a 15 Mar 12 Reason article, Complex Societies Need Simple Laws by John Stossel, complaining about too many laws. He sees the problem but he hasn't thought of my solution. And I have written about Dodd-Frank as a blunder in the March issue of Cyreenik Says.


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