This is a summary of testimony before the House Judicary Committee. Read the full testimony here.
Chairman Marino, Vice-Chairman Farenthold, and other Members of House Judiciary Committee, thank you for the opportunity to give testimony on how the current model of federal regulation stands in the way of millennial entrepreneurs. I am a fellow at the Manhattan Institute for Policy Research and am the coauthor, with Diana Furchtgott-Roth, of Disinherited: How Washington Is Betraying America’s Young. Since this summer, I have traveled across the country and heard millennials talk about the economic challenges they are facing and their plans for the future.
“Government policy... ignores the realities of a 21st century economy and continues to hold back millennials’ economic opportunity. ”
Millennials have been called the start-up generation, but few young Americans have followed through on their entrepreneurial dreams. About two-thirds of millennials want to work for themselves. Yet, less than 4 percent of private businesses are at least partially owned by someone under the age of 30—the lowest annual proportion on record.
Government policy, particularly in regards to regulation, ignores the realities of a 21st century economy and continues to hold back millennials’ economic opportunity. Congress has granted executive and independent agencies freedom to regulate with minimal oversight, and these agencies consistently understate the costs that their pronouncements place on young Americans.
It is impossible to know the full costs of America’s 175,000-page Code of Federal Regulations because executive agencies refuse to take count. For example, during 2014 only 16 of the over 3,500 rules published in the Federal Register had a cost analysis.
This lack of oversight occurred even though there were 290 significant rules and 69 economically significant agency rules that year. These types of rules generally have over $100 million in annual negative effects on the economy and are supposed to undergo rigorous review. With federal regulation conservatively estimated to cost the economy $1.9 trillion a year, there is no excuse for this level of regulation escaping basic cost analysis.
Agencies are also increasingly acting as legislators. In 2015, there were over 50 new regulations for each law that Congress passed. This imbalance shows the need for Congress to take back its legislative authority from agencies.
Public review and transparency requirements do not apply to agency guidance documents, memorandum, or notices. These growing types of so-called “shadow” or “dark matter” regulation lack transparency, even though they can impose substantial burdens on young Americans.
This negative effect can be seen in the Department of Labor’s efforts to make it more difficult for independent contractors to work. The Labor Department recently issued an administrator’s interpretation, which did not have to go before the public for comments, that downplays a lack of control over workers’ hours as a determinant of employment status.
The flexibility that independent contractor status offers workers is vital for many industries, including the emerging sharing economy. The sharing economy’s embrace of technology, convenience, and flexibility embodies many young Americans’ economic ideal.
While some workers use these platforms full time, the vast majority use them for part-time work or supplemental income. For the 70 percent of young adults who experience an average change of over 30 percent in their monthly incomes, the opportunity to smooth out earnings to meet rent, pay down student loans, or fund a new business venture is a benefit of the sharing economy that must be protected.
Young Americans realize how out of touch regulators are with today’s economy. Perhaps because of the promising rise of popular sharing economy services, and the subsequent hostile response of some legislatures, only 18 percent of millennials believe regulators primarily have the public’s interest in mind.
“Internal regulatory reviews have not led to meaningful reform, but how could they have? The hands-off approach that Congress has given agencies provides no incentives for self-control.”
The Labor Department is trying to change the previously-clear distinction between employees and independent contractors. The worker classification question needs to be sorted out by Congress, not courts or unaccountable executive agencies. The alternative is the crippling of economic opportunity by executive agencies set on incorrectly classifying the vast majority of new economy workers as employees.
The House Judiciary Committee deserves credit for establishing a task force on executive overreach, as there are many ways that Congress can regain control over federal agencies and restore lost economic opportunity to millennials.
It is common for presidents to talk about implementing regulatory reform. But as the unbroken year-over-year growth in regulation has shown, this talk has done little to stop or even slow regulatory accumulation.
Part of the reason for the ineffectiveness of previous reforms is the inherent incentives that agencies have to expand their reach. Internal regulatory reviews have not led to meaningful reform, but how could they have? The hands-off approach that Congress has given agencies provides no incentives for self-control.
The three main priorities for meaningful regulatory reform should be slowing the continued growth in the cost and number of regulations, repealing outdated and burdensome regulations, and giving the public a greater say in agencies’ actions.
Many promising regulatory reform proposals have already been introduced in the House. The Regulatory Predictability for Business Growth Act, Regulatory Accountability Act, REINS Act, RED Tape Act, and SCRUB Act all address at least one of these important priorities.
Young Americans need a stronger voice in the regulation process, and their elected representatives can provide that check. Millennials value transparency, democracy, and accountability. It is long past time for Congress to apply these principles to U.S. regulation.
Thank you for the opportunity to provide testimony. I look forward to continuing this discussion.
Read the full testimony here.