Key Takeaways

The regulatory state imposes massive hidden costs - with federal regulations costing an estimated $2-3 trillion annually, equivalent to the entire federal deficit and representing over 50% of corporate pre-tax profits, making it the biggest form of federal economic intervention.

Administrative agencies have vastly exceeded congressional authority - while Congress passes only a few dozen laws per year, agencies issue around 3,000 regulations annually, creating a system where unelected bureaucrats effectively make law through "regulatory dark matter" including guidance documents and policy statements.

Recent Supreme Court decisions are beginning to constrain bureaucratic overreach by challenging the "Chevron deference" doctrine that gave agencies broad interpretative power, though meaningful reform requires congressional action to reclaim delegated powers.

The RAINS Act represents a potential breakthrough in regulatory reform by requiring Congressional approval for major administrative rules before they take effect, though its inclusion in budget reconciliation faces parliamentary obstacles.

True reform requires fundamental restructuring - moving beyond executive orders to congressional codification of changes that decentralize government functions back to states and civil society, reducing the complex entanglement between federal, state, and local governments that has created unsustainable regulatory complexity.

Deep Dive

Regulatory State Overview and Economic Impact

The conversation begins with Matt Kittle interviewing Clyde Wayne Cruz from the Competitive Enterprise Institute on the Federalist Radio Hour. Cruz, who has been studying federal regulations for 32 years, presents a stark assessment of the regulatory state's economic impact:

Current federal budget stands at $7 trillion with a $2 trillion deficit
Estimated regulatory costs reach $2-3 trillion annually - equivalent to the federal deficit and individual income tax receipts
These regulatory costs represent four times corporate tax receipts and over 50% of corporate pre-tax profits
Cruz argues the regulatory state constitutes the biggest form of federal economic intervention

The discussion highlights how the Biden administration imposed progressive regulations across multiple sectors, while Congress has over-delegated lawmaking power to administrative agencies. A critical concern emerges: the federal government fails to accurately measure and report aggregate regulatory costs.

Executive Power and the Administrative State Expansion

The conversation shifts to examining executive overreach and administrative state power expansion. Cruz contrasts different presidential approaches, referencing Obama's "I've got a pen, I've got a phone" mentality with current administrations. A striking disparity emerges: Congress passes only a few dozen laws annually while administrative agencies issue around 3,000 regulations per year.

The Concept of "Regulatory Dark Matter"

Cruz introduces the concept of "regulatory dark matter" - administrative guidance, circulars, and policy statements that extend regulatory influence beyond formal rules through:

Contracts and grants
Subsidies and procurement
Federal spending interconnected with regulation

Administrative Transitions and Current Developments

The discussion covers recent administrative changes:

Trump's "one in, two out" regulation reduction strategy was immediately reversed by the Biden administration
Biden pursued "whole of government" approaches on equity, climate, and justice issues, charging multiple agencies with creating comprehensive plans
Trump has issued 142 executive orders, with over a dozen addressing regulation
Several orders involve the Department of Government Efficiency (DOGE), set to be dissolved in one year by the America 250 celebration

Bureaucratic Power and Agency Expertise Critique

The conversation delves into bureaucratic power and the concept of "deference" to government experts. Key developments include:

Reduction of federal workforce under current administration
Supreme Court's recent decisions challenging bureaucratic overreach, particularly the "Chevron deference" doctrine that gave agencies broad interpretative power

Historical Context and Agency Critique

Cruz traces the roots of agency expertise back to the early progressive era, when agencies claimed expertise in resource allocation and regulation. However, he presents several criticisms:

Agencies often remove industries from competitive marketplace
Regulatory approaches can be outdated and inefficient (citing FAA's drone regulations as overly complex and non-adaptive)
Agencies create extensive rules without true expertise, failing to account for technological innovation
Tendency to apply old regulatory frameworks to new technologies

The Supreme Court's recent decisions have begun limiting agency power and challenging unconditional deference to bureaucratic interpretations.

Congressional Delegation and Spending Dynamics

The discussion addresses bureaucratic overreach, regulatory expansion, and congressional delegation of powers. Key observations include:

COVID-19 pandemic triggered massive spending increases that remain in place
Significant post-COVID legislation includes American Rescue Plan, infrastructure law, and Chips and Science Act
Agencies continue issuing approximately 3,000 rules annually with no meaningful reduction

Congressional Issues and Potential Solutions

Cruz highlights several congressional problems:

Over-delegation of powers to administrative agencies
Disregard of enumerated constitutional powers
Difficulty in reducing or eliminating established spending programs and regulatory bodies

Potential solutions discussed include:

Eliminating enabling statutes that created regulatory agencies
Considering alternative regulatory approaches based on competitive disciplines
Departments like Education as candidates for significant reform

Market-Based Regulatory Philosophy

Cruz articulates a market-oriented regulatory philosophy, arguing that:

The free market's role extends beyond creating products to developing risk management institutions and disciplines
Competitive forces (consumers, Wall Street, media) help regulate corporate behavior
Regulatory approach should focus on creating competitive disciplines, not just establishing agencies

Overregulation Impact and Concerns

The conversation highlights significant regulatory burdens:

Estimated $2 trillion annual cost of federal regulations
Average American potentially impacted by $16,000 in regulatory costs per year
Concerns about government-private sector collaboration potentially infringing on individual rights

Specific regulatory challenges include:

Energy sector regulations, particularly around electric vehicles and fossil fuel restrictions
Appliance and consumer product regulations (dishwashers, washing machines)
Environmental and emissions rules

Cruz advocates for preventing the administrative state from "pre-capturing" new economic sectors before they fully develop, promoting more flexible, market-driven regulatory approaches.

Legislative Reform Efforts: The RAINS Act

The discussion covers the RAINS Act (Regulations from the Executive in Need of Scrutiny), a proposed legislative reform requiring Congressional approval for major administrative rules:

Key Features and Current Status

If Congress doesn't approve a major rule, it would not go into effect (differs from current Congressional Review Act requiring active disapproval)
Originally called the Congressional Responsibility Act in the late 1990s
Current sponsors are Kat Kamek (House) and Rand Paul (Senate)
Currently being considered as part of budget reconciliation process

Implementation Challenges

Budget reconciliation rules may prevent inclusion
Regulatory changes must have "direct" budget impact to be considered
Parliamentarian may block provisions with only indirect effects on federal revenues

Historical Context and Current Obstacles

Cruz provides historical perspective on regulatory reform, noting that major reforms last occurred in the mid-1990s under the Clinton administration, including:

Small Business Regulatory Relief Act
Unfunded Mandates Act
Congressional Review Act
Regulatory Right to Know Act

Current Reform Challenges

Unlike the 1990s, several factors complicate current reform efforts:

Less grassroots pressure from state/local governments and small businesses
Federal government increasingly involved in funding and directing business activities
Federalism undermined by extensive federal grants to state and local governments
Many lobbyists and attorneys profit from regulatory complexity
Increasing "fusion" between business and government, especially post-COVID

A proposed judiciary markup would require GAO to perform aggregate estimates of regulatory costs, though the Regulatory Right to Know Act from the late 90s mandating such estimates was largely ignored.

Federal-State Relationship and Proposed Solutions

The conversation concludes with Cruz's vision for restructuring government relationships:

Current System Critique

Complex entanglement between federal, state, and local governments
Significant financial and regulatory interdependence
Federal government deeply embedded in state and local operations
Current "cradle to grave" federal approach is unsustainable

Proposed Decentralization Strategy

White House project to decentralize government functions
Repositioning social and economic functions back to the states
"Shrink the state" and return responsibilities to civil society
Congressional codification of changes, not just executive orders

Cruz uses the metaphor of a "drunken boat" with poor steering to describe current governance, suggesting that removing regulatory "rocks" would allow natural economic growth. He concludes optimistically, believing positive changes are possible with strategic reframing and sees potential to "free the future" by reducing government intervention.

Counting The Cost Of The Regulatory State