The Case Against Rollback Exceptionalism

This commentary was originally published by The Regulatory Review and is part of a series, "Speeding Up the Deregulatory Process." Reprinted with permission.

A recent U.S. Office of Management and Budget (OMB) memo proclaimed the Trump administration’s commitment to “deregulating at an unprecedented scale.” To advance that agenda, the memo tells agencies to put a thumb on the scale in favor of rollbacks. In contrast, most lawyers and economists would say that regulation and deregulation are subject to the same rules. Sometimes, the conventional wisdom is right.

Although the memo makes other points, it puts forward three key arguments. According to the first argument, “where a regulation is unlawful under the plain language of the controlling statute, the Constitution, or prevailing Supreme Court precedent, the agency lacks discretion and authority to retain it, even during the pendency of notice and comment proceedings and notwithstanding that the regulation might have engendered reliance interests.” OMB’s second argument analogizes rollbacks to enforcement discretion and calls for favorable legal treatment on that basis. The third argument is that rollbacks enhance liberty. None of these arguments holds water.

OMB’s first two arguments are contradictory. The first argument brushes aside normal rulemaking procedures because of an inflexible duty to repeal unlawful regulations immediately. The second argument analogizes rollbacks to highly discretionary enforcement decisions. Both cannot be true. And in fact, neither one is valid.

To begin with, OMB’s analogy between rollbacks and non-enforcement is a nonstarter. A regulatory rollback is a permanent change in the law governing regulated parties, whereas non-enforcement is just a temporary diversion of scarce enforcement resources elsewhere. That is a fundamental legal divide.

OMB is also wrong to suggest that an agency must always repeal existing regulations when it questions their original legal justifications. Although agencies are free to change regulations, the U.S. Supreme Court has said that it must “assess the existence and strength of any reliance interests, and weigh them against competing policy concerns.” Even if repeal is legally required, the agency can consider ways to protect the interests of those who have relied on a regulation.

An agency’s decision to overturn a regulation on legal grounds is much like a court’s obligation to overturn a precedent. Agencies and courts have the same obligation to follow the law, but “the law” is not blind to the costs of overturning past decisions. Courts consider reliance interests and other factors before overturning their own decisions, even when they consider those decisions to be wrong. Thus, although Chevron v. Natural Resources Defense Council has been overruled, past rulings that deferred to reasonable agency interpretations of statutes under Chevron remain valid statutory precedents, presumably binding agencies as much as courts. If the law allows a federal court to follow a past erroneous ruling because of reliance, how can the same consideration be irrelevant when an agency is facing the same issue?

OMB and an earlier executive order are also wrong in providing that notice and comment can be skipped when an agency action is solely based on a legal argument. This position plainly reflects a misunderstanding of the Administrative Procedure Act (APA). The APA does allow an agency to skip these procedural steps for interpretative rules, in which the agency merely gives its view of a legal issue. But the situation is quite different if the agency wants to translate its view of the law into an action with the force of law. If Congress had thought all regulatory actions based on legal arguments were exempt from notice and comment, it would have said so.

Nor are notice and comment pointless in this situation. Like a court, an agency should consider opposing arguments before taking an action with binding legal consequences. Public comments can also help the agency assess relevant factual issues, such as the extent of reliance interests or whether a regulation’s impact is large enough to trigger the major questions doctrine.

This brings us to OMB’s policy argument for favoring deregulation. It contends that rollbacks enhance freedom because “deregulation will leave more individuals and firms free to pursue their own self-defined interests, unfettered by regulation.” But individuals are helped in pursuing goals, not harmed, when regulations allow them to make decisions free from deception by creditors, monopolistic practices, or health problems caused by pollution. OMB counts it as a victory for freedom when coal-fired power plants are allowed to pollute but ignores the loss of freedom when asthmatics cannot leave their homes due to unsafe pollution levels.

Indeed, the Trump administration frequently ignores its own liberty enhancement argument. Its tariff policies impair the freedom of U.S. consumers and firms to purchase goods from foreign manufacturers. Its immigration policies limit the freedom of foreigners to work and live in the United States and the freedom of Americans to hire them. This is not to mention its attacks on the freedom of law firms to control their own pro bono practices.

My point applies with equal force to a related OMB argument. OMB argues that deregulation creates benefits that rebound throughout the economy in a “virtuous cycle.” This claim is dubious. If it is taken seriously, tariffs and immigration restrictions must correspondingly create costs that reverberate throughout the economy in a vicious cycle. That possibility seems to trouble the Trump administration not a whit.

In the end, the OMB memo amounts to a thin rationalization for a visceral dislike of environmental and consumer protection regulations. Courts should reject OMB’s invitation to exercise favoritism toward the administration’s policy agenda.