Why the District government should focus on the reform of its regulatory system is straightforward: as a famous economist recently said, “Regulatory burdens do not exist in isolation. Someone must eventually bear the cost, either through reduced wages, lower profits, or higher prices for every consumer.”

Where to start reform is the simple part. The specifics on how you go about it are not so simple. The underlying goal must be to change the incentives that require regulators to write ever more regulations in order to justify their existence.

The classic quip, “regulators regulate” is classic because it’s true. The job of a regulator is to write rules and enforce them. That’s how they’re paid. That’s how they’re measured. That’s how they’re evaluated.

Cutting Red Tape

With the current set of incentives, a regulator must be in perpetual motion — constantly writing new rules and revising/expanding older ones. Constantly looking for new problems that can be solved with a clever rule.

But what if we changed the way regulators are compensated, measured and reviewed?

Another way of looking at the financial crisis is that we had too many regulators at the SEC, the Federal Reserve and the Treasury writing new rules and not enough of them enforcing the rules already written. The mortgage crisis was a massive regulatory failure, but it wasn’t because there weren’t enough rules.

On the contrary, there were too many rules that were so complex as to make them easy for smart lawyers to pervert, evade or exploit.

What if we transitioned some regulatory personnel from promulgating new rules to the enforcement of a radically revised, reshaped and simplified regulatory scheme?

Instead of being compensated for every new rule you write, what if you were compensated for every piece of red tape you cut, the number of rules you reform and how you reduce the costs of compliance without jeopardizing consumer protections.

We hope you’ll read this seminal article on the fatal flaws of hyper-regulation. There is a smart middle-ground between the Wild West and insanely burdensome regulatory overreach. We’ve got to find it fast.

How Radical Regulatory Reform = Good Government