Don’t bet against the Department of Government Efficiency on deregulation

Doubting the new Department of Government Efficiency (DOGE) has become the latest fad among Beltway insiders. Skeptics on the left unsurprisingly want DOGE to fail for ideological reasons. More unexpected are conservative and libertarian cynics who, while wishing Elon Musk and Vivek Ramaswamy all the luck in the world, are dubious of success.

To these skeptics, no outsiders could understand Washington’s tangled web of statutes, regulations and administrative practices well enough to deliver meaningful deregulation within 18 months — let alone trim $2 trillion from the federal budget.

Contrary to those insiders, I agree with Peter Thiel’s recommendation: “Never bet against Elon Musk.” Not for some mystical belief in Musk's charisma, but because history shows deregulation is achievable when approached methodically. This is especially true when you give the insiders the right incentives. Jurisdictions worldwide have shown that significant regulatory reduction can occur in just a few years — and proven the budgetary and economic benefits that deregulation provides.

Deregulation can save trillions of dollars. The number of regulations on the books has nearly tripled over the last 50 years. These regulatory restrictions stifle innovation and economic growth. My own research finds that average annual economic growth would be nearly 1 percentage point higher if regulations had stayed at 1980 levels. That doesn’t sound like much, but it would be 35 percent faster annual growth than what we’ve actually seen.

Federal tax revenue over the same time period has consistently been about 17 percent of GDP. This suggests that a long-run solution to our budget problems today could involve increasing economic growth via deregulation, simply by virtue of taxing a larger economy.

Deregulation in the U.S. presents a daunting task. Upstream of regulations are the thousands of congressional statutes that authorize them. And downstream are millions of guidance documents that ostensibly exist to help businesses and individuals comply with regulations. In reality, many of these guidance documents become de facto regulations themselves, adding to the economic quicksand that constrains innovation, entrepreneurship and economic growth.  

That’s a lot of law. The trick will be to deregulate in a way that will withstand the inevitable legal challenges from special interest groups. These challenges will be primarily based on the Administrative Procedure Act, which dictates that regulations must be crafted in a way that is not “arbitrary and capricious.” The interconnectedness of laws, regulations and guidance documents makes it hard to remove any particular rule without affecting other rules, but a failure to consider all of the moving parts could risk legal challenge.

How can DOGE possibly thread this needle, especially if it lacks regulatory expertise, as alleged by the DC punditry? DOGE’s solution lies within the government’s ranks. Agency employees — attorneys, economists and subject matter experts — who have spent decades crafting new regulations can be incentivized to reverse course. Successful deregulation doesn’t require external expertise. It just requires knowing how to rewrite the rules of the game.

Proven models exist. In 2001, British Columbia reduced its regulations by nearly 40 percent within three years. That yielded a 1 percentage point boost in economic growth. In the U.S., states like Idaho, Virginia, Nebraska and Missouri have similarly achieved remarkable success by tasking agencies with measurable reduction goals.

Idaho has cut regulations by over 50 percent since Gov. Brad Little took office in 2019. Regulators in the state were initially given the task of finding two regulations to modify or eliminate for every new regulation that they wanted to create. Idaho is maintaining this progress through a zero-based regulation plan, which sunsets all regulations every five years unless they are renewed by a new rule.

In Virginia, a 2022 executive order requires agencies to find a way to cut 25 percent of the requirements in their regulations, Gov. Glenn Youngkin set up a new Office of Regulatory Management to help implement the process. So far, Virginia’s regulatory reductions will save residents an estimated $1.2 billion per year — all accomplished by relying on agency staffs themselves to find regulations that could be cut.

These examples showcase how agency insiders, given clear goals and incentives, can spearhead meaningful reform.

Deregulation will still be hard. Any deregulatory action has to go through the same procedure as a regulatory action, which typically takes one to two years to complete. Legal and economic justifications are required, and avoiding legal pitfalls, such as contradicting other regulatory actions taken over the decades of an agency’s existence, is one of the reasons there are so many agency bureaucrats in the first place. But those same subject matter experts are the reason that DOGE can succeed. They built the current regulatory state, and they can reform it, too.

Elon Musk and Vivek Ramaswamy surely know this. Successful entrepreneurs don’t micromanage. Instead, they empower talented teams with the ability to find innovative solutions. Just like British Columbia, Idaho and Virginia, with the right incentives DOGE can transform government bureaucrats from rule-makers into rule-reformers. It won’t be easy, but the economic payoff will be worth it.

Patrick A. McLaughlin is a visiting fellow at the Hoover Institution at Stanford University and a senior research fellow at the Mercatus Center at George Mason University.