Good Ideas that Might Find Favor In a New Era
In the interest of finding common ground, here are 17 policy proposals for the Biden team from the Mercatus Center
By Mercatus Staff
Four years ago, President Trump began his time in office by making deregulation one of his administration’s top priorities. His Executive Order 13771, signed 10 days after his inaugural, mandated that two old rules be cut for every new one created and led to the elimination of thousands of regulations. More regulation rather than less will be a priority for the Biden administration. Indeed, in many areas, the next four years figure to be an uphill struggle for advocates of freer markets. In his first hours in office, President Biden took sweeping steps to reverse his predecessor’s policies with a slew of executive orders on the pandemic, immigration, the environment and the sputtering economic recovery. But every new administration presents new opportunities for innovative policy thinkers to promote good ideas. With this in mind, Mercatus Center scholars have advanced 17 proposals—on issues ranging from health care and drones to zoning reform and the national debt—that not only promote progress, liberty and opportunity but also may have a shot at finding support or at least a fair hearing over the next four years. —Grayson Quay
UNIFYING THE COUNTRY
Give Everyone Some of What They Want
President Biden has vowed to unite a deeply divided nation. Every other 21st century president made a similar vow; none succeeded. And after the year we’ve had, capped by a bloody riot at the Capitol, the task appears Sisyphean. One way to push that rock up the hill is to give everyone a bit of what they want. Progressives want equity. Conservatives want to return to the values that made America great. And libertarians—more than a few can be found in both the Democratic and Republican camps—want individual liberty. To satisfy these disparate desires, I suggest the new administration forge an agenda around the concept of “equal liberty.” The goal should be to increase individual liberty by eliminating government policies that have a disparate impact. An equal liberty agenda addresses the libertarian desire for more personal freedom and dignity and the progressive drive to root out systemic inequities. And it realizes the conservative ambition to rekindle the ideas grounded in the founding of America. From eliminating regressive and anti-competitive regulations to ending corporate welfare, plenty of policies fit the equal liberty bill. For example, too many federal rules protect companies from competition instead of consumers from harm. Too many have been weaponized by special interests to limit entry into markets, to raise costs for rivals and to lock in existing technologies. Like President Carter and Sen. Edward Kennedy before him, President Biden could work with Republicans to eliminate these rules, make markets function better and lower prices. A good place to start would be to use his bully pulpit to encourage states to eliminate anti-competitive regulations. Under a dubious doctrine known as Parker immunity, federal courts exempt state-organized cartels from antitrust laws. The Supreme Court has shown some interest in paring back Parker immunity, and it is a promising sign that the court cited research by Biden’s attorney general nominee, Merrick Garland, in doing so. Similarly, the president could work with free-market Republicans to end corporate welfare. The father of free-market economics, Adam Smith, opposed corporate welfare. And so does Rep. Alexandria Ocasio-Cortez. If those two can agree, perhaps Biden can forge a broad consensus of Smithians and progressives. One problem with corporate subsidies is that they don’t work: Targeted subsidies and special privileges enrich only the companies that receive them, not the communities that pay for them. Long the scourge of progressives and free marketeers alike, corporate welfare undermines both democratic and free-market ideals. It contributes to the perception that the system is rigged in favor of the wealthy and well-connected while undermining the legitimacy of market institutions. Politics is about exchange. And exchange is about looking for win-win propositions. An equal liberty agenda is just such a proposition. —Matthew Mitchell
Reform Gerrymandering in a Nonpartisan Way
Curtailing gerrymandering is one goal that unites clear majorities of Democrats and Republicans. Survey after survey shows that Americans across the political spectrum strongly disapprove of drawing contorted legislative district boundaries for political gain. Now, reform advocates have reason to tackle this issue with a new approach because efforts to rein in gerrymandering through the courts came to a crashing end in 2019, when the Supreme Court affirmed that under the Constitution, redistricting is the job of state legislatures. The key to progress is to remember how reform efforts over the last decade foundered because they were focused on redistributing power between the political parties. The challenge facing reformers, and likely the only way a plan could get through Congress, would be to tame gerrymandering without asking either party to immediately transfer several seats to the other. Gerrymandering increases the power of each party’s extreme wing, making elected officials less accountable to the majority opinion in their constituencies and rendering it more difficult for them to reach compromises. And it shreds the foundational idea of our representative system—that voters should form a constituency with their nearest geographic neighbors. To fix this, all that’s necessary is to amend federal apportionment law to limit the irregularity of district boundaries. There are several ways to do this, but most of them involve simply placing a numerical ceiling on the ratio of the square of a district’s perimeter to its area. This is clearly constitutional, and there is ample precedent for it. Historically, many previous federal apportionment acts required such compactness, though they did not quantify what that would mean.
Image Credit: Mandel Ngan/AFP/Getty Images Pursuing a new approach to gerrymandering reform would give the Biden administration an opportunity to appeal to voters in each party while advancing good government. It would be responsive to Democrats, who have long argued that gerrymandering hurts their constituents. It would be responsive to Republicans, who do not wish to yield the hard-won authority over the redistricting process that they just reestablished in a majority of state legislatures. It also would refocus gerrymandering reform away from political score-settling and back onto geographic compactness. And, most importantly, it’s the right thing to do. —Charles Blahous
Establish a Federal Oversight Commission
A longstanding adage in law says, “Justice not only needs to be done. It must be seen to be done.” The same applies to elections. If people have confidence that the electoral process for selecting their leaders is fair, then they will more readily accept the results when their candidate loses. But tens of millions of Americans, rightly or wrongly, don’t believe the 2020 election was fair, and the resulting mistrust will not be easily eradicated. I propose the establishment of a Federal Election Oversight Commission to rebuild confidence in the integrity of U.S. elections. The commission would not have judicial power, but it would have the authority to collect the information needed to show that an election was being conducted in a free and fair manner. After each election the commission would be required to issue a public report and refer any evidence of fraud or corruption to the authorities. The commission’s credibility will depend on persuading the public that it was independent of the political process. Five requirements might help:
The commissioners must never have held elected office.
They must have a background in law (preferably retired judges).
They must be appointed by the unanimous consent of the incumbent commissioners.
They cannot serve for more than one eight- or 10-year term.
The commission must be adequately funded by Congress.
Holding elections that people trust and respect is the guarantee of a free society, and a credible, independent body could help achieve that goal. —Maurice McTigue
Liberalize Land Use Restrictions
Local zoning restrictions—such as single-family zoning, minimum lot-size requirements and long, costly approval processes—limit new housing construction, which increases prices and strains household budgets. In his housing plan, candidate Biden endorsed Sen. Cory Booker’s and House Majority Whip Jim Clyburn’s bill to encourage local zoning reform. Now the Biden administration and Congress have an opportunity to improve on this bill and other proposals with a federal grant program that could be more effective at loosening these restrictions. First, this funding should be targeted at localities that do land-use planning and issue building permits. This requires a new federal grant program because no current programs reach all jurisdictions that issue permits. Second, funds should be allocated under a “race to the top” structure to provide the largest incentives to the localities that do the most to permit low-cost construction in high-demand locations. Third, funds to spur zoning reform should be allocated based on whether more houses get built rather than on specific tweaks to zoning ordinances that may appear good on paper but don’t actually make more construction at lower prices feasible. Following these principles would be an important step toward achieving the objectives in the Biden housing plan and in the housing bills advanced by Democrats and Republicans in Congress. —Emily Hamilton
Review Price-Transparency Rules
Recent rules from the Department of Health and Human Services require hospitals to post the price of “shoppable” health care services (ones that can be scheduled ahead of time, such as lab tests and colonoscopies) and to reveal prices negotiated with insurers. The objective is to spark competition and lower prices. On the surface, transparency sounds like an unalloyed good, but there are caveats. The problem is that in many U.S. health care markets, transparency mandates may be ineffective or even counterproductive—potentially reducing competition and pushing prices up. That’s because many markets have few competitors and high barriers to entry. Under such conditions, knowledge of competitors’ prices can provide the final ingredient necessary to foment “tacit collusion.” With tacit collusion, competitors are motivated to constrict supply and raise prices—without any need to communicate or coordinate their plans with one another. (Communication and coordination between competitors constitutes a cartel and would likely trigger antitrust actions.) With this in mind, incoming HHS officials should consider reversing some transparency mandates and make sure others are narrower and more carefully aimed at markets where tacit collusion is unlikely to be a problem. The American Hospital Association has asked the incoming administration to exercise discretion on the transparency requirements, arguing that the burden of complying is diverting resources from efforts to fight COVID-19, that disclosing negotiated prices will have anti-competitive effects, and that the negotiated rates “will not be useful to consumers, but rather, will confuse and frustrate them.” These arguments have merit. —Robert Graboyes
Move Toward a National Market
Our system of state-by-state medical licensing laws has virtues and pitfalls. This decentralized approach allows states to develop different standards of practice and compliance for doctors, nurses and other health care providers. And it enables researchers, companies and consumers to observe which regulatory regimes work best. Unfortunately, this also allows states to bar out-of-state providers to the advantage of incumbents and to the detriment of patients, who, as a result, may pay higher prices and have fewer choices. The incoming administration would do well to encourage more national markets for health care providers while still preserving a measure of state autonomy. We’ve already taken some tentative steps in this direction. During the pandemic, the federal and state governments have allowed physicians and other medical professionals licensed in one state to serve patients in other states via telehealth and, to a lesser extent, in person. Formalizing these temporary measures can create a national market while allowing states to retain regulatory authority over practitioners living within their boundaries—a balance of federal and state authority. A parallel approach is to encourage the expansion of state-licensing reciprocity agreements and compacts—an effort well under way via the Interstate Medical Licensure Compact. De facto interstate licensing has helped combat COVID-19, and with the Biden administration’s pledge to make the fight against the virus a top priority, this reform should continue to do so. —Robert Graboyes
Award More Prizes
The 21st Century Cures Act, signed in 2016, included a provision creating the Eureka Prizes—federally financed innovation awards resembling Great Britain’s Longitude Prize of 1714 or the contemporary XPrizes. The idea is that, rather than the government giving grants to people who may eventually turn out to be effective innovators, the Eureka Prizes challenge innovators to find a solution to a tough problem, with the promise of a rich reward if they succeed. The advantage for the government is that the prizes are retrospective rather than prospective—no money is paid unless the problem is solved—and the new administration would do well to consider greater use of these types of prizes. A good place to start might be an area close to the new president’s heart: cancer research. But instead of looking to the Apollo space program as the model for federal anti-cancer efforts (as then-Vice President Biden did in 2016), he should draw inspiration from the Obama administration’s pathbreaking efforts to encourage private commercial space flight. The resulting innovation sparked in part by an XPrize has led to spectacular success recently amid fierce competition among SpaceX, Blue Origin, Virgin Galactic and many other private companies. —Robert Graboyes
Boost the Use of Drones
Unmanned aerial vehicles, or drones, have become key tools for health care in Rwanda, Ghana and several other countries. In the U.S., many states, notably North Carolina, are experimenting with using drones to transport blood supplies and other medical goods. Before too long we might see remotely piloted flying ambulances and drones carrying defibrillators for heart attack patients. The incoming administration could take steps to encourage the growth of these lifesaving and efficiency-improving technologies. Realizing the potential of drones for health care will require action at the federal, state and local levels. The Federal Aviation Administration must define quality standards and revamp the antiquated rules governing airspace. The Federal Communications Commission must lay the regulatory groundwork for safe, reliable ground-to-air communications with drones. The departments of Homeland Security and (possibly) State and Defense must consider the security aspects of drones. The federal government should encourage states and localities to begin planning for drones conducting medical and other missions. And they must do all of this in ways that do not stifle private-sector innovation.
Drone delivering a defibrillator. Image Credit: Mollyrose89/Wikimedia Commons Specifically, for small drones, the FAA and state transportation officials should demarcate “drone highways” in low-altitude airspace. Related to this, last year the FAA announced a policy to create aerial corridors for air taxis, but its plan is for the agency itself, or companies it designates, to ration the use of these corridors to the various air-taxi companies. Such rationing would lead to the unfair treatment of new air taxi and drone companies. Instead, the FAA should auction long-term licenses to use air taxi routes, and state transportation departments should lease out drone corridors. These ideas have been discussed in reports from the U.S. Government Accountability Office and Airbus researchers and deserve further study (see the next proposal). —Robert Graboyes and Brent Skorup
Create an Office of Public Resource Auctions
Many federal agencies auction public and natural resources such as airport slots, wireless spectrum, offshore oil leases, wind energy sites, timber and grazing lands, and water rights in the West. But agencies often ration these scarce resources in ways that benefit themselves and companies they favor. Creating an Office of Public Resource Auctions that is independent of any agency would allow more public resources to go to their highest-valued use and give more companies and consumers access to underused resources. An independent auctions office would help ensure that valuable public resources were allocated according to market principles and that government revenue was maximized. For example, the Federal Communications Commission completed a spectrum auction this month yielding $81 billion in gross proceeds. Both political parties favor leases and auctions because they generate revenue and lead to substantial investments in infrastructure. —Brent Skorup
Prioritize Passive Roadside Infrastructure
State transportation departments can deploy federal roadway dollars to build passive roadside infrastructure, such as poles, fiber conduits, handholes and other items, but many don’t take advantage of this. Importantly, private companies can use these installations for rural broadband and sensors for drones, autonomous vehicles, and vehicles connected wirelessly to each other and to infrastructure along the road. Congress authorizes some $35 billion annually for road projects, but the federal government has not promoted the idea of using this money for passive infrastructure. Doing so would produce potential benefits that include increased rural broadband coverage and lower costs for broadband, drone and autonomous-vehicle companies. —Brent Skorup
Give Broadband Vouchers to Consumers
The Biden administration should create a consumer broadband voucher program to give consumers in rural areas a greater choice of broadband services. The FCC’s rural telecom subsidy program has grown over 25 years into a $4.8 billion fund for 11 complex, conflicting subprograms that subsidize a small number of telecom providers in rural areas. The competitive and technology landscape has changed, and there are many benefits to giving much of that money instead to rural households directly. They would get a monthly $5 to $45 voucher to use on the broadband provider of their choice. This reform has the promise of political success because it would resemble the Lifeline voucher program used now for low-income consumers of telecom services. Broadband vouchers would result in consumers saving money from a more efficient rural broadband program and greater coverage. —Brent Skorup
Institute a New Regulatory Budget
Should President Biden revoke Donald Trump’s “one in, two out” Executive Order 13771, which is very likely, he should consider replacing it with a new form of regulatory budgeting. Regulatory budgeting means attempting to measure regulations’ benefits and costs, keeping a running tally and limiting the burden that accumulates—just as a responsible fiscal budget would. Stopping too many regulations from piling up is important because regulations have costs as well as benefits, and those costs are often borne not by the regulators but by society as a whole. Under a regulatory budgeting regime, regulators are still responsible for achieving their mission, but they also are required to reexamine old rules to see whether they are still needed or can be improved. The evidence from places that use regulatory budgeting (which include the U.K., Canada and a handful of U.S. states) is fairly clear: regulatory budgeting lowers the costs of regulation without sacrificing the benefits. If the new administration is worried about economic inequality, then it should be concerned with the regressive nature of regulation, which often increases inequality by placing the highest burden on low-income individuals and other disadvantaged groups. Therefore, finding ways to reduce the regulatory burden can result in what amounts to a progressive tax refund. Regulatory budgeting offers a solution that lets regulators issue new rules as needed while simultaneously eliminating outdated or duplicative ones. —Patrick McLaughlin
Relax Regulatory Analysis Requirements
The Office of Management and Budget’s Circular A-4 document sets guidelines for regulatory analysis by federal agencies, but these guidelines have produced some flawed practices and policies. On Wednesday President Biden ordered the director of the OMB to identify ways to revise Circular A-4 to modernize and improve the regulatory review process. This move should be celebrated across the political spectrum. The A-4 guidelines are problematic for several reasons. First, some aspects of A-4 are highly controversial, or even outright wrong, such as discussions about how to attach dollar values to human lives, or how to discount lives to ascertain their “present value.” These aspects of the guidelines are not just questionable from an ethical standpoint. Their grounding in economic theory is equally dubious. As a result, A-4 encourages discrimination against future generations and other practices that draw criticism from both sides of the political aisle. Although parts of A-4 offer sensible advice, much of what’s good about the document already exists elsewhere. The Biden administration should relax the degree to which the OMB enforces these guidelines, or revise the guidelines to prioritize economic growth, social welfare and intergenerational equity. —James Broughel
Clear the Way for More IPOs
The leaders of the Securities and Exchange Commission during the early part of the new administration will want to explore ways to modernize the process for initial public offerings. At least two current commissioners have said it is important for the SEC to shift its focus toward attracting more listings in the public markets.
IPO registration statement. Image Credit:
PictureLake/Getty Images One hurdle that impedes public offerings is the broad prohibition on a company’s ability to communicate with the public and the securities markets, and the complexity of the regulations that accompany this prohibition, even though some restrictions have been relaxed in recent years. An SEC under a new chair could continue to examine these restrictions and the regulations associated with them, in light of modern market conditions and current need for investor protection. —Andrew Vollmer
Clarify the Rules on Disgorgement
Congress recently gave statutory power to the SEC to pursue disgorgements in federal court enforcement actions. Disgorgement is the amount of the ill-gotten gains that a defendant made. Congress also specified a statute of limitations for a disgorgement claim, extending the former five-year limit to 10 years in fraud cases. The legislation follows three Supreme Court cases resolving questions related to disgorgement and the statute of limitations. Although the new legislation clarifies some issues for the SEC, the language also creates uncertainties. Must the SEC use disgorgement payments to reimburse victims of securities violations and, if so, what happens if the SEC is not able to find the victims? Does the new statute of limitations apply to SEC administrative proceedings? The SEC under a new chair should issue non-binding guidance telling the markets how it will implement its new statutory powers. It has issued such guidance for other enforcement initiatives. —Andrew Vollmer
THE NATIONAL DEBT
Increase the Debt Limit Before It Expires
When the federal debt limit suspension expires on Aug. 1, the U.S. Treasury would need to dramatically slash the amount of debt it issues. This reversal would break its commitment to issue debt in a “regular and predictable” way. What’s more, the cash on hand will be dangerously low, risking default on government obligations. If there were an emergency, the government would not have enough cash to handle it. Even if the debt limit is eventually increased after the deadline, it is difficult for investment banks and securities traders to handle a sudden flood of newly issued debt. As with the debt limit episode in 2019, we might again see Treasury markets dry up and yields spike, lowering the value of bank capital and collateral for derivatives. Last time, the Federal Reserve fixed these markets with enormous Treasury purchases and repo operations. Debt limit increases usually require bipartisan cooperation to pass the Senate’s 60-vote threshold. However, Democrats could include the suspension in their COVID-19 spending package, which could bypass a Senate filibuster through a process called reconciliation. —Christopher Russo
Lock in Low Borrowing Costs for a Generation
The national debt held by the public now stands at 98% of gross domestic product, and the Congressional Budget Office projects that this will reach 107% in 2023, the highest in history. Worse, these projections ignore the looming insolvency of the Social Security and Medicare trust funds, as well as the government’s many off-balance-sheet liabilities. But for now, the federal government can still borrow long term at less than 2% a year. Treasury Secretary-nominee Janet Yellen should lock in low rates for a generation. Lengthening the maturity of marketable Treasuries, which now averages only 5½ years, would provide time to fix the government’s long-term budget problems. And it could also lower interest-rate expenses over time. Treasury’s Office of Debt Management has already researched offering 50-year and 100-year bonds. If the Treasury is concerned about the liquidity of these offerings, it could issue perpetuities (bonds with no fixed maturity date) at a 2% coupon rate. These bonds would be highly liquid because each new issuance is a reopening of the same product. Lengthening the average maturity of the government’s borrowing would also hedge against financial and geopolitical risks. As of last November, major foreign holders owned $7.1 trillion of Treasury debt. Japan and China are the largest foreign holders, at $1.3 trillion and $1.1 trillion, respectively. If foreign demand for U.S. debt weakens due to geopolitical tensions, it may be difficult for the domestic market to pick up the slack. And the possibility of foreigners bypassing U.S. debt in favor of other countries’ debt grows as countries build alternatives to the dollar payment system, such as China’s “digital yuan.” When asked about refinancing the government’s debt in her confirmation hearings this week, Yellen noted that “there is an advantage to funding the debt, especially when interest rates are very low, by issuing long-term debt.” She should seize the day. —Christopher Russo