At the end of his second debate with former Vice President Biden, President Trump painted a dark picture of the economic consequences from too much regulation. In doing so, he tapped into a long-standing view that regulation imposes crippling economic burdens on business.
But this common view overlooks a central feature of regulation that for too long has remained hidden: a feature that we call unrules. Unrules are the decisions that regulators make to alleviate regulatory obligations. Some call them loopholes and waivers. We call them carve-outs and dispensations. But whatever the label, we find in a new study that these unrules are ubiquitous in federal regulatory law. And their existence can have dramatic consequences for the public—and for how we should think about regulation.
We studied the words in laws passed by Congress and the regulations issued by federal agencies to implement those laws. These are voluminous sources of law. The Code of Federal Regulations, for example, contains over 180,000 pages of text—or a total of more than 57 million words. Using computational linguistic techniques, we looked for words associated with the imposition of legal obligations—such as “must” and “shall”—as well as those associated with the alleviation of obligations—such as “exempt” or “waive.” We found that regulatory law contains large numbers of both rules and unrules. In fact, we found one word associated with obligation alleviation for every five or six words associated with the imposition of obligations.
Furthermore, our analysis actually could not capture the full extent of unrules because the government often has no duty to disclose the granting of waivers or the creation of exceptions. Sometimes decisions to alleviate the effects of regulations are even announced almost through a wink and a nod in private communications to businesses that benefit from unrules.
Unrules represent a little understood “second face” of government power. This power to lift or loosen obligations can certainly be used for good. It implies that instead of the United States having a rigid, onerous regulatory system, we actually have one with considerably more flexibility built into it than previously recognized.
And just as rules serve to provide important social benefits, such as protecting worker safety or limiting air pollution, unrules can help make rules more efficient and fair. When used responsibly, unrules can help regulators tailor regulatory obligations to fit the complex and dynamic world in which we live.
Yet unrules can also pose serious risks. Perhaps most obviously, they can undermine the achievement of the public goals that regulation aims to serve. The proverbial exception can swallow the rule.
For example, thousands of medical devices are cleared by the Food and Drug Administration each year without ever having to demonstrate safety and efficacy—all by taking advantage of a loophole in the law. This is true even though many of these devices pose potentially devastating health risks to patients if they malfunction. One investigation found that medical devices have been linked to more than 80,000 deaths and 1.7 million injuries over the past decade.
Unrules can also undermine the rule of law. Regulatory loopholes can be selectively exploited to give favors to special interests. One of President Trump’s early advisers, billionaire corporate raider Carl Icahn, reportedly managed to secure a waiver from the Environmental Protection Agency’s renewable fuel standards at an apparent savings to his company of hundreds of millions of dollars. Trump’s EPA granted similar waivers—originally designed only for small refineries suffering “disproportionate economic hardship”—to several large oil companies making handsome profits.
Taken to the extreme, unrules can be abused by politicians and government officials to reward allies while keeping their adversaries subject to costly burdens. These risks of selective application of rules and unrules are heightened because, as we discovered, many unrules escape the same legal checks and balances that the U.S. regulatory system imposes on the making of rules.
Although unrules can play an appropriate role in any regulatory system, the public needs to be aware that government also possesses a significant unregulatory power too—and that today far too much of that power is currently wielded in the dark. We need reforms to make government agencies’ use of unrules more transparent.
Meaningful reform must begin, though, by first recognizing that the regulatory system is more than just a system of burdensome legal obligations. It is also a source of governmental discretion to alleviate those same obligations, sometimes infusing regulation with helpful flexibility but at other times posing real risks to the public.
Cary Coglianese is the Edward B. Shils professor of law at the University of Pennsylvania. Gabriel Scheffler is associate professor of law at the University of Miami. Daniel E. Walters is assistant professor of law at Pennsylvania State University.
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This story was originally featured on Fortune.com