Last week, in one of her last acts in office, Gov. Susana Martinez signed New Mexico executive order 2018-055. The order takes aim at those state rules written by un-elected regulators – state government boards, commissions and agencies – by requiring sound economic analysis before new rules affecting New Mexicans can take effect.
It’s a major, and much-needed, advancement for evidence-based policy in New Mexico.
Economic analysis for regulations may sound boring, but it’s actually a critical tool that helps ensure that your government’s decisions – which affect you, your employer, or your business – are wise ones. Analysis helps regulators bring together all the most pertinent information about a problem and its possible solutions to determine whether a particular rule is likely to do more good than harm for society.
As an example, economic analysis played an important role in the 1980s when the Reagan administration decided to phase out the lead content in gasoline. While we don’t remember President Reagan or his staff as big regulators, a well-crafted analysis from the Environmental Protection Agency helped convince them that, in this case, the benefits of a new rule outweighed the costs.
This decision has almost certainly led to some significant health improvements for Americans. For comparison, some European countries didn’t ban lead in gasoline until a decade or more later.
Economic analysis has a long and bipartisan history in the federal government. Although President Reagan is often credited with bringing regulatory analysis to Washington, Presidents Ford and Carter both issued their own executive orders requiring analysis for major federal regulations. The current order in place was put there by President Clinton. Since then, presidents of both parties have reaffirmed the importance of analysis in rulemaking.
In this sense, Gov. Martinez is following a well-established tradition. And it’s about time – New Mexico was beginning to fall behind.
A 2010 study from New York University’s Institute for Policy Integrity graded the regulatory procedures in all 50 states. The authors gave New Mexico a D-, finding that the state “has none of the guiding principles” looked for in the evaluation, such as consistent rulemaking procedures across agencies or regulatory oversight from the Legislature or governor. At that time, New Mexico was one of only two states that had no economic analysis requirement in place for regulations, the other being Wyoming.
New Mexicans shouldn’t feel too bad, however, because analysis in other states is sometimes a “check-the-box” exercise. While there may be a requirement in place that is nominally being followed, in practice, no serious analysis happens. That’s largely because states under-invest in the talent required to do analysis in a serious way.
This doesn’t need to be the case in New Mexico. But in order to make Gov. Martinez’s order truly effective, Gov.-elect Michelle Lujan Grisham should make sure the right personnel are in place. That means hiring economists with a background in cost-benefit analysis.
My recent report from the Mercatus Center found that the New Mexico Administrative Code contains an astonishing 9.2 million words. Among those are more than 125,000 restrictive terms like “shall” or “must.” For comparison, neighbor Arizona has just 64,000 restrictions in its rulebook and Utah has 88,000. This may help explain why New Mexico’s economy grew by a meager 0.1 percent last year, compared to Utah’s 2.5 percent growth and Arizona’s impressive 3.1 percent growth rate.
Unfortunately, New Mexico’s thousands of regulations were put in place without the scrutiny of economic analysis. But that’s starting to change with Gov. Martinez’s actions last week. Her order represents a giant leap forward, bringing New Mexico regulation into the 21st Century. There remains work to be done, but more carefully thought-out policy is coming to the Land of Enchantment.
James Broughel is author of the new study “A Snapshot of New Mexico Regulation in 2018.”