[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
REGULATION NATION: THE OBAMA ADMINISTRATION'S REGULATORY EXPANSION VS.
JOBS AND ECONOMIC RECOVERY
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HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 20, 2012
__________
Serial No. 112-148
__________
Printed for the use of the Committee on the Judiciary
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Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada
Richard Hertling, Staff Director and Chief Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
C O N T E N T S
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SEPTEMBER 20, 2012
Page
OPENING STATEMENTS
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Committee on the Judiciary....... 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 3
WITNESSES
John B. Taylor, George P. Schultz Senior Fellow in Economics at
the Hoover Institution, and Professor of Economics at Stanford
University, CA
Oral Testimony................................................. 7
Prepared Statement............................................. 10
C. Boyden Gray, Boyden Gray and Associates, Washington, DC
Oral Testimony................................................. 21
Prepared Statement............................................. 23
Lisa Heinzerling, Professor, Georgetown University Law Center,
Washington, DC
Oral Testimony................................................. 36
Prepared Statement............................................. 38
Robert L. Luddy, Founder and President, CaptiveAire, Inc.,
Raleigh, NC
Oral Testimony................................................. 78
Prepared Statement............................................. 80
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 3
Material submitted by the Honorable Lamar Smith, a Representative
in Congress from the State of Texas, and Chairman, Committee on
the Judiciary.................................................. 101
Material submitted by the Honorable Sheila Jackson Lee, a
Representative in Congress from the State of Texas, and Member,
Committee on the Judiciary..................................... 115
Prepared Statement of the Honorable Howard Coble, a
Representative in Congress from the State of North Carolina,
and Member, Committee on the Judiciary......................... 126
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 131
Material submitted by the Honorable Howard Coble, a
Representative in Congress from the State of North Carolina,
and Member, Committee on the Judiciary, on behalf of the
Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Committee on the Judiciary....... 144
REGULATION NATION: THE OBAMA ADMINISTRATION'S REGULATORY EXPANSION VS.
JOBS AND ECONOMIC RECOVERY
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THURSDAY, SEPTEMBER 20, 2012
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to call, at 10:06 a.m., in room
2141, Rayburn Office Building, the Honorable Lamar Smith
(Chairman of the Committee) presiding.
Present: Representatives Smith, Coble, Goodlatte, Lungren,
Chabot, King, Jordan, Griffin, Marino, Adams, Conyers, Scott,
Jackson Lee, Cohen, and Chu.
Staff present: (Majority) Richard Hertling, Staff Director
and Chief Counsel; Travis Norton, Counsel; Daniel Flores,
Counsel; John Hilton, Counsel; David Lazar, Clerk; (Minority)
Perry Apelbaum, Staff Director and Chief Counsel; Danielle
Brown, Counsel; James Park, Counsel; and Susan Jensen-Lachmann,
Counsel.
Mr. Smith. The Judiciary Committee will come to order.
Without the objection, the Chair is authorized to declare
recesses of the Committee at any time.
We welcome everyone here today. I am going to recognize
myself for an opening statement, then the Ranking Member, then
we will introduce the witnesses.
Four years into the Obama administration, the outlook for
jobs in the American economy is disheartening and bleak. There
are fewer jobs in America than when President Obama took
office. Unemployment has been over 8 percent for a record 43
straight months. The percentage of American workers who are
unemployed or underemployed is nearly 15 percent.
In August alone, 368,000 workers abandoned the workforce.
The percentage of Americans who participate in the workforce is
the lowest since 1981.
In 2008, the U.S. economy was rated the most competitive in
the world. Since then, it has fallen to 7th place. The United
States' credit rating has been downgraded and another downgrade
has been threatened. This is not what the Obama administration
promised for economic recovery when it took office. President
Obama stated during an interview in 2009, ``If I do not have
this done in 3 years, then there is going to be a one-term
proposition.''
Why is unemployment still so high? A large part of the
answer can be found in the Administration's historic expansion
of regulations and business owners' uncertainty over what
regulations might come next. In his 2011 State of the Union
Address, President Obama promised to fix ``rules that put an
unnecessary burden on businesses.'' And in his September 2011
address to a Joint Session of Congress, the President declared
that ``We should have no more regulation than the health,
safety, and security of the American people require.''
But his actions speak louder than his words. Rather than
lighten regulatory burdens to promote recovery, President Obama
has turned America into a regulation Nation. We need to
encourage small businesses to expand, not tie them up with red
tape. America's job creators do not need more government
regulation. They need fewer burdens, lower costs, and an
environment in which they can predict whether they can hire and
make a profit.
A Heritage Foundation study found that in his first 3 years
in office, President Obama adopted 106 major rules that impose
$46 billion in additional regulatory costs on the private
sector. That is a new record. To make matters worse, the
Administration's latest regulatory agenda identifies over 200
major rules that are planned or have just been completed. Each
of these rules will affect the economy by $100 million or more
every year.
A recent Gallup poll found that among the 85 percent of
U.S. small business owners who are not hiring, nearly half of
these cited being ``worried about new government regulations''
as the reason they are not hiring.
To help solve America's economic troubles, the House
Judiciary Committee passed a comprehensive package of
regulatory reform bills this term of Congress. These bills have
all passed the House as well. They promise to lower regulatory
costs and uncertainty and still protect public health, safety,
and welfare. The Regulatory Accountability Act, for example,
requires agencies to show that the benefits of new regulations
justify their costs when the regulations are adopted.
The Judiciary Committee's legislation also includes the
Regulatory Freeze for Jobs Act, which halts unneeded new major
rules unless unemployment drops to 6 percent; the Regulatory
Flexibility Improvements Act, which makes sure agencies account
for the needs of small businesses before they adopt new rules;
the Sunshine for Regulatory Consent Decrees and Settlements
Act, which prevents collusion between special interests and
agencies to force new regulations on the public; the REINS Act,
which restores Congress' accountability for new major
regulations; and the RAPID Act, which streamlines permitting
for new construction projects.
America's economic recovery depends on job creators, not
Federal regulators. We need to lift the burden on small
businesses and free them up to spend more, invest more, produce
more, and create more jobs. Despite his promises to lighten the
regulatory load, President Obama has threatened to veto every
one of these bills. And the Senate has not taken any up any of
them. But the Judiciary Committee will continue to push for
their enactment because of America's urgent need for new jobs
and economic growth.
Now that concludes my opening statement. And the gentleman
from Michigan, the Ranking Member of the Judiciary Committee,
is recognized for his.
Mr. Conyers. Thank you, Chairman Smith. It is
understandable that the political atmosphere would force the
Chairman into a very unusual state of affairs. This is the 16th
anti-regulatory hearing that we have conducted in the 112th
Congress, and I ask unanimous consent to put them in the
record.
[A list of the hearings follows:]
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--------
The hearings referred to in the list can be accessed at: http://
judiciary.house.gov
__________
Mr. Smith. Without objection.
Mr. Conyers. And I want to welcome the majority witnesses.
One is an economic advisor for Mitt Romney campaign, and he
also co-founded a group called Economists for Romney. Welcome,
sir.
We have another witness who has contributed $50,000, which
is his right, to Restore our Future, a Romney campaign PAC.
And then we have another witness who we welcome and who is
the chair of the North Carolina Catholics for Romney Committee.
So you can see what we are in for this morning, and I am
perfectly willing to indulge in the tactics of the Chairman of
this Committee.
Now, today's hearings are based on a premise and
assumptions that are simply false. The majority makes or the
Chairman makes the first assumption that regulations inhibit
job creation even though there is absolutely no credible
evidence so far establishing the fact that regulations have any
substantive impact on job creation. That is not my opinion.
This is what a senior political analyst in the Reagan and
George H.W. Bush administration, Mr. Bruce Bartlett, explains.
And this is a quote: ``Republicans have a problem. People are
increasingly concerned about unemployment.'' This is him saying
that. This is a quote. ``But Republicans have nothing to offer
them. The GOP opposes additional government spending for jobs
programs, and, in fact, favors big cuts in spending that would
be likely to lead to further layoffs at all levels of
government.''
This is quote, too. The quote continues: ``These
constraints have led Republicans to embrace the idea that
government regulation is the principal factor holding back
employment. They assert that Barack Obama, [the President], has
unleashed a tidal wave of new regulations which has created
uncertainty among businesses and prevents them from investing
and hiring.''
The quote continues. It is italicized. ``No hard evidence
is offered for this claim, it is simply asserted as self-
evident and repeated endlessly throughout the conservative echo
chamber.'' That is the end of the quotations.
All of that I have been citing is from the senior policy
analyst in the Reagan and George H.W. Bush administrations,
Bruce Bartlett, a senior policy analyst.
Now the majority's own witness, distinguished though he is,
clearly debunked the myth that regulation stymie job creation
at a legislative hearing held last year. Christopher DeMuth,
with the American Enterprise Institute, stated in his prepared
testimony that the ``focus on . . . jobs can lead to confusion
in regulatory debates.'' The quote continues, ``the employment
effects of regulation, while important, are indeterminate.''
Another unsubstantiated claim that the majority claims in
support of its anti-regulatory agenda is that regulatory
uncertainty is hurting the business community. Once again,
Bruce Bartlett, the senior economic official for the Reagan and
Bush administrations, responds. ``Regulatory uncertainty is a
canard invented by Republicans that allows them to use current
economic problems to pursue an agenda supported by the business
community year in and year out. In other words, it is a simple
case of political opportunism, not a serious effort to deal
with high unemployment.'' So make no mistake, ladies and
gentlemen.
Today's hearing is yet another example of the political
opportunism recognized and described by Mr. Bartlett. And
perhaps the biggest canard in the majority's argument for so-
called regulatory reform is the purported $1.75 trillion dollar
cost of regulation based on a single study. Please give me a
break. This figure is utterly unreliable and meaningless.
Again, this is not just my opinion. The non-partisan
Congressional Research Service conducted an extensive
examination of the study and found much of its methodology to
be flawed. Moreover, the Congressional Research Service noted
that the study's authors themselves acknowledged that their
analysis was ``not meant to be a decision making tool for
lawmakers or Federal regulatory agencies to use in choosing the
`right' level of regulation.''
Our witness today has published well-researched material
that will go further into it. So I hope my colleagues on both
sides of the aisle will listen very closely to the testimony
that she presents. And I conclude, and I thank the Chairman for
the additional time he has generously afforded me.
I conclude with the final reason to reject this meaningless
figure. It completely and blatantly ignores the overwhelming
benefits of the regulations, which is 25 times more than the
net benefits during the 3 years of the George W. Bush
administration.
I will insert the rest of my statement in the record, and
again thank Chairman Smith for the generous time that he has
afforded me.
Mr. Smith. Thank you, Mr. Conyers. That was a fulsome
statement, but always appreciate your comments.
Let me proceed to introduce our witnesses today. And our
first witness is Professor John Taylor. He is the George P.
Schultz Senior Fellow in Economics at the Hoover Institution,
and Professor of Economics at Stanford University. He was
director of the Stanford Institute for Economic Policy Research
and founding director of Stanford's Introductory Economic
Center.
Professor Taylor has a distinguished record of public
service. He served as a member of the President's Council of
Economic Advisors from 1989 to 1991, and as Under Secretary of
the Treasury for International Affairs from 2001 to 2005. He
has been a member of the California Governor's Council of
Economic Advisors. I want Mr. Conyers to be aware of the fact,
Professor Taylor, that you are bipartisan when it comes to your
good economic advice.
Professor Taylor received a Bachelor's degree in economics
from Princeton University and a Ph.D. in economics from
Stanford University. In recognition of his many achievements,
in 2010, he received the prestigious Bradley Prize.
Our next witness, Ambassador C. Boyden Gray, served as
White House Counsel for President George H.W. Bush. During the
Reagan administration, he served as counsel to then-Vice
President George H.W. Bush and as counsel to the Presidential
Task Force on Regulatory Relief. More recently, he served as
Special Envoy for Eurasian Energy Diplomacy and Special Envoy
for European Union Affairs, as well as U.S. Ambassador to the
European Union in Brussels.
Ambassador Gray practiced as a partner at the Wilmer,
Cutler, Pickering, Hale, and Dorr law firm in Washington, D.C.
Currently, he is a founding partner of the D.C.-based law firm,
Boyden Gray and Associates, LLP.
He earned his Bachelor's degree from Harvard University and
his Juris Doctor from the Law School of the University of North
Carolina at Chapel Hill. Following his graduation, Ambassador
Gray served in the U.S. Marine Corps. After law school, he
clerked for Earl Warren, Chief Justice of the United States
Supreme Court.
Our next witness, Lisa Heinzerling, is a Professor of Law
at Georgetown University. Her specialties include environmental
and natural resources law, administrative law, the economics of
regulation and food and drug law.
From 2009 to 2010, Professor Heinzerling served first as
Senior Climate Policy Counsel to the Administrator of the U.S.
Environmental Protection Agency, and later as Associate
Administrator of the EPA's Office of Policy. She has been a
visiting professor at Harvard, Vermont, and Yale Law Schools.
She clerked for Justice William J. Brennan, Junior, of the U.S.
Supreme Court and Judge Richard A. Posner of the U.S. Court of
Appeals for the 7th Circuit.
She received her Bachelor's degree from Princeton
University and her J.D. from the University of Chicago.
Our final witness, Robert L. Luddy, is the Founder and
Chairman of CaptiveAire Systems, Inc., a leading manufacturer
of commercial kitchen ventilation systems, and a leader of the
Job Creators Alliance. CaptiveAire employs over 600 people and
maintains over 80 sales office in the U.S. and Canada.
Mr. Luddy is a lifelong entrepreneur. At the age of 20,
while attending LaSalle University in Philadelphia, Mr. Luddy
opened a fiberglass manufacturing business. Later, Mr. Luddy
purchased a sheet metal shop and transformed it into
CaptiveAire Systems, Inc.
In 2006, he won the Ludwig von Mises Institute's first ever
``Mises Entrepreneurship Award'' for 3 decades of leadership at
CaptiveAire and for exemplary ``dedication to learning,
prosperity, and freedom.''
And we welcome you all, and, Professor Taylor, we will
begin with you.
TESTIMONY OF JOHN B. TAYLOR, GEORGE P. SCHULTZ SENIOR FELLOW IN
ECONOMICS AT THE HOOVER INSTITUTION, AND PROFESSOR OF ECONOMICS
AT STANFORD UNIVERSITY, CA
Mr. Taylor. Thank you very much, Chairman Smith, Ranking
Member Conyers, other Members of the Committee, for inviting
me.
Mr. Conyers. Pull your mic up a little closer, sir.
Mr. Smith. Before you begin, Professor Taylor, I want to
recognize a colleague, Randy Hultgren, who just joined us. He
is sitting on the front row. He has been a leader in Congress
when it comes to regulatory reform legislation. We appreciate
his attendance and his leadership, again, on that issue.
Professor Taylor, please begin.
Mr. Taylor. So I am going to begin with, in some sense, the
obvious, and that is the economy is in very bad shape. Growth
is under 2 percent. Unemployment stays high, especially long-
term unemployment. We have a very weak recovery compared to
other deep recessions, and I point to the recovery in the early
80's in my testimony quite extensively where growth was 5.7
percent over that period, and it has only been 2.2 in this
period.
Many people have tried to understand what the reasons for
this very poor economy are. Some say it is because we had a
deep recession. I do not agree with that because generally
speaking in American history, deep recessions are followed by
very fast recoveries. Some people says it is because there was
a big financial crisis. I do not see that either because
previous history shows that even recoveries from financial
crises are much more rapid than this one.
So considering all the possibilities, I have come to the
conclusion that government policy is a source of the very weak
recovery, and in particular, part of government policy as a
regulatory policy.
My colleagues and I have just finished a book on this
called Government Policies and the Delayed Economic Recovery.
In that book, there are studies, for example, by Baker, Bloom,
and Davis, which have tried to quantify the impact of the
policy uncertainty that is associated with government policy.
In my testimony, I have some examples of the data they use, tax
uncertainty in particular. And they find it has a negative
effect on growth. Correlations are not always causation, but
they have looked at the timing, and I think it is convincing.
Another piece of research in this project is by Ellen
McGrattan and Edward Prescott. They give examples of the
regulatory expansion both in terms of the amount spent and in
terms of the number of workers involved in regulatory
activities in the Federal Government, and point to that
correlation with a very weak recovery. And again, I have in my
testimony a chart--it is on page 6, Mr. Chairman--which shows
the real, I think, explosion in terms of the number of Federal
workers involved in regulatory activity. I tried to take out
the TSA workers and control for that, and you can really see
what a remarkable increase. There is of course a lot of
corroborative research that supports the work in that book.
In looking over the legislative record of this Congress, in
particular this session, I have noted a lot of efforts to
contain this expansion of regulation. The Red Tape Reduction
and Small Business Job Creation Act, which of course includes 7
different bills, including this moratorium proposal that aims
at the unemployment rate, extending cost benefit analysis
requirements to the SEC and CFTC, dealing with the unfunded
mandates simply by being transparent about them. It seems to me
these bills and the ones in the previous session emphasize
transparency, accountability, the use of cost benefit analysis
and sound data. These are the kind of things that good
government requires. I think they are important.
By blocking these bills, it seems to me those people who
have blocked them have really blocked jobs bills effectively.
I want to just give some data. Economists refer to data all
the time, and you sometimes do not how to interpret it. But I
made a big point in my testimony and a just a minute ago about
how weak this recovery has been compared to the strong recovery
from an equally deep recession in the early 80's--5.7 percent
then, 2.2 percent now.
Think of what has happened in the regulatory area. The
number of Federal workers involved in regulatory activities in
that expansion period in the early 80's declined by 22,000. In
this recovery in this period in the last 5 or 6 years, they
have increased by 54,000. If you look at the number of pages in
the Federal Register, in the previous period basically where we
had a good recovery, the number of pages in the Federal
Register each year went down by 24,000. Recently that has gone
up by 4,000.
If you look at data like that, it makes you worry that this
activity, this regulatory expansion, is holding back on the
economic expansion. And it seems to me every effort that the
Congress can take to be careful about this, to contain this
regulatory expansion, will make it better to have a stronger
economic expansion.
Thank you very much.
[The prepared statement of Mr. Taylor follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Smith. Thank you, Mr. Taylor.
Ambassador Gray.
TESTIMONY OF C. BOYDEN GRAY, BOYDEN GRAY AND ASSOCIATES,
WASHINGTON, DC
Mr. Gray. Thank you, Mr. Chairman, Mr. Conyers, for the
opportunity to appear. I appreciate coming after John Taylor
because as an economist, he is in a better position to give you
the quantification of how regulation impacts adversely the
economy. But my simple point is it is a huge wet blanket on
economic growth. And it does not mean that you do not have any
regulation. It means that you do it in a much smarter way.
I think in terms of quantification, I am going to give a
couple of examples at the end of where history I think makes
clear how big a problem this is.
The problem is at least two-fold. You have regulatory costs
that are imposed on businesses here that may not be imposed in
China or in other competing countries. So you have a question
of pricing ourselves out of international markets in the global
economy. That does not mean you get rid of regulation. It just
means you do it better.
We tried to market incentives with the acid rain program in
the Clean Air Act of 1990. The costs came in at about a fifth
of what they were supposed to come in at, what command and
control would have provided. And it did not harm or pull back
on the recovery that turned out to be one of the greatest booms
in America history throughout the 90's and the first decade of
this century.
The other problem is uncertainty. Again, hard to quantify,
but I cite a study of a team of Stanford and Chicago economists
on page of my testimony trying to quantify what this
uncertainty does in terms of economic growth. I do not want to
waste time giving the facts here, but it is there at page 3.
There is a tendency, and this is partly, I think, Congress'
fault, a tendency to delegate huge amounts of unlimited
discretion to bureaucrats because it is easier than resolving
it here in the Committees that have jurisdiction over the
various substantive statutes. And the result is unfortunately a
lack of guidance to the business community. They do not know
what it is going to take to comply.
You have Mr. Cordray at the Consumer Bureau saying I am not
going to go and issue rulemaking to give people notice in
advance of what conduct is expected of them. That fair notice
is really the heart of the Administrative Procure Act. That is
the heart of our administrative law system. I am going to do it
by enforcement. I am going to do it after the fact. I am going
to let you know what it is when I think I have seen it. This is
not conducive to job growth or investment.
There are some good answers to this: not wiping out
regulation, but making it better. There are many bills pending
in Congress here in the House. Some of them have been discussed
already by the Chairman. They would include suggestions that
John Taylor has made: clear cost benefit analysis and
requirements; clear guidance, and instruction, and details from
the Congress itself to inform the regulatory agencies how to
issue rulemaking to give the kind of guidance and notice to the
public that is affected; the use of market incentives and
performance standards so as to reduce the discretionary
micromanagement by agencies, and give the complying public the
choice of how to meet the goals that should be clearly stated
rather than left to the discretion of the executive branch.
Now what examples would I choose? I served in the Reagan
administration. We went through a really bad recession, double-
digit inflation, double-digit interest rates. It is kind of
hard to believe how bad it was. But the Reagan program of
regulatory reform I think works, and we snapped back with one
of the greatest recoveries and greatest booms in U.S. history.
As a result of my service in Europe, I am fond of asking
the question who was the sick man of Europe when I first went
there. The sick man of Europe in 2006 was Germany. Now it
became the colossus of Europe in less than a year, year and a
half. Why? Because of regulatory reform, a little bit of
Reagan/Thatcher, a little bit of labor law, a little bit of
welfare reform, and a little bit of labor law restrictions
lifted. And now it has rocketed. And that is all Germany wants
the rest of Europe to try to emulate. And if it did and we
corresponded and worked with the Europeans transatlantically to
reduce regulatory burdens, you could add 1 or 2 points of GDP
growth, and this has been documented by the OECD.
So we have examples of how this works, and I think we ought
to get on with it. And I appreciate your interest in this
subject matter. Thanks.
[The prepared statement of Mr. Gray follows:]
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__________
Mr. Smith. Thank you, Mr. Gray.
Professor Heinzerling.
TESTIMONY OF LISA HEINZERLING, PROFESSOR, GEORGETOWN UNIVERSITY
LAW CENTER, WASHINGTON, DC
Ms. Heinzerling. Mr. Chairman, Mr. Conyers, Members of the
Committee, thank you very much for giving me this opportunity
to testify here today.
As has become typical in discussions criticizing
regulation, we have heard this morning about the cost of
regulation, but very little about the benefits. Yet regulation
promotes multiple and diverse human interests and prevents
multiple and diverse human harms.
Regulation is, after all, just another word for ``law,''
and law is, given humans' propensity to hurt each other in the
absence of constraints on their behavior, a predicate for
freedom. Regulation saves consumers money, prevents human
illnesses, saves lives, and much more.
To have a conversation about regulation without talking
first about what regulation is for is not very illuminating.
Consider the example of the Clean Air Act, one of the more
embattled sources of regulatory authority in government today.
The terms ``public health'' and ``public welfare'' appear like
mantras throughout the Act. At its core, the Act aims to
protect people from dying, or falling ill, or suffering other
harm, such as damage to water, soils, crops, property,
vegetation, and more due to air pollution. What is more, by
targeting specific sources of pollution and by generally
requiring that these sources do their level best to control
their pollution, the Act aims to prevent the people in charge
of these sources, the ones who choose and control the
mechanisms of pollution, from hurting other people.
Seen in this light, the Clean Air Act and other like modern
laws, follow in a direct line from our framers and their
ambitions for government by constraining human behavior in a
way that promotes human freedom. To the extent the debates over
the scope and shape of the regulatory state ignore these
benefits of regulation, they will lead us badly astray.
On the other side of the ledger, overstating the costs of
regulation has become a dismayingly effective way of making
regulation look foolish, but that does not make the
overstatements any more accurate. A recent example is the one
we have heard about already this morning, the study
commissioned by the Small Business Administration's Office of
Advocacy. This study claims that Federal regulation costs $1.75
trillion per year in this country. This figure has been widely
cited and credulously accepted. It is has been wheeled both to
try to defeat new regulatory initiatives and to scale back
existing ones.
The report is not, however, a credible account of the costs
of regulation in this country. There are many, many flaws in
the report. They are detailed in my written statement and the
attachment to that statement.
I will rest with one example here. For environmental
regulation, the report tallies up the costs and benefits of
major rules as reported in annual reports issued by the Office
of Management and Budget. The trouble is many of these rules do
not exist. Many have been withdrawn. Some have been overturned
by the courts. Some were issued decades ago and are fully
implemented at this time.
The report is simply not a credit account of what we spend
on regulation in this country today. To the extent that
critiques of the regulatory state rely on such flawed
statistics, they are not credible.
We have heard this morning about a cascade of bills passed
in this chamber, which we are told would improve upon the
supposedly dismal state of regulation in this country. The
bills pile procedure on procedure and analysis on analysis in a
system already overburdened with procedural dictates and
analytical complexity. The regulatory system, we are told, is
too uncertain and too complicated, and produces just to many
pages in the Federal Register.
Cost benefit analysis, we are also told, just cannot be
trusted any more now that the Obama administration is in
charge. But the praised this morning would do little except add
to the uncertainty, complexity, and sheer prolixity of the
regulatory system. And they would deepen, rather than limit,
the system's reliance on the cost benefit analysis elsewhere
critiqued.
The challenge then, I think, is to answer the question,
what would these bills do. One answer is clearly right: they
would slow down, complicate, maybe even paralyze the system we
have for making rules governing harmful human behavior. Thank
you very much.
[The prepared statement of Ms. Heinzerling follows:]
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__________
Mr. Smith. Thank you, Professor Heinzerling.
Mr. Luddy.
TESTIMONY OF ROBERT L. LUDDY, FOUNDER AND PRESIDENT,
CAPTIVEAIRE, INC., RALEIGH, NC
Mr. Luddy. Thank you, Chairman Smith, and Ranking Member
Conyers, and distinguished Members of the Committee for the
opportunity to be here today.
I founded CaptiveAire Systems in 1976 with an investment of
$1,300. Over the last 35 years, we have become the leading
producer of commercial kitchens ventilation in North America.
We have 80 U.S. sales offices, 5 manufacturing facilities in
North Carolina, Iowa, Oklahoma, California, and Pennsylvania,
and we employ over 700 people. That feat would be hard to
repeat today based on modern regulation.
I am also a member of the Jobs Creators Alliance, a group
formed by entrepreneurs to give small business a growth,
America's primary growth creators, job creators.
Regulations disproportionately and adversely impact small
businesses. Over the last several decades, the number and scope
of Federal regulations has expanded exponentially, stunning job
creation, economic growth, and placing an undue burden on
entrepreneurial America.
The commercial kitchen ventilation industry has a myriad of
current regulations for performance, safety, and energy
savings. Beginning with the industry group, ASHRAE, which
develops energy and design standards, which are the best in the
world, and adopted into the codes. Mechanical codes, such as
IMC, UMC, NFPA 96, et cetera, are the national codes, but these
codes are further modified by virtually every State, and then
further modified by cities and counties and local authorities
having jurisdiction.
Also within our industry, we have groups, such as UL, ASTN,
and AMCA, which develops testing standards and have made the
American product the best in the entire world. Those were also
eventually adopted into the codes over time.
As regulation increases, more cost and development time has
to be shifted to deal with this regulation as opposed to
working in innovative products, which is really what drives
business. If you look at government intervention in the kitchen
ventilation business, it goes back to 1950, and essentially
what happened is they mandated very high exhaust flow rates in
restaurants, which is the bane of energy efficiency.
Beginning in 1970, with the help of UL, new standards were
developed, eventually approved by the code, which reduced
exhaust flow rates and saved energy. But we still have areas,
like the City of Chicago that has not adopted modern codes,
and, therefore, energy savings are not possible there.
Now we have the U.S. Department of Energy that wants to
regulate exhaust fans and blowers. Fans and blowers in a
commercial restaurant comprise less than 2 percent of the
energy used. And fans are very efficient because we have a
fiercely competitive industry. They are in the range of 50 to
70 percent efficiency versus a nuclear power plant that is
about 36 percent efficient. So we are in a very good industry.
Private sector innovation to save energy is making dramatic
progress in our industries. I will give you a few examples.
Demand ventilation, which allows us to modulate fans up, down,
and off when they are not needed is now becoming commonplace in
the market. Electronically-controlled motors are 80 percent
efficient, and as the cost is driven down, become more
prevalent in the market. And the real opportunity for savings
are solid state controls.
Next year, we will introduce control systems that report to
the web and have the opportunity to save up to 20 percent of
all HVAC energy within a restaurant. They will also report on a
real-time basis data to owners and users so that they can
better manage a restaurant and design restaurants better in the
future.
The best way to empower entrepreneurs and encourage small
business owners is to establish a moratorium on new regulation.
The pros of any regulation impacts industry in many ways. It
really stifles initiative within the industry, it creates
barriers for entry, and potentially causes the loss of U.S.
jobs because small manufacturers will not be able to meet these
regulations.
The creative genius of free market entrepreneurs cannot be
stifled, but it can be slowed down by regulation, and that is
exactly what happens. Products that we have introduced into the
market have streamlined the cost and production of kitchen
hoods that are much energy efficient. Control systems for
indirect fired heaters, and we have introduced a revolutionary
new fire protection product, which eventually we think will be
the standard of the world.
Further regulation by government will hurt small business,
impede innovation, stunt growth, reduce exports, reduce job
creation, and essentially trample on entrepreneurial America.
Thank you very much for the opportunity to testify, and I
look forward to your questions.
[The prepared statement of Mr. Luddy follows:]
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APPENDIX
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__________
Mr. Smith. Thank you, Mr. Luddy.
I will recognize myself to ask questions. But first I want
to put into the record, without objection, a study that was
just released yesterday.
[The information referred to follows:]
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__________
Mr. Smith. And this was a study that was done by a former
CBO director, and let me read a sentence out for all of us.
``Based on data from the Government Accountability Office, GAO,
and regulations published in the Federal Register, the
Administration has published more than $488 billion in
regulatory costs since January 20, 2009, $70 billion in 2012
alone,'' which of course has not yet ended. That just confirms
of course what many of us have been saying. And again, this is
a former CBO director relying upon data from the Government
Accountability Office.
Professor Taylor, let me direct my first question toward
you, but you have actually done a good job of answering my
question. I was going to ask you what the impact of the record
number of regulations and the atmosphere of uncertainty they
have created for business has been on the economy. You gave a
lot of statistics I think pointing that out.
Is there anything you want to add more generally about the
impact on the economy, or how the economy might have performed
if we had not have had these stifling regulations imposed on
businesses?
Mr. Taylor. I think I could add one----
Mr. Smith. Turn on your mic, if you will.
Mr. Taylor. Other recent study by some researchers at the
Federal Reserve Bank of San Francisco that tried to quantify
the policy uncertainty as well that corroborates some of the
research I referred to.
It is always difficult to judge what would have been had
there not been what I consider this expansion of regulatory
activity in the last few years. And to me, the best thing you
can do is look at history, and I think Mr. Gray and I both
referred to the expansion in the early 1980's. And this is '83,
'84, '85. And it was a good expansion. Growth, 5.7 percent on
average during that period compared to 2.2 percent now.
And if you look at the regulatory part of that, it is quite
striking. That was a period where it was a reaction to the
excesses in the 70's. This should not be partisan. It began to
be addressed at the end of the Carter administration, and
regulations were adjusted, and the number of Federal workers
came down involved in this activity. And the number of pages in
the Federal Register came down.
And that was part of the reason--not the whole reason that
was part of the reason why that expansion was so strong I
think. And more recently you have the opposite, and this
expansion is slow. And it is not just the regulatory activity
of government. I think it is other aspects of government as
well. I would mention the uncertainty about the tax policy, the
fiscal cliff, the uncertainty about these stimulus packages--
Cash for Clunkers. It all adds up, I think, to be quite
remarkable when you look at history. And I think it is a big
factor.
Mr. Smith. Okay. Thank you, Professor Taylor.
Ambassador Gray, you mentioned in your testimony the
various pieces of legislation that this Committee has approved
that have also passed the House floor. Had those bills been
enacted, what impact do you think they would have had on the
regulatory atmosphere or the uncertainty that businesses face
in regard to regulations?
Mr. Gray. I think they would have had a very beneficial
impact on what we now see. It is again difficult to quantify,
but we do have these examples from the Reagan period, from
Europe, fairly recently in Germany. We have the now unified
west by the European business community to work out
arrangements that would codify much of what you have already or
this House and this Committee in this House has already adopted
in terms of providing clear guidance to regulators to eliminate
their unbridled discretion, to make sure that benefits exceed
costs.
It is not to eliminate regulation, but it is to make it
something that a businessman, an investor, small or medium or
large, can predict in trying to determine how to create jobs.
Mr. Smith. Okay. Thank you, Ambassador Gray.
Mr. Luddy, thank you for the practical experience you bring
to the table today. I am tempted to call Mr. Entrepreneur. You
and your colleagues or other business owners, and operators,
and founders have been the mainstay of our economy ever since
the founding of our country.
My question for you is basically, how much more difficult
have the implemented regulations and the proposed regulations
made it for individual entrepreneurs to start a business in
America today compared to before these regulations went into
effect?
Mr. Luddy. Substantially more difficult and very
frustrating because, first of all, it is hard to determine what
the regulation means on the ground, because in terms of code
authorities, you have the written code, you have approval of
the code, and then you have a local authority having
jurisdiction making a final decision at inspection.
So what happens is everybody focuses on trying to please
these people rather than saying how can we produce the best
possible system in the world. It takes away from the innovative
focus. For smaller companies to meet these requirements without
a substantial amount of money and expertise, it just really
cannot be done.
Mr. Smith. Okay. Thank you, Mr. Luddy. That concludes my
time. And the gentleman from Michigan, Mr. Conyers, is
recognized for his questioning.
Mr. Conyers. Thank you, Chairman Smith. Professor
Heinzerling, could you help Mr. Luddy, who we praise for his
inventiveness and ingenuity, feel a little better about the
regulatory process and how he thinks it has curtailed the
inventive spirit here in this country?
Ms. Heinzerling. I hope so.
Mr. Conyers. Give it a try.
Ms. Heinzerling. I think that one piece of advice I would
have in that spirit would be as I said at the outset, to focus
on the good things that regulation does. Regulation is aimed
at, in large part, economic problems and problems that even
though not, strictly speaking, are economic. They are aimed at
cleaner air, cleaner water, things that I think entrepreneurs
even find satisfactory and good. And so it seems to me that
there is not a necessary inconsistency between that kind of
spirit and the spirit of regulation.
I will also say that having spent 2 years at EPA, I will
say that there is an entrepreneurial spirit there as
overregulation well. And it often gets overlooked in these
debates, but what I saw every day were people trying to make
regulations as creative, as flexible as they could. And that
those two things combined--the regulatory benefits, the aims of
regulations, and I think the spirit among the agencies of
trying to help unleash flexibility, but within the constraints
of protecting people against harm--seem to me may be a little
hopeful.
Mr. Conyers. Thank you so much. I wanted to compliment Mr.
Gray, who very specifically said that this is not a hearing
against all regulations per se. It is a matter of
reasonableness in regulations, and that some regulations are
necessary and important. And I thought that that was a good way
to frame the basis of your remarks.
Now could I ask you, Professor, another question about what
triggered the depression of '29 and the current great
recession? And was there any role of a regulation or non-
regulation involved in these two great disasters in American
economic history?
Ms. Heinzerling. I will say I am a law professor. I am not
an economist. But what I understand is that some de-regulation
preceded both economic crises, or at least a lack of regulation
preceded both. And what we saw in the period following the '29
crash and the following depression is a wave of regulatory
activity that was we called a New Deal, that was intended to
correct for the economic problems that had occurred, and so
that it would not be surprising at all to see what we are
seeing today, which is an effort to correct for the lack of
oversight and a lack of regulation that helped, in part at
least, get us where we are today.
And it always surprising to me to hear testimony that
sounds like it is suggesting that the way to get out of our
current crisis is to return to the conditions that immediately
preceded it.
Mr. Conyers. Thank you. I want to ask this question and
invite any of our distinguished witnesses to respond, even more
than one if they care to. And it concerns the former Federal
Reserve chairman Alan Greenspan's remarks. He opposed
regulation of the practices that allowed subprime mortgages to
be bundled into larger securities and sold to investors.
He later testified, ``I made a mistake in presuming that
the self-interests of organizations, specifically banks, and
others were such as that they were best capable of protecting
their own shareholders and their equity in the firms.''
Do any of you concur with Chairman Greenspan's change of
heart in the aftermath of the great economic downturn that we
recently experienced?
Mr. Luddy. All industries make mistakes, sometimes terrible
mistakes. But they correct for those mistakes. If the
government passes a new law every time we make a mistake, and
eventually we will not make any more mistakes because we cannot
do anything.
Mr. Conyers. Anyone else have a response? Yes, sir, Mr.
Taylor.
Mr. Taylor. In my testimony, I refer quite extensively to
Mr. Greenspan's views of the recent regulatory changes in the
financial area. And I think that is important to add to what
you say. He is very concerned that there are so many rules that
have to be written now by the regulatory agencies that it is
really a major interference in the financial system. And he
speaks from experience. When he was chairman, he would have to
write 3 or 4 rules a year. And now they have 200 or more to
write. So it is a massive undertaking.
And I think the problem here is, of course we should
regulate. Of course we should regulate. But we have gotten to
the point where we so much micromanaging in the regulation that
we are interfering with how businesses operate. So there are
alternatives to do this. And with respect to financial
institutions, more capital requirements and adequacy rather
than so many rules being written.
So I think that is important to add, sir.
Mr. Conyers. Thank you. Mr. Gray?
Mr. Gray. I am not sure that Mr. Greenspan really was
taking the full picture into account. The fact of the matter is
that Fannie Mae and Freddie Mac and some of the U.S. policies
were so welcoming to these subprime mortgage package deals--
Countrywide was a favorite partner of Fannie Mae and Freddie
Mac--could not have done what they did without the
encouragement and partnership of Fannie Mae and Freddie Mac,
which was, of course, a government supported entity.
And they invited the banks in, and I am not sure I really
blame the banks for taking the invitation to this government
largesse, complicated by the fact that the rating agencies,
another government monopoly, without competition, were rating
these packages as triple A when they were clearly not.
I think that Dodd-Frank would have been much more
responsive had it dealt directly with the Fannie Mae problem
and not dealt with a lot of other issues that had nothing to do
with the crisis itself.
Mr. Conyers. Thank you, Mr. Gray. The last word goes to
Professor Heinzerling, if you would like to comment, ma'am.
Ms. Heinzerling. I think that kind of turnabout and change
of heart is worth paying attention to.
Mr. Conyers. Thank you very much. Thank you, Mr. Chairman.
Mr. Coble. [Presiding.] Thank you, Mr. Conyers. I apologize
for my belated arrival. I had 2 other hearings to go to. I
would remiss if I did not especially welcome the entire panel,
but particularly 2 North Carolinians. Good to have you both
here. Good to have all 4 of you here.
I will delay my questioning until later, and will recognize
the distinguished gentleman from Arizona for 5 minutes.
Mr. Franks. Well, thank you, Mr. Chairman. Thank all of you
for being here.
Mr. Luddy, my first question is first to you. I was very
impressed with your record as a small businessperson and the
jobs you have created, the way that you done things. I happen
to have come from the same kind of background. I did not create
quite as many jobs as you did, but it was something that gives
me a sense of the challenges that you faced.
And I know what it is like to be up against a Federal
Government that is mostly comprised of folks who have not had
to walk in your shoes. They have not had to be accountable to
regulators or even to employees. They have not had to make
payroll. The existing head of state I do not think has ever had
to make payroll in his life before entering the White House.
The regulators seem to consider regulation sometimes in a
vacuum and with no consideration for the uncertainty that
regulations create. And while regulators are generally required
to consider the cost of their regulations, it is the cost that
are obvious and quantifiable. The larger costs to people like
you or me or the American worker may be intangible,
unquantified costs of uncertainty.
Where there is uncertainty, a small businessman or woman
cannot plan for the future, as you know. It is impossible
really to know if you can afford to expand operations or hire
employees or if you simply do not.
So my question is, have you found this to be true? What is
the impact of this uncertainty in your line of business or
among small businesses across the country, this uncertainty
factor? How much do you emphasize that, and how does regulation
bring that about, and how much does it affect you in your small
business?
Mr. Luddy. Well, it is absolutely huge when you think about
when we design jobs all over North America. Almost down to the
zip code, we have to determine what that code official is going
to expect for a particular job. So if you, an engineer, are
designing for national chains, he has got to be up to speed on
every one of those, and he is not going to be right all the
time. So it is a formidable challenge.
To give you an example on environmental permits to build a
simple building, which used to cost about $10,000 in
engineering now costs between $100 and $150,000. I think the
engineering community loves it because obviously they are
taking in a huge amount of revenue. But for a building owner, a
lot of buildings are stocked in the tracks right there because
a small businessperson does not have that kind of money. That
promulgates to HR, building codes, et cetera.
So the challenge are formidable. And you have to also
remember that the challenges of running a business without all
the regulation are formidable to begin with. As you lop on more
and more regulation, for the average person it becomes very
hard to build a large business.
Mr. Franks. Yeah. Well, I wish more people had your
perspective and could understand the challenges you face, and
that you are the core building block of this economy. And I
certainly appreciate your testimony today.
I will shift my questions to Professor Taylor. You wrote in
a recent Wall Street Journal op-ed that the solutions to our
economic problems are, to use your quote, ``blindingly
obvious.'' I happen to agree with you. But do those solutions
in your mind include the regulatory reform legislation that
this Committee has passed? Could that be part of that?
Mr. Taylor. Yes, sir. I think looking through the actions,
as I mentioned in my testimony. They are focused on
accountability, transparency, emphasizing what good economics
is, cost benefit analysis. And, in addition, calling for the
best data possible. So it seems to me that is really, in terms
of the regulatory area, what we need.
And of course when we say ``cost benefit,'' we emphasize
the benefits, too. But the point here is when there is so
little accountability or there is not emphasis on this, we are
leading, I think, to the excesses that are a big factor in the
slow recovery we have.
Mr. Franks. Well, let me follow up a little more on that.
You know, President Clinton claimed that no President could
have repaired all the damage of the recession in his 4 years.
But my memory says that Ronald Reagan repaired similarly severe
damage in much less time. And was regulatory reform not a big
part of how President Reagan was able to repair that damage?
And could regulatory reform like this Committee has passed not
be a big part of repairing the damage in this economy?
Mr. Taylor. Yes, I believe so. I think the regulatory
reform should be viewed as another way to have a stronger
economy and create more jobs. And if you look at the period you
are referring to, the recovery from a very deep, serious
recession in the early 80's, part of that was a period of
reducing the regulatory excesses in the 70's where they grew
dramatically. And so it was an offset to that.
And there is data that show what happened in terms of
regulatory activity. It is remarkable. And we had a strong
recovery. We cannot prove that is the reason. I think it is a
big factor. There are other factors, too. And now we have a
weak recovery, and we are, if you like, re-regulating. All the
measures we have show a greater degree of regulation, and I
think that should be a real concern.
And so in my testimony, when I mentioned efforts to block
regulatory reform, to me, to be candid, are efforts to block
job creation bills. And I think that is the way it should be
examined.
Mr. Franks. Well, thank you. And thank you, Mr. Chairman.
Thank you all for being here.
Mr. Coble. I thank the gentleman. Professor Taylor, I am
told you that you have a flight to catch, so I would ask
Members if we could to confine our questioning to 5 minutes if
that can be done to get you in the air in a timely way.
The distinguished gentleman from Virginia, Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman. Professor Heinzerling,
what would be the consequences to public health and safety if
one or more of the regulatory bills mentioned by your fellow
witnesses were actually to be enacted?
Ms. Heinzerling. I think they would be bad the consequences
for public health and safety. These bills, if you read them end
to end, they are incredible in their imposition of further
analytical requirements on agencies. As I said, agencies are
already overburdened with their requirements.
Each of these bills or many of them favor cost benefit
analysis, which is uniquely equipped to make the benefits of
environmental regulation look small and make costs look larger
than they are. And I have written about this in a book called
Priceless. But it is skewed against regulation.
To the extent that you further entrench that methodology in
judging regulation, I think that the consequences for health
and safety regulation will be dire.
Mr. Scott. And what is the problem with letting the private
marketplace protect our health and safety?
Ms. Heinzerling. I think that you can look all around you
and see the consequences of that in unsafe products, in food
safety scares, real problems. You can see that in the pollution
that we endure. You can see that every time we are told that we
should not go outside because the pollution is too bad in the
summer.
There are many different ways in which these problems
exists and cry out for an answer. And almost by definition, the
market will not take care of them because the market does not
encourage entities that are responsible for the problems to
take into account those kinds of social consequences.
Mr. Scott. How does the present regulatory process
differentiate good, cost-effective regulations that protect
health and safety from unnecessary regulations that destroy
jobs and do nothing to protect health and safety?
Ms. Heinzerling. There are many, many safeguards built into
the current system. Again, I think there are more safeguards
than there need to be. If you look at the number of different
analyses that are necessary for any rule to come out, it is a
wonder that anything gets done.
But the safeguards that are built in are analytical
requirements. This White House, I am happy to hear about the
benefits of the Reagan regulatory reform plan because that is
essentially what the Obama administration has done with respect
to regulation is to impose a cost benefit framework on
regulation. And so that to me, the current system has many
safeguards in place against unnecessary regulation, against
ineffective regulation. It has many encouragements of more cost
effective regulation as well.
Mr. Scott. What would happen if we allowed, as some of the
bills would do, any private party ``affected by potential
regulatory action'' intervene in a lawsuit?
Ms. Heinzerling. You know, that is a striking proposition
to me. If you just step back and think about what these
lawsuits are, they are aimed at agencies that have deadlines,
deadlines set by Congress. Congress has set those deadlines.
And when the agency decides to settle one of those
lawsuits, what it basically is thinking is we do not really
have a good defense to delay action forever. And so they try to
come up with a schedule for regulating. If you allow
intervention, you just complicate the process.
One of the things that is striking to me is if you talk
about uncertainty, in many cases that is really just a byword
or a substitute for de-regulation. The kind of uncertainty that
is talked about here really cuts only in one direction. We like
it when it leads to less regulation and not when it leads to
more.
Mr. Scott. Thank you, Mr. Chairman. I yield back.
Mr. Coble. I thank the gentleman from Virginia.
The distinguished gentleman from Iowa. Did you hear what I
said about Professor Taylor, Steve? He has a flight to catch,
so we will try to move it along.
Mr. King. Okay. Thank you, Mr. Chairman, and I will do my
best to do that.
I would first point out that as I have watched the----
Mr. Coble. If I can suspend for a moment, we will keep the
record open for 5 days in any event, but proceed.
Mr. King. Thank you, Mr. Chairman. I have watched this
regulation grow and the burden of regulation grow. I started a
business in 1975. I found out some years later that there were
43 different government agencies regulating my trade. It was
impossible for me to know all of those regulations.
I would point out that there is probably not a single
company in the United States of America that has a little
banner on their website that says ``Notice we are in compliance
with all Federal regulations.'' The reason for that is because
if they did so, Federal regulators would go in and prove them
wrong. It is not a very good cost benefit and return to do such
a thing.
And so we have brought some things that incrementally
addressed the regulation and the overregulation of the Federal
Government. But I sometimes like to take a look at what would
be the optimum that we can do? How would you get this to
perfection, and then how do you move in that direction so that
we have got a target?
And it looks to me like this, that Congress has handed over
the rulemaking to the agencies because they did not want to
deal with all of the components of that. It was too burdensome.
And so we have regulations that go on in perpetuity that are
not challenged again, and the only way you really do that is to
mount a national movement to try to get the votes here on the
floor to nullify a rule. I actually have brought one of those
nullifying pieces on capping the calories of our kids in school
just here within the last few weeks.
But what is optimum? And I want to pose this and ask the
witnesses down on the panel for your reaction, and that is my
legislation, which is the Sunset Act does this: it sunsets
incrementally all Federal regulations over a period of 10
years, asking the agencies directing them to offer up 10
percent of their rules per year for a period of 10 years where
Congress could reauthorize them, all on en bloc, or a Member
can separate a rule out and have a separate vote on that rule,
or amend that rule.
I think it does 2 things: it gets a lot of the
overregulation out of the books, and it makes the bureaucrats
then listen to the people who are affected by those rules
before they write them, because they know that those people
that are the subject of the rules can then come back to a
Member of Congress and ask them to bring that rule out and pull
it out separately for a separate vote.
I mean, that is a big concept to toss out here, and I know
that I have not made it available to any of you. But I would
like to start, if I could, on my left, Professor Taylor, and if
I could ask the witnesses to comment on such a concept to try
to clean this up so the voice of the people is better heard
within our regulators.
Mr. Taylor. Well, from what you said, it seems to me it is
making a good effort to deal with this real difficult problem
of the Congress stating in broad terms what should be done and
delegating to the agencies the details. And that is always a
problem.
I think in the case of the recent financial legislation, it
is just so obvious that too much has been delegated, if you
like. Hundreds of rules have been asked to be written very
quickly.
So I think a suggestion like that makes sense. I would have
to look at the details before us, but it really gives the
Congress back the responsibility to considering the rules in a
kind of a regular, sensible basis.
Mr. King. Thank you, Professor. Mr. Gray.
Mr. Gray. I agree with that answer. I would add that
reviewing old regulations, whether it is at the agency or
Congress, may be better to have the regulation come up in here
in Congress. It would be very salutary. Regulations attract,
like a ship does barnacles, certain special interests, and they
favor special interests over small businesses who want to get
into the business. And rules really should be reviewed by
Congress on a periodic basis.
Mr. King. Thank you, Mr. Gray. Professor Heinzerling?
Ms. Heinzerling. I would like to say 2 things. One is that
the----
Mr. Coble. Professor, pull your mic a little closer.
Professor?
Ms. Heinzerling. Yes?
Mr. Coble. If you would, pull the mic a little closer to
you.
Ms. Heinzerling. I cannot. It is stuck.
Mr. Coble. Oh, I am so sorry. Okay.
Ms. Heinzerling. But now it is on.
Mr. King. That helps. I can hear you.
Ms. Heinzerling. The power rests with you. You do not need
a new statute in order to take back the authority that you
have. You have that authority. And so with any regulation that
you do not like, you always can overturn it. That is within
your power. I think Congress should act more. We should have
more of a debate about exactly what regulations should do and
what it should not do rather than this debate.
The first thing is without that statute, you have that
power. The second thing, if you are worried about uncertainty,
I would think that you would be worried about a statute like
that that will take effect with unpredictable consequences on
existing regulation, that people have already spent money
getting up to speed on. And so you will have some people up to
speed, some people not. People who are up to speed may feel
unfairly treated if it is pulled back.
It just seems if uncertainty is the concern, I am not sure
it is the best fit.
Mr. King. Thank you. Mr. Luddy?
Mr. Luddy. The pace of innovation is so quick today that I
agree with your idea. Ten years to me is a long time because
innovation is so rapid. If you look at the case I cited, City
Chicago has 1950 ventilation rules. We are 60 yeas down line
from then, so a 10-year statute might have corrected that
problem.
We lobby with these groups to update their codes, but it is
not an easy thing to do for any small business, or even a big
business.
Mr. King. Thank you, Mr. Luddy. And, Mr. Chairman, that is
H.R. 6333, the Sunset Act. I thank the witnesses and you, and
yield back the balance of my time.
Mr. Coble. Thank the gentleman from Iowa.
The distinguished lady from Texas, Ms. Jackson Lee.
Ms. Jackson Lee. Thank you very much. I thank the Chairman
and the Ranking Member for this hearing, and I thank all the
witnesses for their presentation today, and express always an
interest in creating opportunities, Mr. Luddy, for small
businesses. I imagine that most Members would consider
themselves champions of small businesses. In fact, for the
record, I consider them the economic engine of this country,
and the potential job creators going into the 21st century.
I think at that point we may have a difference of opinion
in terms of framework. I truly believe that the concerns of
small businesspersons as the regulatory scheme is structured
should be responded to and it should be monitored.
And I would just ask you this brief question: would it be
responsive that as the huge Federal Government regulates and
passes regulations, and as the comment period that goes along
with the regulatory structure, would it also be of help to have
a more rapid response to the concerns of small businesses when
they note that the regulatory structure in place intended for
good may have a negative impact? Do you also see the issue of
response time that could be improved?
Mr. Luddy. Certainly it could. But keep in mind that a
small businessperson, it is almost impossible for them to deal
with the Federal Government. It is too vast. They do not have
the resources. They do not have the time. They are literally
just hoping to survive another day, another week, and another
month. So to have them part of that process is extraordinarily
challenging. Yes, improved response would be very helpful.
Ms. Jackson Lee. My point would be, and I think every time
I have seen a small business issue, most times I have seen
large associations, which they can be a member of. Certainly
the individual in their house with a computer and a desk might
be a little challenging. But what I am suggesting is that most
times, for example, if you see a McDonald's, you know that they
are part of a franchise, though that may be an individually-
owned McDonald's. You know that McDonald's speaks for those
owners here in Washington. So I do think there are lines of
communication.
And the point I am just making is that if there is anything
that I think would be important out of this hearing would be
the fact that a listening ear to the issues being raised after
there is the recognition that there is a negative impact.
I do not agree with the premise of this hearing that the
regulatory scheme hinders, if you will, the economic
opportunities of Americans. And I raise as the point of
contention is whether or not we could look at the landscape of
Spain and Greece and Italy and suggest that their economy has
been totally related to the lack of the over excessive
regulatory scheme. Or in the alternative, you could look at
developing Nations who are attempting to establish OSHA rules,
i.e., safety rules as I have traveled internationally and seen
clean water rules, regulations for food, to make them more of a
developed Nation.
So the regulatory structure from my perspective is
valuable. So let me just add for the record, if I could put
into the record ``Regulatory Nonsense.'' Mr. Chairman, I ask
unanimous consent to put this article into the record. Can I
put this into the record?
Mr. Coble. Without objection, it will be entered into the
record.
[The information referred to follows:]
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__________
Ms. Jackson Lee. Thank you so very much. So let me proceed
with my questions. I do want to thank Mr. Gray. I have seen him
often. Thank him for his service to the Nation and others.
There was a quote made that ``Companies went through
bankruptcy. Now they are back on their feet. That was the right
course. It was the course that I fought for.'' Do you know who
made that comment, Mr. Gray? That was the presidential
candidate, Mr. Mitt Romney. I think it is the gentleman who
offers that he does not represent 47 percent.
And the reason why I have raised that is because these are
kinds of, I think, destructive comments that play into, if you
will, the not seeing as an even playing field, that regulations
have their role. And what I believe we should be addressing is
that whenever we pass legislation, a bipartisan Congress should
respond to Mr. Luddy. It should respond to smaller community
banks under the Dodd-Frank bill that argues about the
regulatory impact on their ability to have a greater role in
giving access to credit. I am willing to listen to that, but I
cannot tolerate any idea to suggest that regulations are the
main factor in undermining our economy.
So I am going to go first to Professor Heinzerling and just
say, what would we be--right now we are fighting the West Nile
epidemic. We just fought E.coli. Where would we be without a
strong regulatory structure of oversight to enhance the quality
of life of Americans?
Ms. Heinzerling. Well, I think that we would be in trouble.
That what we would see are more polluted waters, more polluted
air, more unsafe products, less safe food, less safe drugs,
along the whole range of human activity and market activity. I
think that we would see what we have seen in any period that
precedes a regulatory intervention, which is harm--harm to
humans, harms to the environment, harm to the economy from
those things.
And so I think that you see when you have unconstrained
behavior by humans, what you will end up seeing is harm.
Ms. Jackson Lee. And harm to children.
Ms. Heinzerling. Yes.
Ms. Jackson Lee. Right. Do you see any impact on small
businesses in terms of if you are weighing, is it so drastic
that it is not something that could be fixed within the
regulatory scheme?
Ms. Heinzerling. No, I think it can be fixed. I think a lot
of the, for example, the report that I cited earlier on that
talks about the cost of regulation per year, uses those same
flawed statistics I mentioned to try to derive an estimate of
the cost of regulation per firm, and from that then per small
business. And from that says, well, these burdens are very
great.
But you cannot pile nonsense on nonsense and get a sensible
result. And so the statistics that, again, try to show that
these costs are excessive are not credible.
Ms. Jackson Lee. I yield back, Mr. Chairman. Thank you for
your courtesy.
Mr. Coble. I thank the gentlelady.
The distinguished gentleman from Pennsylvania.
Mr. Marino. Thank you, Mr. Chairman. Good morning to folks.
It is a pleasure to be here with you.
Professor, I tried to take down some notes, and I want to
make sure what I think you said you said. And I would like you
to respond to my question on that, please.
I think it was a few minutes ago you said that, and I am
just taking hand notes here, some of the regulatory reform
bills that we have passed in the House would be bad for
agencies because they impose, and I think the important term
here is ``new requirements and burdens on the agencies.'' And I
find it a bit ironic that on one hand you say that we should
not burden the agencies with requirements, but agencies are
burdening small business with excessive regulation that has not
seemed to be reviewed. I mean, how do you think the people in
my district in eastern Pennsylvania, which is mostly farmers
and small business, respond to that? Let us let unfettered
rulemaking take place in the agencies, and not respond to what
negative effects it has on the small business owner and the
farmer? Do you want to clarify that a little bit, please?
Ms. Heinzerling. Absolutely. I think I would explain the
apparent tension that you see in these two things by saying
that the agencies are there actually for the same people you
are discussing. That it is not because I am worried about
agencies being burdened that I worry about these bills. It is
that I am worried about agencies not being able to do work for
the American people. That is what they are there for. That is
what you all have put them there for.
Mr. Marino. Well, that is what they are supposed to be
there for, but I can give you some primary examples. For
example, the roofing industry in my area has come to see me on
numerous occasions. There has been vast changes concerning
harnesses and restraints concerning roofers, anywhere from 6 to
8 to 10 to 12 feet. I have had several roofers in my district
who have been fined over $50,000 because of apparatus that they
are supposed to have now, which proves to be, at least from the
people in my district, even more hazardous because there are
more ropes and more lines crossing one another where those
roofers are tripping over those ropes and lines, even though it
is only 8 feet off the ground on a flat roof.
So do you not think the agencies have a responsibility to
come back and review that legislation and rules and regulations
to actually talk to--I mean, I have been out on the sites with
my people. I have been on the roofs, and I have been at the
farms. And I see what regulation does. I live out in the
country, and I love to see the bear and the deer come through
my yard. I am on a well, and I want clean water, and I do not
want anybody messing with it. But I think we should think in
terms of once something is implemented, then we have to see
what the results, are they efficient and effective. And you can
respond to my comment if you would like to.
Ms. Heinzerling. Yes, I would like to. You have the power.
You have the power to undo any rule you want to undo.
Mr. Marino. And as a freshman, I am taking advantage of
that.
Ms. Heinzerling. And you can step in right now. It is not
the agencies. The agencies exist because Congress has given
them the power and has given them certain missions. Any time
you want you can take that away.
Mr. Marino. I understand that, and I know the process by
which we can take that away. But other comments have been made
to people in my district when questioning the OSHA inspector
that comes by, or the EPA individual, and trying to ask them
questions as to, okay, what do you see here that I should be
doing that I do not know that I should be doing, the individual
says, well, I cannot answer that question. I am just told to
find as many, as much as possible.
Ms. Heinzerling. I would not be surprised, maybe not in
your district, but in other districts in the country, I would
not be surprised if there are other stories to be told about
businesses where there were no inspectors, and people were hurt
or killed on the job, and they wish that actually somebody had
been there to prevent.
Mr. Marino. Oh, I am sure you can come up with those as
well. But I think there are far less than what regulatory
agencies have done to this country. And one of my colleagues
who just left wanted to find it appropriate to throw in a quote
from Governor Romney, but I will throw you a quote out from Mr.
Obama that I just read. And I usually verify these, but I will
go back and do that. He was questioned that I have coal mines
and coal producing electric companies in my district. And the
President was asked about such regulation on coal mining and
the use of coal. And his comment was what appeared to be in a
somewhat arrogant way, I am not trying to shut down the coal
industry. They can create as many mines and as many electrical
plants that run on coal as they want. But they are going to go
bankrupt doing it because of regulation. So with that, I hear--
--
Mr. Coble. The gentleman's time has expired.
Mr. Marino. I yield back.
Mr. Coble. Thank the gentleman. The gentlelady from
California is recognized for 5 minutes.
Ms. Chu. Thank you, Mr. Chair. Well, before I begin, I
would like to take a moment to express my disappointment with
today's hearing. We are using our full last full Judiciary
Committee hearing before long recess to discuss the Obama
administration's regulations when we have had already 16
hearings in this Committee to discuss regulations. And here
again we are wasting time and money rehashing on these partisan
issues that have already been discussed at great length. I
think we should be using our time more wisely tackling the
issues that are very key and critical to our constituents.
Well, I would like to talk first about one area and ask Ms.
Heinzerling a question. I am a strong supporter of the Clean
Air Act of 1970, and the benefits of this Act have far exceeded
the costs associated with it by a factor of 30 to 1. Not only
has this Act been proven to have resulted in a 1.5 percent
increase in GDP in 2010, but it has also resulted in preventing
9,000 premature deaths every year, generating more productive
workers, and creating a better environment.
Ms. Heinzerling, as an expert on environmental
administrative law, can you explain to me how such an act, how
environmental regulations could save lives?
Ms. Heinzerling. Well, without the regulation, one would
have likely uncontrolled pollution. The more we know about
pollution, it seems like the more harmful it becomes in our
eyes. And so that without that, we would have uncontrolled
pollution.
As you just cited, a number of statistics from the EPA
about both the monetary benefits and the benefits in terms of
lives saved from the Clean Air Act. And without it, I think
that we would have the reverse would be true; that is, we would
have many more people sick, many people die earlier, many more
economic harms than we have with the presence of that statute.
Ms. Chu. Thank you. And on small business, I know that in
the small community--I am Member of the House Small Business
Committee--that the issue of regulations is always debated. But
I note that there is one regulation that helps small businesses
greatly, and that is the set aside of 23 percent for Federal
contracts to be put there for small business.
You know, we have a substantial amount of dollars in
Federal contracts--$535 billion. So the fact that small
business can get 23 percent gives it a fair shake. And, in
fact, I am part of a bipartisan bill that has increased the
regulation to go from 23 to 25 percent so that they can even
get a greater fair shake.
Can you explain how such regulations actually could help
small businesses?
Mr. Luddy. In my opinion, it is always challenging to deal
with any governmental entity. And it is especially challenging
for small businesses. So for those businesses that choose to
specialize in governmental contracts that very well may help
them, in terms of the general business, the amount of time
required, we think it is generally not worth it.
Mr. Chu. So you would actually not have any set asides for
small business.
Mr. Luddy. I would not.
Ms. Chu. That is really a shocking statement. Five hundred
and thirty-five billion dollars, and you would not give small
business a fair shake.
Mr. Luddy. I am a free market----
Ms. Chu. I am going to move on to another question, which
is how different regulations can help consumers save money. The
rules issued in the last 20 years by the Department of Energy
set efficiency standards for household appliances, and it would
save consumers over $100 billion by 2030.
Ms. Heinzerling, can you speak about one efficiency
standard of the Department of Energy which would save consumers
millions of dollars, and what would happen if the standard was
not in place?
Ms. Heinzerling. Yeah, and if I may, I would even expand
the category to include things like the fuel efficiency
standards that the Obama administration has put in place. These
kinds of standards--the Department of Energy efficiency
standards, the fuel efficiency standards set by EPA and the
Department of Transportation--all save consumers money by
either eliminating or limiting the amount of electricity they
use or eliminating the amount of fuel that they use.
And so it really puts money in the pockets of consumers
rather than takes money out as we have been hearing about on
the other side this morning.
Ms. Chu. Well, let us go the opposite way. Can you give an
example of when consumers have lost money in the absence of a
regulation?
Ms. Heinzerling. Well, in a way you would have--there are 2
examples--one, your example about efficiency. To the extent
that consumers do not know about the benefits of efficiency,
have short time frames that they think over, then the
regulation helps them save money. They would lose money in the
absence of a nudge from government to save them money.
Other things are a little bit more direct. There are a lot
of regulations that are aimed at fraud and misrepresentation by
various entities that save consumers money because they prevent
those kinds of activities and behaviors.
Ms. Chu. Thank you. I yield back.
Mr. Coble. Thank the gentlelady. Without objection, I want
to introduce my opening statement and letters from trade
associations into the record. And so moved.
[The prepared statement of Mr. Coble follows:]
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__________
Mr. Coble. Thank you again for being here. Professor
Taylor, I am determined to get you on that flight, and I think
we can do it.
It is my belief, folks, that--well, strike that. Let me say
it in a different way. I am not averse to regulations that are
sound and efficient. We have too many that are neither sound
nor efficient. I think regulatory shackles can impede the flow
of commerce, particularly as far as small businesses are
concerned.
Let me put this question both to Mr. Gray and to Professor
Taylor. If this Committee's bills had already been introduced
or enacted, would there be any need for regulations still have
been able to achieve needed benefits?
Mr. Gray. Would there be any need for?
Mr. Coble. I did not state the question artfully. If this
Committee's bills had already been enacted, would any needed
regulation still have been able to achieve needed benefits?
Mr. Gray. Well, sure. There is no question that needed
regulation could have done, could do, would be able to do, what
is necessary to achieve the benefits that are being sought. I
will just give one example. There is no reason really in the
world why the EPA could not do more with economic incentives
that I think were authorized by the 1990 amendment.
Now it may be that because of court rulings there are some
statutory inhibitions, but there never has really been an
effort by the current Administration or by EPA that I know of
to seek the statutory fix which I think Congress would be
willing to provide that would allow the use of the incentives
that bills that have already been adopted by this body would
have encouraged.
So I think that the needed benefits could have been
provided, could be provided, under every single bill that this
House has adopted.
Mr. Coble. Thank you, Mr. Gray. Mr. Taylor, I will get with
you in just a second.
For those who share my view in opposing inefficient and
unsound regs, oftentimes we are accused of opposing all regs.
And that is indeed unfortunate because some regs are in order,
but the unsound ones and inefficient ones are not in order.
Professor, do you want to add to that?
Mr. Taylor. Well, I understand the question is we are not
talking about, and these bills are not talking about, stopping
regulation or ignoring the benefits. In fact, on the contrary,
they have emphasized more cost-benefits, for example, SEC,
CFTC. They have emphasized transparency, so for example, the
cost of the unfunded mandates would be reported.
So it seems to me it is really a straw man or straw woman
to put out ideas that this is eliminating the benefits of
regulation. They are basically making the regulatory process
work better, more efficient, and it seems to me that is what
the goal should be, especially in this environment where job
growth is so abysmal.
Mr. Coble. Again, thank you all for your participation and
input today. And I am going to yield the gavel and the floor to
the distinguished gentleman from Arkansas.
Mr. Griffin. [Presiding.] Thank you all. Thank you, Mr.
Coble. I am going to keep this short. I was told that somebody
on the panel has a flight to catch.
I want to just to quickly make a few points, and then maybe
ask a question or two. I have a 2-year-old and a 5-year-old,
and I want them to have clean air, and I want them to have
clean water. The idea that people on this side of the aisle are
anti-regulations per se is just nonsense. That is a straw man
drawn up for the purposes of demagoguery.
I am for reasonable regulations. I am for regulations that
make sense. I am for regulations that do not crush businesses
in the name of covering a hypothetical that may never happen.
It is the excessive and overly burdensome regulation that we
are concerned with.
I will give you an example. And let me just say this: with
all due respect to all the occupations of everybody, I am glad
to see that people are working regardless of what they do. And,
you know, I was a lawyer and apologize for that. But when I
want to know what regulations do to job creators, I ask them,
like this gentleman here. They, not people who work in
bureaucracies up here, are the experts on how they are impacted
by regulations because they live it every single day.
And I just left a room full of 13 bankers--community
bankers, small town bankers--from Arkansas that are dealing
with a nightmare of Dodd-Frank. It is a disaster. They are
being punished for something they never did. They were crossing
the Ts and dotting the Is, no matter what was going on on Wall
Street. And now they have to hire people to comply with a bunch
of regulations that control almost every decision they make. It
is unbelievable. And, you know, I still hear people trying to
say that regulations do not have an impact on business. It is
unbelievable.
I went and toured a fledgling business in Little Rock, and
it is in an old industrial site. And I walked out on their
loading dock, and they had a 50-foot ramp for wheelchairs. We
are all for disabled folks having access to whatever building
they need to access. I am for that. But it struck me as odd
that a wheelchair ramp would go to a loading dock where no one
ever enters the building.
Funny the people that own the business had the same
concern. I said, why do you have a 50-foot wheelchair ramp
going to your loading dock? Would you ever use that? Well, we
were required to build that--$5,000 that they did not have.
Why? Because the Federal Government wants to regulate for every
contingency that might ever happen, even if it only happens
once in 100 years. They want you to spend money to make it
right. What a crock. It is unbelievable.
And my constituents back in Arkansas and all over this
country are spending money on that type of nonsense that is
promulgated up here in this city. And for people to deny that
that has an impact is outrageous. Ask the job creators.
I had a conference at the Clinton Library with Democrats
and Republicans. I invited business leaders--big business,
small business, you name it. The number one problem they said
that was serving as an obstacle to job creation was economic
uncertainty created by overregulation from Washington. Period.
Now that is not a question.
You know where I stand on this, but I will just tell you, I
am so sick and tired of hearing people say that regulations are
job creators. I understand that regulations are needed in some
areas, and I am for common sense regulations. But that is not
what we are talking about. We are talking about a tsunami of
nonsense coming out of this city.
Let me ask you this. What is the question, the answer to
which is, we need another Federal agency to regulate the
financial industry? What is the question? Someone was sitting a
room and said, we do not have enough bureaucracy. We do not
have enough regulation. We must create another multibillion
dollar entity and hire a bunch of new people, because we just
cannot make the 10 other ones that already regulate them work.
It is a joke. It is an absolute joke. And I do not guess I
have any questions. I appreciate you all coming to testify, and
I am glad I got to Chair this hearing.
I would like to thank our witnesses for their testimonies
today.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
This hearing is adjourned.
[Whereupon, at 11:44 a.m., the Committee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
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Material submitted by the Honorable Howard Coble, a Representative in
Congress from the State of North Carolina, and Member, Committee on the
Judiciary, on behalf of the Honorable Lamar Smith, a Representative in
Congress from the State of Texas, and Chairman, Committee on the
Judiciary
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