The State Farm Case and the Promotion of Deregulation

One of the objectives of people who favor deregulation is to design legal institutions that can promote deregulation.  I have mentioned one such method in prior scholarship: Congress should establish an agency with the mission of identifying regulations that should be eliminated and the authority to repeal those regulations.  For a discussion of this idea, see here.

Another idea, however, is to establish more lenient procedures for enacting deregulations than for enacting regulations. For example, one might require agency actions that impose regulations to satisfy the full requirements of notice and comment rulemaking, but to impose less procedural requirements on deregulations.  This procedure would promote deregulations.

A different but related idea is to change the degree of judicial review that is imposed on agency deregulatory actions.  Under this idea, the agency would have to provide a stronger case to justify its regulatory actions than to defend its deregulatory actions.  While this different standard of review would have to be established by Congress, that might not have been necessary if the Supreme Court had decided the famous “hard look” State Farm case differently.

In State Farm, the National Highway Traffic Safety Administration under Jimmy Carter had adopted a passive restraints regulation that required automobiles to have either air bags or automatic seat belts.  The Reagan Administration sought to repeal that regulation.  The repeal was challenged in court and the Supreme Court applied a strict version of hard look review, concluding that the agency had not supplied an adequate explanation for its repeal of the regulation.  While hard look review supported regulation in this case, it almost certainly operates in general to deter regulation.  So opponents of excessive regulation have reason to praise State Farm.

But another aspect of the case might have been even more beneficial to deregulation if it had been decided differently.  The agency argued that its decision to repeal a regulation should not be subjected to the same scrutiny as a decision to impose a regulation.  There were policy reasons to support such an approach.  First, an agency that regulates is coercing the public, whereas an agency that deregulates is withdrawing such coercive power.  Second, one might argue that the structure of administrative agencies promotes excessive regulation for a variety of reasons, including that such regulation generally benefits agencies.  (As a matter of the original meaning of the APA, I am not sure what the correct answer is because I have not researched the question.)

But the Supreme Court held otherwise.  It concluded that any change in the regulatory posture of the agency required the same degree of justification.  If an agency was going from a situation where there was no regulation to one where there would be a regulation, the same level of justification would be needed as if the agency was going from a situation where there was a regulation to one where there would be no regulation.

From the perspective of promoting deregulation, at least, State Farm was a lost opportunity – one that Congress could still correct at any time.