Susan Dudley, Part 8
Summing Up
8 Nov 2006 in Regulatory Policy, People & Institutions
This has been a long series. Thanks to our faithful readers who have kept up throughout. A quick review:
- Monday, October 30: Background on OIRA
- Tuesday, October 31: Public Citizen and OMB Watch, the Authors of the Opposition Report
- Wednesday, November 1: An Introduction to the Opposition Report
- Thursday, November 2 The Case of Airbags
- Friday, November 3: Dudley's Impossible Requirements
- Monday, November 6: Dudley's Views on Consumer Sovereignty, Nonuse Value, and Lifesaving
- Tuesday, November 7: Dudley's "Radical Ideas"
Public Citizen and OMB Watch say Susan Dudley is unfit to serve as Administrator of OMB's Office of Information and Regulatory Affairs. We began this series assuming that they had assembled the best case against her and presented it in their report "The Cost Is Too High."
Today we briefly summarize our review.
The Report says that it provides documentation why Dudley is "unfit to serve" as Administrator of OIRA, but the evidence for that is limited. Given Dudley's extensive paper trail, consisting of 33 public interest comments submitted from her post at Mercatus, the Report cites or references just 12 of them. It's not clear why the authors do not mention, much less analyze, the other 22. Dudley's comments on specific proposed regulations should provide an outstanding, and highly revealing, window into her expectations for regulatory design and regulatory impact analysis.
For the 12 public interest comments cited in the Report, in no instance did the authors present her arguments objectively and explain why they are wrong. The Report quotes a small portion of text, and typically these snippets are selective (i.e., lacking in context) or inaccurate (e.g., missing crucial text necessary to understand the argument). In one case we discovered that the authors of the Report had stitched together snippets from different documents addressing different issues in a way that clearly implied a seamless thought, then skewered that thought as nonsensical.
It's possible that a clear picture of Dudley's regulatory philosophy doesn't come through after reading all 33 public interest comments. For example, each of these documents refers to a specific proposed regulation, or other set of technical documents, that is hundreds of pages long. Those who lack sufficient background knowledge in each of these 33 specific areas, or the patience to wade through it all, might find it daunting to just to get up to speed.
For people in this awkward position of technical ignorance, the one publication that clearly explains Dudley's regulatory philosophy in non-technical terms is her Primer on Regulation. This short document, which takes less than an hour to read, is nowhere cited in the Opposition Report.
Dudley's Regulatory Philosophy: Six Parts Executive Order 12866, One Part Moderate Libertarianism
Dudley's writings on regulation, in both specific cases and her Primer, make her regulatory philosophy transparent. This regulatory philosophy is dominated by the text of Executive order 12866. In our review of Dudley's "impossible requirements," we provided a crosswalk between six of Dudley's seven criteria for evaluating regulation and the criteria set forth in the EO. The authors of the Opposition Report might have an empirical case that Dudley doesn't consistently her regulatory philosophy -- though if they have such a case, they did not present it -- but they cannot have had any difficulty locating it.
Dudley's seventh criterion is the one part moderate libertarianism in the mixture. Dudley is transparent in her view that government ought to respect individual choice and private property. Quoting from her Primer:
Government actions that undermine individual liberty and responsibility, and do not respect private property are not likely to improve the welfare of American citizens. The fifth amendment of the U.S. Constitution provides that private property shall not be taken for public use without just compensation (p. 43).
We've characterized this as moderate libertarianism. A strict libertarian would say that it is impossible for government to "undermine individual liberty and responsibility" but still make people better off. Dudley's view is skeptical but empirical. We've given at least one significant example in which this empirical test could be met: a situation in which regulators are much more knowledgeable than the public about the facts of a specific risk and thus able to craft rules that achieve greater social welfare than what uninformed citizens would accomplish making their own decisions. (This example is empirical in two respects. First, regulators must actually possess superior factual knowledge; and second, the regulation they craft must actually succeed in making people better off. The first empirical test by itself is a necessary but insufficient condition.)
Certainly more than her critics, Dudley appears to be acutely sensitive to governmental failure, the problems which arise from every attempt to remedy a market failure through regulatory means. Regulation is no easier to perfect than markets. In 1988 Charles Wolf neatly summarized the trade-off between markets and regulation (a subset of what he called "nonmarket systems"):
[T]he choice between markets and governments is not a "pure" choice but a matter of degree. Yet the degree that is chosen matters a great deal from the standpoint of both the economic and social performance of the resulting system: The more the systemic choice favors the market, the more the system confronts the pitfalls and shortcomings of market failure; and the more the systemic choice favors the nonmarket, the more the resulting system confronts the pitfalls and shortcomings of nonmarket failure. From the standpoint of effective economic performance, the record strongly suggests that the shortcomings of nonmarket failure overwhelm those associated with market failure. Market systems simply and decisively perform better than nonmarket systems in static as well as dynamic terms, and in terms of both short-run allocative efficiency and long-term economic growth.
Advocates of nonmarket systems, however, rebut this conclusion by arguing that other dimensions of system performance -- for example, social equity, public participation, and accountability -- are at least as important in evaluating system performance as the efficiency and growth dimension. According to these criteria, the contention is that nonmarket systems compete with market systems on much more favorable terms, in both an absolute as well as a relative sense...
The effective functioning of market systems can be seriously jeopardized by pluralistic, democratic processes. The jeopardy arises because of the incentives that these processes create fr steadily increasing encroachment by nonmarket forces on the effective functioning of the market. These incentives result from the separation or "decoupling" between those who receive the benefits and those who pay the costs of government programs (pp. 171, 173).
Dudley doesn't cite Wolf in her Primer -- that's not surprising, as it is a somewhat dated work. But her Primer suggests broad agreement with Wolf's two thesis: (1) the choice between markets and governments is always an imperfect one, but the imperfections of markets are typically less severe that those of governments, and unlike governments they they are often self-correcting; and (2) democratic politics create a certain amount of entropy that, if left unresisted, will lead to the slow abandonment of market systems. Institutionally, the role of OIRA is to serve as the final bulwark against that entropy.
Public Citizen's and OMB Watch's Regulatory Philosophy: The Benefits of Regulation Are Rights, the Costs of Regulation Are Benefits
Public Citizen and OMB Watch oppose the regulatory principles set forth in Executive order 12866 (and embraced by Dudley). Section 1 establishes a somewhat minimalist ideal for the role of government ("Federal agencies should promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling public need").
Indeed, these advocacy organizations so clearly dislike the regulatory philosophy and principles of Executive order 12866 that it's entirely possible that they would oppose any nominee who agreed to uphold them. Documents from the early 1990s are limited on the Internet, but our recollection is that Public Citizen opposed Sally Katzen's nomination as OIRA Administrator in 1993 because she did not promise to abandon these principles. Since its establishment in 1983, OMB Watch always has been an opponent of OMB.
The Benefits of Regulation Are Rights
For Public Citizen and OMB Watch, there is nothing special about the market system that justifies its protection, preservation, or improvement. Markets will never achieve their goals, so it is essential for them to oppose market systems and support regulation and other nonmarket systems. Through regulation -- and regulation alone -- is the achievement of their goals feasible. "Regulatory protections," they believe, "are entitlements in the truest sense of the word:"
Regulatory protections of the public health, safety, civil rights, environment, and the costs imposed on corporate special interests when the federal government finally forces them to do the right thing as corporate citizens. They are, instead, entitlements in the truest sense of the word. Through the democratically controlled federal government, the public pools its resources to create institutions and policies strong enough to counter the forces we are otherwise powerless to face as isolated individuals. FDR explained it best in a July 1933 fireside chat: “It goes back to the basic idea of society and of the nation itself that people acting in a group can accomplish things which no individual acting alone could even hope to bring about.” In the face of harmful pollution, unsafe products released into the national marketplace, and other hazards that corporate special interests expose us to without otherwise being forced to internalize the attendant public costs, we are entitled to regulatory safeguards. Our government owes us nothing less (pp. 33-34).
In short, Public Citizen and OMB Watch have a dramatically different, perhaps maximalist, view of government's role. From reviewing their web sites, it's hard to identify any regulatory intervention that they consider an unnecessary or inappropriate constraint on markets and individual choice. The only examples we can find are cases in which they believe a regulatory action does not go far enough.
The Costs of Regulation Borne by People We Don't Like Are Benefits
We also have had trouble finding examples in which Public Citizen or OMB Watch have expressed concern that proposed regulations are too costly. The examples we did find involve regulations restricting how nonprofits conduct voter registration drives, regulations requiring voters to show photo identification, and laws requiring US citizenship to vote. OMB Watch also opposes the Federal Election Commission's "electioneering communications" rule, which restricts (if not bans) indirectly partisan political advertising by nonprofits. The unifying theme among these regulations is that they impose costs either on nonprofits such as Public Citizen and OMB Watch or on their supporters.
The Opposition Report does not deal with regulations in which Public Citizen or OMB Watch would bear regulatory costs. It concerns only the subset of regulations in which regulatory costs are borne by others. The Report makes clear the distinction:
[N]ot all costs have the same moral or ethical value. Some regulatory costs represent the cost to industry of what it should have done as a good corporate citizen in the absence of regulation (p. 34).
Yesterday we noted that there is no support in the economics literature for making this moral distinction. That's not because of the political conservatism of economists because economists are not politically conservative. The economics profession is a Democratic one, and its leaders are the most Democratic of all. A Republican or conservative economist is by definition an outlier.
We think this moral distinction supports the existence of a Cost Theory of Benefit -- that is, some people hold the notion that the greater the cost that a regulation imposes on someone else (especially "industry"), the greater they perceive the benefits to themselves. If altruism is the gain in utility one experiences by making someone else better off, this is its opposite. The Cost Theory of Benefit says that making some people worse off directly makes others better off.
There is every indication from reviewing the Opposition Report that its authors believe in the Cost Theory of Benefit. Of course, theories are made to be refuted, so we will continue looking for evidence that contradicts it. Reader submissions are welcome.
Is There a Right to Impose Regulatory Costs on People We Don't Like?
The logic of the Opposition Report suggests the answer is "yes." If the benefits of regulation are rights, and the costs of regulation borne by people we don't like are benefits, then inductive logic implies that the ability to impose costs on others is itself a right. Rights exist independent of utilitarian social welfare maximization and cannot ethically be denied through the normative application of tools such as benefit-cost analysis. It is the obligation of government to protect and secure rights, and that would include the right to impose costs on people we don't like.
We're not sure how far to take this logical argument. For now, we're satisfied to report that reviewing the Opposition Report has provided great insight into the perspectives of at least some of Dudley's opponents. Her confirmation hearing is scheduled for next Monday.
