Regulation Czar’s Net Effect

by Chidem Kurdas

Cass Sunstein, the White House regulatory affairs chief, is going back to academia.  It is not clear why he chose this particular time to return to Harvard Law School, leaving behind what looked like an experiment to implement the notions he advocated.

Has he made a difference as federal overseer of rulemaking? The record is at best mixed, at worst a prime example of how academic ideas can enable political hypocrisy.

Mr. Sunstein emphasized the need to pay attention to the costs and benefits of regulation. As a legal scholar, he argued for paternalism with a light touch, the subtle “nudge” approach to get people to do what you want them to do. Mario Rizzo has shown the logical issues with this  new paternalism, in particular the knowledge problem embodied in it.  See also Glen Whitman’s discussion of the topic.

In practice, Mr. Sunstein made a widely publicized effort to pull back some small, useless rules that have accumulated over the years. At the same time, he presided over the enormous expansion of financial and healthcare regulation under Dodd-Frank and Obamacare, both still very much in progress.

The full impact of Dodd-Frank is unknown, as Federal Reserve Chairman Ben Bernanke acknowledged—a report from the House Financial Services Committee has the quote.  The same goes for the explosive growth of healthcare rulemaking. A wide range of consequences remain uncertain.

But that has not stopped Mr. Sunstein from claiming that the new regulations have a large net benefit—in other words, their desired effect is supposedly worth more than the costs imposed on taxpayers, businesses and consumers. Now, an old-style paternalist would make the same exact claim for any regulation he or she espouses. This is necessarily the case, for if there is no net benefit, why are you creating yet another Frankenstein of red tape? Somehow or another, regardless of the uncertainties, the estimated benefit has to be made to look greater than the estimated cost.

President Obama in his 2012 State of the Union Address boasted that he ordered every federal agency to eliminate rules that don’t make sense and approved fewer regulations than his Republican predecessor.  But what’s eliminated is trivial compared to what’s added. Getting rid of useless rules is claimed to save $10 billion over several years; Dodd-Frank alone will cost several times that every year to financial services consumers such as your pension fund.

So the net effect of  Mr. Sunstein’s own work for the government has been to create a smokescreen for the expansion of costly edicts. Looking over existing rules and culling the most absurd ones gives the impression that the administration wants to reduce the burden, while in fact new regulations impose larger costs. As far as its practice goes, the new paternalism appears to be the old paternalism in disguise.

It may be that as the election approaches the President’s advisers don’t think the disguise is worth the occasional controversy Mr. Sunstein causes. The idea that this is gentler, more cost-conscious rulemaking has not reassured businesses that refrain from investing or hiring amid the regulatory uncertainty the administration created.

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