Why Cass Sunstein is wrong on regulatory reform

Cass Sunstein’s proposals for improving the regulatory system, laid out in a recent Bloomberg View column, will not solve any of the real problems plaguing the regulatory process. Sunstein, a professor at Harvard University and a former Obama administration official, ignores a simple truth about our nation’s system of public protections: The rules that deliver the greatest benefits to the public take the longest for agencies to develop and finalize. They can take years — sometimes more than a decade — to work their way through the rule-making process.

{mosads}In fact, Sunstein’s regulatory reforms don’t pass his own cost-benefit test. They focus exclusively on the costs of regulation while ignoring the benefits. Furthermore, Sunstein focuses entirely on the benefits of his proposed reforms while ignoring their costs. What’s good for the goose is good for the gander — so if more cost-benefit analysis is a great idea, as Sunstein claims, then we should have to weigh the costs of doing more of it. And to be clear, those costs would be enormous, considering the extraordinary delays that would result.

Delays in new public protections have real consequences. Oil trains around the country continue to explode while new safety measures languish in development. Tainted food outbreaks continue to sicken and kill Americans while rules stemming from the new food safety law have missed deadline after deadline. Toxic spills poison our air and water as hazardous chemicals go unregulated for decades. The list goes on and on.

The regulatory paralysis and delays are reaching near-crisis proportions. A recent study, authored by a conservative think tank no less, found that federal agencies missed nearly half of their statutory deadlines over the past two decades. These missed regulatory deadlines violate the law, and if Sunstein’s proposals were implemented, we’d see even more of them.

The culprit behind these excessive delays is Congress, which has layered dozens of new analytic mandates and procedural requirements onto the rule-making process without any dedicated funding and while slashing agency budgets. The cumulative effect of these new requirements has been paralysis by analysis.

Now Congress is trying to make things even worse. A package of regulatory “reforms” — including a few of Sunstein’s proposals — will soon be introduced in the U.S. Senate. As a recent editorial from The New York Times pointed out, these measures would harm our system of public protections by letting Big Business rig the rules in its favor at the expense of working families, consumers and small businesses.

It is not surprising that Sunstein has a blind spot when it comes to delays. Regulatory delays at the U.S. Office of Information and Regulatory Affairs (OIRA) were systemic and reached unprecedented levels while he served as the agency’s administrator, levels even worse than under past administrations that were openly hostile to regulation of any kind.

Cost-benefit analysis is not the panacea for the regulatory system that Sunstein claims it to be. Rather, overreliance on cost-benefit analysis is one of the major problems right now in our regulatory process and is linked to excessive regulatory delay. The examples are legion.

New passenger rail safety technology that would have prevented the Amtrak train derailment in Pennsylvania last year was derided by Sunstein when he was administrator of OIRA as not passing a cost-benefit test. The head of the railroad industry lobby cited Sunstein’s remarks in urging Congress to delay a requirement that the new technology be in place by the end of 2015, seven years after the railroad safety law was passed. Railroad safety officials, on the other hand, have called the railroad safety technology “one of the top ten most wanted transportation safety improvements of 2016.”

Another casualty of cost-benefit analysis was the so-called “backover rule,” which required car manufacturers to include rear-view cameras in their cars. They are a proven and effective way of preventing fatalities when drivers accidentally back over pedestrians, often young children. By law, the rule was supposed to be finalized in 2011, but wasn’t actually finalized until 2014. Sunstein’s OIRA would not clear the rule because it didn’t pass his beloved cost-benefit test.

While the costs to car manufacturers were well-known, the benefits of saving pedestrians from being backed over, particularly young children, and the anguish of parents and drivers who accidentally did so, were impossible to monetize. In Sunstein’s view, this inability to assign monetary values to the lives of innocent children meant it didn’t pass his cost-benefit test.

OIRA eventually cleared the rule, but only after Sunstein left and only after Public Citizen sued the U.S. Department of Transportation to finalize and issue the rule. Hundreds of lives were needlessly lost while the rule was delayed.

Finally, big banks on Wall Street have also turned to cost-benefit analysis to block and repeal Dodd-Frank Act financial reforms, particularly in the courts. Bank lobbyists have sued regulatory agencies over their cost-benefit analysis of reforms intended to prevent the next financial crash, saying that the rules cost big banks more than they benefit the public.

Unfortunately, this strategy has worked. Wall Street succeeded in overturning a Dodd-Frank regulation in court on cost-benefit grounds, deterring future rule-making at financial agencies — especially at the U.S. Securities and Exchange Commission, whose rule-making slowed considerably.

Now those same bank lobbyists are pushing rule-making reforms that would force financial watchdogs to do even more cost-benefit analysis before reining in Wall Street — and threatening to challenge new rules in court on cost-benefit grounds if the rules don’t turn out the way they like. Sunstein’s column surely made Wall Street’s lobbyists smile, because his proposals would prevent regulators from holding big banks and big corporations accountable.

Adding even more mandates to the rule-making process, like cost-benefit analysis and retrospective review — without paying for any of them — not only ignores the real problems in our regulatory system; it makes those problems worse. Congress should learn from Sunstein’s failures at OIRA and reject proposals that would worsen the delays in the regulatory process.

Narang is the regulatory policy advocate for Public Citizen’s Congress Watch division.