Sunday, February 08, 2009

The Reasonable and the Rational

The CPR report on Cass Sunstein’s nomination to head OIRA made a little splash last week, largely for two incredible claims: (1) that Sunstein is some kind of climate change denier, and (2) that there has never been a risk in occupational safety or environmental regulation which has turned out to be less serious than first thought. These two unfortunate slips of hyperbole aside, CPR’s report—and the scholarly work of several of CPR’s members—raises important questions that the Obama Administration is facing.

First. Climate change is intimately connected with everything (shameless plug for Penn State’s own lecture series and symposium here). As MIT’s John Sterman has argued forcefully, the public is not appreciating the threat climate change represents with anything like the urgency it should. Of course, taking CC seriously doesn’t mean you should turn off your lights and heat and sell your car. It means we must urgently and collectively seek system-wide replacements for fossil fuel—in everything from behavioral change and technological improvement to diplomatic breakthroughs—before our options narrow any further. Obama’s plans for greater analytical integration of traditionally stove-piped programs in the Depts. of Energy, Commerce, Interior, Transp., EPA, etc., are a step in the right direction. But they will need the help of skilled bureaucratic turf managers. People like Sunstein, Jody Freeman, and the other counselors being assembled almost certainly lack those skills because they are gained from a lifetime spent in government. If the Administration doesn’t enlist or elevate big talent to address the managerial challenges confronting them, they will almost certainly fail.

Second. What constitutes a “reasonable” interpretation of a statute that does not close the list of permissible choice factors for an agency making discretionary policy calls? Lay aside the problems of statutory interpretation for a moment. Assume that many critically important statutory provisions (like several in the Clean Air Act) leave the list of permissible choice factors open for those to whom they delegate. Is the conduct of “cost benefit analysis” wrong wherever it isn’t explicitly required? The major arguments against it are that (1) CBA is no more determinate than its alternatives and that it purchases whatever precision it does achieve at the expense of distributive justice; (2) CBA requires that we put a price on the priceless (like statistical lives); and (3) CBA is unduly opaque and excludes the public from the processes of government.

Each of these is an important objection to CBA as it has been practiced. The Republican exponents of CBA from Graham back to Stockman and most in between have made it the fifth column of their anti-regulatory reign. But Sunstein and Obama aren’t those people. The real question is whether, as a family of techniques, CBA can be used to improve the making of necessary decisions. And the weight of the evidence collected in studies like Revesz & Livermore’s, Farber’s, and others is that it can do so if used properly. Perhaps a little more rigidity in the rules structuring OIRA’s work would be a good thing (rigidity in the form of notice and comment, CFR codification, etc.). I’m ambivalent about that myself. The biggest caveat to CBA or any other decision procedure is that it is only as good as the information used to carry it out. Information collection and management—and, thus, reducing the costs of collecting and sharing information—are the keys. And bureaucracies are notorious for mismanaging information, absorbing uncertainty, and miscommunicating normative reasoning.

Still, our agencies are under gargantuan responsibilities to protect the health and safety of the public and slow the pace of environmental depletion and toxification. The rational regulator can’t know where to start on a limited budget without CBA of some sort. This Administration will no doubt replace Bush’s Executive Order 13422 and restructure OIRA’s review process in detail. Unfortunately, the CPR report offers little counsel on what should replace it.

The supposed alternative in vogue among some is a so-called “feasibility” approach: is the conduct norm being set “feasible” for the market actors it governs? But this merely shifts the factors of choice regulators must use from a relatively standard assessment of market adaptability to a relatively unique assessment of the ingenuity, flexibility, and sincerity of regulated actors when we ask them: can you achieve this? That kind of ‘feasibility’ analysis, in fact, just amplifies the importance of the weakest elements of CBA, increasing the information burdens on regulators and strengthening the hands of the regulated.

In my view, though, our trouble is compounded most by the frequency with which agencies add and subtract the choice factors in their programs after a presidential transition. Not that I’m for unilateral disarmament on the left here: there are a lot of dubious decisions to be reversed by this Administration. But this is becoming a crisis of agency credibility. The Administration must take care not to erode public (or judicial) confidence in regulators any further. Reforming rather than rejecting the practice of CBA and making it a better approximation of its high ideals is the right thing to do. Besides, CBA is not necessarily the enemy of swift, transformative action on climate change. A major analysis by McKinsey & Co. here shows that.

Posted by Jamie Colburn