Sunday, March 01, 2009

What Should a New Executive Order 12866 Look Like?

In a talk for Penn State’s ACS chapter Thursday, I framed the challenge for those opposing Cass Sunstein’s nomination to lead OIRA as, essentially: if not cost-benefit analysis (CBA), then what? Readers will know I’ve aimed some skepticism at Sunstein’s detractors already. It takes a theory (of rationality) to beat one, as they say. But, like the detractors, I also wonder: now that the Bush order on regulatory review has been rescinded, what should replace it?

In my view, this question brings along with it the following suite of assumptions — which are each highly constraining: (1) The vast majority of authority to regulate which will exist in the next 4-8 years already exists in the form of statutory grants of authority to the alphabet soup Justice Jackson once called a "sprawling chaos." Scores of these statutes are either sacred and untouchable or interwoven with others that are, making many legislative changes impractical. (2) The scarcity of federal appropriations ensnares even the most powerful agencies in appropriations caps and budget law. (3) The ways in which we could take action to reduce risk, mitigate harm, suffering or death, or improve the quality of life for those who deserve it are too numerous to count. If Sunstein's detractors can break out of this frame, some or all of what follows can be rejected.

But when the question is framed in this way – and we assume that Presidential imperialism has its own awful consequences, as well – some version of modern CBA is practically unavoidable for consequentialists. Here’s why: defenders of CBA who view it as applied rationality and detractors convinced of its inhumanity almost always lock horns on the following median dividing their two streams of consciousness (to mix a few metaphors). Virtually every human decision maker actually does weigh and consider the pros and cons of their actions — as Mike pointed out in a comment on my original post. An extremely potent variable in this process, however, is time. When they consider actions, pros, and cons which spread out over long intervals, consequentialist agents usually try to “discount” the values at issue back to their present magnitudes. An uncertain future, after all, is normally uncertain as to both pros and cons. Governments constantly confront choices of this kind. Deficit spending of $3 or $4 trillion is obviously not the first-best option, either for us or for the future taxpayers who will have to service such a debt. When compared to the possible scenarios today, though, another trillion dollars on top of our already mountainous national debt is (perhaps) the most rational step we can agree to take under our present circumstances.

What about the regulation of greenhouse gases? The Departments of State, Transportation, Energy, Agriculture, HUD, Interior, Commerce, and the EPA (etc.) each have scores of discretionary authorities to take steps against GHG emissions. But they’re still highly subordinated in our legal system — even acting in concert. And they’re confronting a problem whose most salient risks to the US are projected to peak no sooner than 1-2 centuries from now. Even apart from the potential for "leakage" of economic activity beyond the jurisdictional reach of the US, stringent regulations of major sources like the electricity sector would likely generate significant "costs" (i.e., loss of lives) in the present and/or near future. Less electricity really does mean, for now at least, lower standards of living, higher individuated risks to poor people, etc. So is the possibility of 100 lives lost over the next century better than, equal to, or worse than, say, 37 lives lost in the next 5 years?

If you view a rulemaking as an investment with a price tag, opportunity costs, legal contours, and informational gaps, my sense is you cannot but view this kind of comparison as endemic to risk regulation.

Because I view agencies as real agents that exist over time, have limited options, limited time to act, and imperfect information, I (like Sunstein) see their ending CBA and/or not discounting the future to some extent as both impractical and quite likely immoral. A Sunstein OIRA will, thus, probably look to resume where Clinton’s Executive Order 12866 left off. (Incidentally, 12866 also governed the Bush OIRA until recently (2007).)

What the new Administration should do to improve things is: (1) Invest in the optimal standardization of CBA (distributed, uncoordinated regulatory review entails needless duplication of effort and avoidable errors). This will probably require “longitudinal” analysis of the analyses. Since most of these are predictions at base, they are always mistaken to a lesser or greater extent. But the more we benchmark these techniques over time, the more we learn how to sort the good from the bad. (2) Boost the profile of CBA as a routine and transparent step in the regulatory process. Some of the worst episodes in CBA’s sorry past have come down to poor communication of the framework assumptions laid out above and even poorer information sharing between OMB and the public/action agency. (3) Diffuse the tensions between action agencies and OIRA which have built up over the last few years. To cooperate, these actors must trust each other more than they do now and sharing personnel—on temporary details, for example—would be a good start. (4) Use existing (imperfect) information/CBA to unify the action agencies’ agendas and prompt them into action, rather than as a brake that tends toward inaction.

In truth, many of the disputes surrounding CBA—like the selection of a discount rate—are actually an outgrowth of our uncertainty. They diffuse rapidly when we get at least a rough sense of the variables at issue and their relative magnitudes. Hopefully, an Obama OIRA will recognize that better production and sharing of information is the key to much of this.

Post by Jamie Colburn