Entries Tagged as 'cost-benefit analysis'

New Obama Appointee Targets the SEC

September 17th, 2009 at 11:47 am 1 Comment

As President Obama gears up to increase regulation of the financial markets, online he may face opposition from an unlikely source: his own appointee to the Office of Information and Regulatory Affairs, Cass Sunstein. One of Sunstein’s big ideas is to force government agencies to extend the principle of cost-benefit analysis (CBA) in regulation to financial regulatory agencies like the SEC.

“Cass Sunstein is behind bringing the Securities and Exchange Commission under OIRA review,” stated Dr. Richard Williams, Director of the Regulatory Studies Program at the Mercatus Center, “they [the SEC] would then need to come in with cost-benefit analyses – evidence and proof that their regulations made sense, like the other executive agencies.”

The track record for cost-benefit analysis has shown that it can be devastatingly effective in cutting down inefficient and unnecessary regulations. “As CBA works out in practice, it is almost always skeptical of strong regulation,” remarked Sidney Shapiro, a Law Professor at Wake Forest University. “Cost-benefit analysis is a positive thing because without it there would be a systematic bias in favor of intervention,” added James Gattuso, a Senior Fellow in Regulatory Policy at the Heritage Foundation. In the assessment of Peter Van Doren, editor of Cato’s Regulation magazine: “If you look at the literature in economics, the things that have the highest costs in CBA are things like EPA and worker-safety regulations.”

Consequently, certain liberal groups are unhappy about the possibility that non-independent executive agencies will be made to undergo a thorough review before implementing restrictions on human activity. “The appointment [of Cass Sunstein] means that those of us expecting a revival of the protector agencies — EPA, FDA, OSHA, CPSC, and NHTSA — have reason to worry that “yes, we can” will become “no, we won’t,” remarked Rena Steinzor, the president of the Center of Progressive Reform, on the announcement of Sunstein’s nomination.

Indeed, those of the left have always tended to frown upon the use of cost-benefit analysis. Cost-benefit analysis “is an idiotic way to set standards,” asserted Frank O’Donnell, president of Clean Air Watch, “historically, the cost estimates have been too high.”

But the primary reason may be that liberals are concerned about the potential roadblock CBA poses to regulations they’d like to see passed in future. “In the past, CBA has been a tool that has been used or manipulated in a way that biases it against approving regulation,” noted Rick Melbert, Director of Federal Regulatory Policy at OMB Watch.

For economists, however, CBA is the first step toward any kind of rational decisionmaking. “People with economics training automatically think of CBA as an appropriate tool. Critiques of CBA often come from activists without formal training,” commented Peter Van Doren, “cost-benefit analysis is an exercise in everyday economic decisions. Say you go to the store to buy some orange juice. If the benefits of drinking orange juice are greater than the cost of buying it, then you’ll do it.” Similarly, executive agencies that propose regulations must weigh the costs and benefits of a regulation before OIRA approves it.

“It is an essential part of public policy,” opined James Gattuso, a Senior Fellow in Regulatory Policy at the Heritage Foundation, “You can’t make intelligent decisions as to whether a policy is good or bad until you have all the available information as to what the costs and the benefits are.”