Tags: Sunstein | banks | regulations | simpler

How to Make Big Government Simpler

By    |   Tuesday, 07 May 2013 02:17 PM

Last weekend, C-SPAN aired a presentation given on April 19 at the Free Library of Philadelphia on the new book "Simpler: The Future of Government," by the estimable Cass Sunstein, a former law professor at University of Chicago who is now at Harvard. The book is the story of his four-year stint as director of the Office of Information and Regulatory Affairs (OIRA) during the President Obama's first term.

I met Sunstein after an event at the American Enterprise Institute during the summer of 2008 and suggested to him that Obama represented nothing more than self-regard and narcissism. Sunstein responded that he knew Obama as a colleague at the University of Chicago Law School, and he could vouch for the fact that this isn't true. I then replied to him that I would stick to my assessment.

The basic message of the presentation was, "I'm from the federal government, and I'm here to help you." Sunstein sought to convey to the audience his sense of privilege in being able to serve as regulation czar and to fulfill his commitment to the president, as a member of the White House team, that he would work to make government simpler.

He explained that the agency oversees basically all federal regulation and that any expensive regulation must be approved by OIRA. He stated proudly that this administration has promulgated fewer rules than the Bush administration did and that the cost was not as high as the Bush, Clinton or Reagan administrations were. He proclaimed that the administration has avoided an explosion of regulatory cost, and it is important to do so at a time of economic challenge. (One wonders whether he has considered the impact of the so-called Affordable Care Act in making the claim of containing regulatory cost.) He insisted that Obamacare could be made easier to navigate through thoughtful implementation of its regulations.

Sunstein was remarkably candid in setting forth his views of how people think as well as how he thinks about regulation. The purpose of this article is to convey this information to readers, because it informs much of the philosophy of the administration's minions as it perfects its concept of a benign regulatory state.

The human mind, according to Sunstein, works in two ways. One is intuitive, illustrated by Homer Simpson's impulsive actions, such as his complaint about the waiting period before the purchase of firearms: "Why should I have to wait five days? I'm angry now!"

The other mental process is deliberative and calculative. He added that social science has found that human thought is more deliberative when conducted in a foreign language. He stated that the administration seeks to assess the costs and benefits of regulations in a deliberative manner and to look at the human consequences, rather than to satisfy the impulses of special interest groups.

Sunstein stressed the importance of maps in helping people understand the choices they would face, and he argued that putting default choices in place can lead to better outcomes than otherwise would be expected, and he cited a drastic improvement in the propensity of rank-and-file workers to save since Department of Labor rules made participation in savings plans the default choice. He remarked that 80 percent of people are unrealistically optimistic and that 90 percent of drivers think that they are safer than average.

Sunstein has become famous for "nudging" consumers toward approved choices while preserving the option to undergo a bit of inconvenience and exercise and ultimate freedom to choose. Thus, a cafeteria might be laid out with the healthiest choices easy to find and the less healthy and unhealthy choices available, but a bit inconvenient.

One of the triumphs of the administration's thinking is the achievement of simplicity in making nutrition choices by replacing the puzzling food pyramid with the far simpler plate-shaped chart. Several times during the presentation he reminded the audience of the importance of simplicity in communicating choices confronting consumers, by repeating the slogan, "Plate, not Pyramid."

Sunstein concluded his lecture with 10 examples of how the administration had simplified regulations and improved outcomes. These were accompanied by illustrations that viewers might find amusing:

1. Savings. The low savings rate is a growing problem that the administration has addressed through automatic enrollment and found that this device produces better results than tax incentives.

2. Food pyramid. It is important to present illustrations that viewers can understand.

3. Airport security. Tedious lines are being replaced by alternative security procedures that are risk-based and allow for pre-screening and check in at kiosks, rather than in lines.

4. Taxis. San Franciscans can use an "uber" system that is more efficient than waiting in traditional lines is and that keeps customers informed of progress by means of mobile devices.

5. Plain English. Regulations must be written in understandable English, free of jargon.

6. Information retrieval. Applications for student aid can be simplified by automatically retrieving financial data that is already on hand and inserting it in the application.

7. Eliminating outmoded regulations. It was determined that the same environmental rules were being applied to milk spills as to oil spills, even though the former are much less dangerous than the latter are. So milk has been exempted, at a huge saving. (Still important not to cry over spilt milk.)

8. Electronic filing. Many forms can be filed electronically, saving time and paper.

9. Disclosure of spending. Utilities and credit card companies, for example, keep a running tally of how much the consumer has spent during a given year. This information can be made available to consumers.

10. Clear standards. The level of social tension can be reduced by making clear what the procedures and expectations are, so that issues don't have to be constantly and repeatedly negotiated.

A cautionary note: Many readers will recall the proclamations by President Clinton that "The Era of Big Government Is Over" and by President George W. Bush of "Mission Accomplished." It is essential to look askance at promises to tame regulatory excess, even coming from someone as well-meaning as Sunstein.

Here are three examples of regulatory practices that are bound to go wrong:

1. Nonfeasance. Opponents of bank bailouts are still buzzing over the policy statement by Attorney General Eric Holder that the largest banks are so important to the economy that to prosecute them for financial crimes would be too risky. I would suggest that enterprises whose conduct has the potential of destroying the economy, and has already done so, should be subject to stricter regulation and liability standards, not given a license to prey by rent-seeking so-called "regulators."

2. Risk-based rules. The so-called financial regulators, or "irregulators," operate under a host of rules and "processeez" that are supposed to be effective because they are based on risk models. ("I've Got Algorithm; Who Could Ask for Anything More?") The 2008 episode of the ongoing financial crisis proved that neither the banking agencies nor the client zombie banks are actually able to use these tools other than as substitutes for capital and meaningful incentives to control predatory instincts.

3. Ill-considered default choices. Under Department of Labor rules, rank-and-file workers are being herded into mutual funds under the assumption that these vehicles will enable timely and prosperous retirement. The reality is that these funds may blow up just like supposedly safe mortgages did, and the benighted investors will be bailed out by the government.

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Last weekend, C-SPAN aired a presentation given on April 19 at the Free Library of Philadelphia on the new book "Simpler: The Future of Government," by the estimable Cass Sunstein, a former law professor at University of Chicago who is now at Harvard.
Tuesday, 07 May 2013 02:17 PM
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