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Cass Sunstein: What Kind of Regulation Czar?


Obama's pick to head the Office of Information & Regulatory Policy is a believer in cost-benefit analysis, and that has critics worried

Tucked within the Office of Management & Budget in Washington is the most powerful agency most people outside the Beltway have never heard of. It's the Office of Information & Regulatory Affairs (OIRA), home to a regulatory czar who sits in judgment of most proposed government rules, especially those for environment, health, and safety. "OIRA is crucial—it's the only gatekeeper in the city," says William L. Kovacs, a vice-president at the U.S. Chamber of Commerce.

The gate was very friendly to business during the Bush years. It clanged shut on most proposed rules—about air quality, for example—that companies said would be too costly. Kovacs and others in the business community feared President Barack Obama would fling open that gate, letting the regulatory agencies run amok. So there was huge relief when Obama picked friend and former University of Chicago Law School colleague, Cass R. Sunstein—currently a professor at Harvard Law School. "He is the best we could have hoped for from this Administration," says Iain Murray, senior fellow at the right-leaning Competitive Enterprise Institute.

Yet the choice of Sunstein has drawn protests from environmentalists, health advocates, and many others, bringing some long-simmering academic debates into the open. While these battles aren't likely to threaten his confirmation at an upcoming hearing, they may foreshadow a somewhat looser regulatory environment than Obama's constituencies anticipated.

Even his detractors recognize Sunstein, 54, as an amazingly prolific legal scholar with a keen intellect. But they worry about his insistence on tying regulations to cost-benefit analysis, the bedrock principle of his Bush-era predecessor, John Graham. They're also concerned about his prediction last year that Obama will be a deregulator. "He is off on the wrong track," says Rena Steinzor, a progressive University of Maryland law professor.

Sunstein argues that "ordinary people" are confused about risks posed by toxic chemicals and other such hazards. They clamor for stronger regulation than is warranted "because of intense emotional reactions to particular incidents," Sunstein wrote in a widely cited 2001 academic paper. So government must combat these misperceptions with rigorous analysis of costs and benefits.

Critics bristle at what they consider to be a condescending tone, and say Sunstein doesn't always get the science right. They also note that when the public wants rules not supported by cost-benefit data, it may reflect a clash in values, not a lapse in understanding.

Until he is formally nominated and confirmed, Sunstein is unable to speak with reporters or respond to critics. But supporters dispute the notion that he slavishly adheres to a formula or looks down on others. "He is about the least condescending person I know," says his friend Richard H. Thaler, an economist at University of Chicago. And Sunstein himself is acutely aware of the problems with cost-benefit analysis. Writing about the impact of tougher regulations in his 2001 arsenic paper, he noted that "the annual monetized benefits...would be as high as $1.2 billion or as low $10 million!"

Why such a wide range? Because it's usually impossible to pin down how many deaths or cases of illness may be prevented by regulations on a toxic substance, how much money that prevention is worth, or if it's fair to say—as economists do—that a life saved 20 years down the road is worth a lot less than a life saved today.

Costs are also hard to predict. Retrospective studies show that the price tags for regulations usually are less than estimated, largely because the new rules stimulate innovations that often result in better and cheaper processes. "Regulation is about achieving transformation, which is not predictable, and therefore you can't use a formula," says Nicholas A. Ashford, a professor of policy at the Massachusetts Institute of Technology.

A BETTER BALANCE

No one recommends ignoring costs and benefits. But rather than putting dollar values on benefits, why not just compare the costs with the benefits measured in their "natural units," such as estimated numbers of lives saved, suggests Tufts University economist Frank Ackerman. Or society can set goals—preventing any cases of mad cow disease, or keeping the planet from dangerous warming—then figure out the most efficient ways to get there.

Sunstein rejects those approaches. "We cannot rely entirely on cost-benefit analysis," he writes, "but we will do a lot better, morally as well as practically, with it than without it."

Supporters say Sunstein won't continue the stance of the Bush Administration, which found excuses to block regulations even when the cost-benefit analysis showed a favorable balance. He'll also do a better job of taking into account the tremendous toll on the economy and industry when regulators fail to prevent problems like salmonella-laced peanuts.

The likely upshot is that the regulatory gatekeeper will be different under Obama. The review of rules by OIRA will be more transparent, and all sides should have a chance to be heard. After eight years of being largely blocked, Environmental Protection Agency officials say they'll have room to operate. Business is cautiously relieved that Sunstein gets its point of view, too. "If there is someone who understands the issue, as Sunstein does, and we have a chance to explain it, we are happy," says the Chamber's Kovacs.

Carey is a senior correspondent for BusinessWeek in Washington.

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