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What's Not to Like about a Regulatory Nudge?

Tags Interventionism

06/01/2011William L. Anderson

Now that we are more than a decade into the third millennium, I wish the political classes would stop their incessant references to "21st-century" plans and "21st-century" regulations. They talk as if living in the year 2011 gives government some special new access to the truth. Washington is full of this nonsense, and perhaps no one is more full of it than Cass Sunstein, coauthor of Nudge, the manifesto of "libertarian paternalism."

For those who have not heard of the former University of Chicago law professor who now serves as President Obama's head of the Office of Information and Regulatory Affairs, let us just say that Sunstein represents a class of people who believe that the state is the Purveyor of All Wisdom, and that the only thing standing in the way of the state providing paradise is the recalcitrance of ordinary people who lack the good sense to completely follow state directives.

But even Sunstein has outdone himself this time. In a recent op-ed in the Wall Street Journal, Sunstein claims that the Obama administration is all but reinventing regulation. This is not as exciting as Al Gore's claims more than a decade ago that he had "reinvented government," but in this day of diminished expectations, it will have to be good enough. No, Sunstein has not "reinvented government," but nonetheless he is now overseeing an age of "smart" regulation.

Sunstein first declares,

A 21st-century regulatory system must promote economic growth, innovation and job creation while also protecting public health and welfare. Earlier this year, President Obama outlined his plan to create such a system by adopting a simpler, smarter and more cost-effective approach to regulation. As a key part of that plan, he called for an unprecedented government-wide review of regulations already on the books so that we can improve or remove those that are out-of-date, unnecessary, excessively burdensome or in conflict with other rules.

He goes on to describe how the government is changing its regulatory policy toward milk (no longer classified as "oil") and how the government will give a grudging nod to the fact that changes in technology might actually make some regulatory requirements technologically obsolete. In the end, he lays out the kind of self-congratulations that we are used to reading from government agents:

This insistence on pragmatic, evidence-based, cost-effective rules is what has informed our regulatory approach over the past two and a half years. We have helped to bring highway deaths down to their lowest level in 60 years; promoted airline safety while protecting passengers from tarmac delays, overbooking and hidden charges; sharply reduced the risk of salmonella from eggs; dramatically increased the fuel economy of cars and trucks, promoting energy independence while saving consumers money; and curbed air pollution that kills thousands of people each year. At the same time, we are eliminating unnecessary regulatory burdens and tens of millions of hours in annual red tape.

I suppose that Sunstein wants us to take his words at face value, but hidden within this paragraph of self-congratulations is the very harsh reality of opportunity cost: when one compares Sunstein's rhetoric with the hard facts of economics, his words are exposed as nonsense. For example, traffic fatalities fell drastically around the recession of 1982, not because of any "smart" regulatory initiatives by President Ronald Reagan, but because of the fact that people didn't drive as much during the economic downturn.

Likewise, this downturn is worse because there are no hopes for an economic recovery in the near future, given this administration's hostility to nonsubsidized firms and the "regime uncertainty" that accompanies its (at best) misguided policies. But Sunstein is not satisfied with claiming victory on the nation's highways. No, one would think that he and his minions have truly created paradise.

Anyone who has dealt with the stress of flying knows that the biggest stressor is not taking off and landing, but rather getting through the TSA line without angering one of the government's gropers. Real-live experts have already said that the show of force against law-abiding travelers does nothing for safety, but I doubt that someone like Sunstein is interested in safety as much as the production of "safety theater" for the president's political fortunes.

Furthermore, the notion that regulation reduces costs is like saying that regulators can make water flow uphill. Regulators can order airlines to change their pricing schedules or even lower the prices they can charge, but they cannot reduce costs. Instead, they transfer costs elsewhere; and in the end, passengers still will bear them in one way or another. That is the reality of economics and opportunity cost, and Sunstein cannot change immutable laws of economics by fiat.

Has government "dramatically" increased fuel efficiency in automobiles? While it is true that the government is ordering auto manufacturers to have higher fuel-efficiency averages on their fleets by a future date, that does not necessarily mean that consumers of automobiles will be better off. After all, government could order us to ride bicycles or motor scooters, thereby conserving gasoline even further, but the result would be disastrous.

Sustein's claim to be promoting "energy independence" is an outright howler. If he means the government's corn-based ethanol subsidies and the fact that consumers are forced to put the stuff into their cars (which damages the engine and reduces fuel efficiency), then Sunstein is either lying with a straight face or engaging in the worst kind of dark comedy. (This recent speech by economist Robert Higgs on the fiscal disaster that is ethanol puts Sunstein's falsehoods to rest.)

If Sunstein means the numerous wind farms (or what I call "subsidy farms") that produce electricity at much higher real costs than do conventional power plants (which I seriously doubt are "killing thousands of people" every year), then he demonstrates again that his economic views are those that promote "broken window fallacies" everywhere. One does not forget the Obama administration's heavy-handed approach to oil drilling in the Gulf of Mexico after the BP spill last year when the subject of "energy independence" comes up (as though government-created "energy independence" would even be desirable).

But given that none of the oil-producing Gulf States carried Obama in the 2008 election, I suspect that the president's regulatory order, which put thousands of oil workers on unemployment lines, had more to do with punishing voters there than "saving the environment."

I could go on, but let me just say that Sunstein is repeating the myth from the Progressive era that claimed government would provide something akin to philosopher-kings to wisely and steadily regulate the economy, ridding society of those nasty externalities and providing a path for riskless and socially pure growth. Such utterings always have been nonsense, as the record of Progressivism has shown for more than a century.

I am happy that even a bureaucrat like Sunstein realizes some regulations are so counterproductive that they should be discarded. But I have hardly been converted to Sunstein's faith that those living in 2011 are "smarter" in their regulatory approaches than were the disastrous bureaucrats of the 20th century.


Contact William L. Anderson

William L. Anderson is Senior Editor at the Mises Institute and professor emeritus of economics at Frostburg State University in Frostburg, Maryland.