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Is ‘Smart Regulation’ Not? Is ‘Smart Regulation’ Not?

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Is ‘Smart Regulation’ Not?

President Obama says he’s revolutionizing government. Mitt Romney says that’s just an excuse for more government.

In regulation, as in most areas, the Obama administration wants you to believe it is bringing a revolution to government. Take hidden credit-card and airline fees, or the scores of medication plans available in Medicare Part D. Under current federal rules, consumers remain perplexed by the choices, while companies are free to reveal some fees and not others. It’s a mass of confused detail that requires constant oversight by regulators. But what if the government required every company to reveal all hidden fees in simple form, making them available to consumers with new search-engine technology? What if shoppers weren’t forced to examine 50 pages of fine print—which they never do anyway—or if regulators didn’t have to nose about trying to uncover which fees were divulged and which were not? Instead, what if the businesses had to send their customers, once a year, an electronic file adding up all the costs, as a neat total? Then regulators could just step back and let a more-informed market work.

This approach, which the administration refers to as “smart disclosure,” was unveiled at a White House-sponsored conference in March. And, according to Richard Thaler, a University of Chicago behavioral economist, it’s an idea that “has the potential to completely change the way we think about regulation.”


Every revolution must have its Karl Marx, of course. In this case, it is law professor Cass Sunstein, who coauthored a 2008 book with Thaler called Nudge: Improving Decisions About Health, Wealth, and Happiness that seeks to reconceive good government under a somewhat oxymoronic concept called “libertarian paternalism.” To boil the idea down: Free markets are best, but government must often prod people to make the right choices within those markets, especially in very arcane areas such as health care and finance. During three and a half years as President Obama’s regulatory guru, heading up the Office of Information and Regulatory Affairs, Sunstein brought his revolution to Washington. “Smart regulations save lives and dollars,” Sunstein wrote on a White House blog before he returned to the Harvard Law School faculty in August. “In areas that include food and workplace safety, clean air, fuel economy, energy efficiency, and investor protection, well-designed regulations are preventing tens of thousands of premature deaths and hundreds of thousands of illnesses and accidents—and saving billions of dollars.” In all, the administration says that its new rules will yield over $91 billion in net benefits—more than 25 times what the George W. Bush administration achieved in its first three years in office.

Another dimension of smart disclosure is to use databases to help people, especially those applying for government help, cut down on paperwork. “The key fact is that for old people, the [Medicare] drugs you take this year are the ones you took last year. So the government can fill this out for you. Why shouldn’t they?” Thaler asks. “The same is true for student-loan applications. You need tax records. You’re borrowing from the government. The government knows your taxes: It’s your parents’ taxes. So it can just pre-write it on the form. All of this is consistent with the ‘nudge’ mantra. To make things easy. None of this would matter if everybody was capable of analyzing drug plans. But if they’re human, they’re not.”


All of this may be impressive in theory, according to Mitt Romney’s presidential campaign, but in practice it has only amounted to more out-of-control government. Indeed, to hear the Republican candidate tell it, he has no more stark difference with Obama than over regulatory philosophy. “A Romney administration will act swiftly to tear down the vast edifice of regulations the Obama administration has imposed on the economy,” declares his economic plan called “Believe in America.”


According to another Cass—Oren Cass, Romney’s domestic-policy adviser—the Obama administration’s “supposedly sophisticated view” is really just an intellectual fig leaf for an impulse to regulate more. “If you look at the president’s approach to Obamacare, to Dodd-Frank, that is not the actual legislative approach they’re taking,” Cass says. “Obamacare and Dodd-Frank I don’t think could be characterized as ‘smart.’ ”

He may have a point. Both the health care law and the financial-reform act—unquestionably Obama’s signature achievements domestically—contain thousands of pages of new regulations that are almost impenetrably complex, although perhaps that’s partly because the administration left the details to Congress and not to Cass Sunstein. (Committees, after all, are not good at making revolutions; one need only recall the Committee of Public Safety during France’s Reign of Terror.)

Oren Cass says that another illustration of what the administration is actually doing is what ensued when Congress voted down Obama’s much-vaunted cap-and-trade bill intended to drastically cut fossil-fuel pollution. Obama’s response was to look for ways around Congress and its laws, saying that cap-and-trade was “just one way of skinning the cat.” The administration, Cass says, took “an approach to greenhouse gases that’s in direct conflict with what the Clean Air Act is intended to do. Carbon dioxide was never intended to be regulated as a pollutant,” as the Environmental Protection Agency has done. Because of EPA’s declaration, coal-fired and other power plants will have to shut down, energy costs will rise, and the cost in jobs will be huge, Romney maintains.

This article appears in the August 25, 2012 edition of National Journal Magazine.

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