Rule Making: Theory And Practice

Here is an interesting juxtaposition between theory and practice.

Mike Mandel has written a lot about regulation and its stifling impact on economic growth. Mind you, he’s not against regulation per se, just the mindless imposition of regulations without regard to their impact beyond the narrow issue that they address.

Today he posted on a proposal to require mobile communications providers to notify customers as they approach usage limits that would result in overage charges. It’s meant to prevent what’s called “bill shock”. Mandel properly points out that there is a very small number of mobile users that actually experience “bill shock” and that the proposed regulations would require pretty significant IT expenditures in order to comply. He concludes:

From that perspective, in order to meet President Obama’s goal to eliminate regulations that hurt job creation, conventional cost-benefit analysis is not enough. Agencies such as the FCC need to  look skeptically at the bill shock rule and other borderline regulations that could impose genuine negative externalities on job growth and innovation without helping many people.

Now turn to my favorite anonymous bureaucrat, Fosetti, and his description of the approach to regulation formulation by agencies:

First, legislators don’t make these decisions, they direct agencies to make these decisions. Agencies basically can’t be held responsible.

Second, I’ve been part of dozens of regulation-drafting processes. The only time that a cost-benefit analysis comes into play is after the regulation has been written. We’re generally required to demonstrate benefits exceed costs, but this is always done ex post. Political decisions guide the regulation-writing process. Perhaps I’ve exaggerated slightly – when drafting regulations we will argue over costs and benefits, but no systematic analysis is done. It would be a waste of time anyway, as the costs and benefits would be entirely dependent on lots of assumptions. If someone tells you that regulation writing is an exercise in balancing costs and benefits, you can be sure that the person is either: 1) an academic with no experience with drafting regulations (academics love to argue that processes which are totally unscientific have some scientific basis) or 2) lying to you.

Is the gap between theory and practice obvious enough? Mandel and others see the destructive effects of over-regulation, President Obama at least gives lip service to the need to equate costs with benefits and the bureaucratic establishment will do whatever it damn well pleases. Anyone want to bet who wins this one?


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