The Attack on Sunstein.

Barack Obama's plan to nominate Cass Sunstein to the position of head of the Office of Information and Regulatory Affairs has been attacked by some on the left, as Jonathan Adler notes. Over the course of his career, Sunstein has taken many controversial positions that have offended people on both the right and left, but his support for the regulatory state has not wavered, nor has his concern for protection of the environment, the health and safety of workers, consumer protection, and other regulatory goals that we associate with New Deal liberalism. Sunstein has strong liberal instincts—his work is animated by his concern for the rights and well-being of poor and vulnerable people and oppressed groups—and he believes that government is there to help. But what makes his work so interesting and influential is that he has a hard-headed appreciation of the problems of government, and has explored, with extraordinary imagination, approaches to regulation that harness the power of government without unduly infringing on people's freedom or in other ways producing bad outcomes.

The approach that has received the most attention recently is Sunstein's argument (with Dick Thaler) in support of what they call "libertarian paternalism," government policies that help prevent errors that people predictably make because of cognitive biases (Sunstein is a prominent critic of the rational actor model used by economists) without interfering with the choices of sophisticated people who know their interests better than the government does. This book is a perfect example of how Sunstein thinks. He shares the liberal-friendly view that people do not always act in their rational self-interest and therefore benefit from government regulation, but he rejects the strongly paternalistic policies that have done more harm than good and are in any event politically unpopular and have led to backlash. His middle way is a sophisticated attempt to support a kind of regulation that might do some good and enjoy political support from both sides of the spectrum, and hence actually have a chance to persist across administrations and vicissitudes in public opinion.

What appears to have gotten Sunstein into trouble among the left is his support of cost-benefit analysis. Cost-benefit analysis, like libertarian paternalism, is a middle way between the deregulatory impulses of conservatives and the traditional regulatory agenda of those on the left. It is by no means a perfect instrument of regulation, and legitimate concerns about it have been raised—leading to a long-running academic debate about how it can be modified and improved. Unfortunately, cost-benefit analysis is a red flag for environmentalists, who associate it with the deregulatory philosophy of the Reagan administration, when it was first introduced in OIRA as a mechanism for screening most types of government regulation. And it is true that some in the Reagan administration saw cost-benefit analysis as nothing more than a bureaucratic hurdle, a measure for slowing down regulation. But from the beginning, cost-benefit analysis has had the support of moderates and liberals (prominently, Ricky Revesz, for example, who has recently published a great book urging progressives to drop their opposition to it) who see it as a tool of good governance, not as a means for strangling regulations at their birth. Reagan himself was goaded into regulatory action when a cost-benefit analysis showed that ozone depletion generated enormous costs, and could be addressed with a cost-effective treaty, which has been a considerable success.

Sunstein's own views of cost-benefit analysis are much more nuanced than the writings of some of his critics acknowledge. As his numerous writings on the topic make clear, he does not believe that the well-being of future generations should be ignored. On the contrary, Sunstein strongly supports a climate treaty because cost-benefit analysis shows that the costs of climate change will be considerable for future generations and are already substantial for poor people living in developing countries today--as every cost-benefit analysis shows, the benefits of greenhouse gas abatement vastly exceed the costs. (The Center for Progressive Reform mystifyingly claims that he is not particularly concerned about climate change, based on a misreading of a paper he wrote (with me).) And he is well aware that cost-benefit analysis can produce misleading evaluations when the rich and poor have different valuations for regulatory benefits. The main advantage of cost-benefit analysis is that it introduces transparency into an opaque regulatory process, forcing regulators to be clear about the nature of the tradeoffs one unavoidably must make. Some of these tradeoffs are ugly and do not have obvious answers—when scarce resources force one to choose between a regulation that reduces mortality risk for the elderly and a regulation that provides greater benefits for children, which should one choose? Not everyone will agree with Sunstein's conclusions on these issues, but he should receive credit for his intellectual honesty and academic integrity.

But isn't cost-benefit analysis hopelessly manipulable? That is another argument of CPR. In fact, like any decision procedure, it can be manipulated, but when it is manipulated, it is not hard to tell and cry foul. Indeed, the critics of cost-benefit analysis have produced paper after paper showing that OIRA or independent economists have produced defective cost-benefit analyses—which would of course not be possible if it could be so easily manipulated to produce the results one wants. What is true is that the government has not performed cost-benefit analyses very well over the last twenty-five years. This is a reason to improve its efforts, not to abandon them.

The critics of cost-benefit analysis have been trying for thirty or more years to come up with a better decision procedure, and have failed. They usually say that regulatory agencies should just do what Congress asks them to do; but the problem is that Congress gives extremely vague guidance that has to be interpreted one way or another, and in the absence of a clear decision procedure, it is too easy for agencies to rationalize whatever they think might make sense or be politically saleable at a particular time. Cost-benefit analysis, done properly, should strengthen the case for regulation by showing people that it actually serves their interest, rather than the agendas of interest groups. At a time when public support for environmental protection measures appears to be waning, the importance of this objective can hardly be exaggerated.

Sunstein is one of the most talented academics around. With his deep knowledge of government regulation, he would be the perfect head of OIRA. Among the many people I have met in academia and government, he is one of the least ideologically rigid, one of the most open to argument and evidence. His critics should at least admit that he will give a fair hearing to their concerns. He would be an extraordinary asset for the Obama administration.