Is 'smart regulation' not?
June 15, 2012
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 companies 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 University of Chicago scholar 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 super-arcane areas such as health care and finance. Today, Sunstein is Obama’s regulatory guru, the head of his Office of Information and Regulatory Affairs, and he has taken his revolution to Washington. “Smart regulations save lives and dollars,” Sunstein wrote in a White House blog recently. “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 set of rules will yield more than $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.”
Read more about Obama's approach to regulation on National Journal.
June 15, 2012