Ruined By Red Tape

Obama’s massive regulatory explosion could strangle the economy for decades to come.

Rules, rules, and more rules. President Obama’s fiscal year 2011 budget calls for a $59 billion regulatory explosion, “4.1 percent larger in real terms” than in 2010, with a federal phalanx of almost 284,000 regulators, according to Tom Donohue, president and CEO of the U.S. Chamber of Commerce. This regulatory chokehold will likely bind the economy with red tape for decades to come.

The latest assault on our enterprise system, the Dodd-Frank financial regulation act, was not-so-fondly described by the Competitive Enterprise Institute July 15 as “massively costly, counterproductive, and possibly unconstitutional” imposing mandates on nearly every type of business except those government-sponsored enterprises at the root of the current economic crisis (Fannie Mae and Freddie Mac).

Back in the innocent days of 2008, a group of distinguished scholars, meeting at the public policy think tank, the American Enterprise Institute, concluded: for the incoming Obama Administration, the “tremendous dilemma” will be regulatory policy. Of the many challenges awaiting Barack Obama, “repairing the national economy is the greatest,” said a summary of the conference. And at the center of the debate over the causes of and cures for the housing and financial market disorder is the “widespread belief that deregulation is the culprit.” The challenge is to avoid regulatory proposals that are “likely to do more harm than good.” Democrats will be pushing for greater regulation, but Obama's economic team -- Larry Summers and colleagues -- are not going to be very receptive to a massive program that’s going to re-regulate the economy. How misguided that assumption was. Lawrence Summers, Obama’s chief economic adviser, is no true conservative. He told reporters in February, for example, without cracking a smile, that increasing taxes is a great way to spur growth.

In his first month in office, President Obama “invoked his unilateral authority to revoke a significant number of Bush Administration policies...” indicating Obama would “impose a greater degree of centralized authority and management than has been typical [even] of Democratic Administrations,” according to Venable LLP, a law firm involved in public policies. How he will exercise greater centralized control will be “dominated by White House policy ‘czars’ in areas of particular importance to the President,” the firm said predicatively.

OMB Watch, a non-profit organization, said in February 2009: Obama will pay particular attention to any recommendations on cost-benefit analysis in light of Obama’s “presumed controversial choice” for Office of Information and Regulatory Affairs Administrator. “Obama is expected to nominate University of Chicago Law Professor Cass Sunstein to the post. The federal regulatory process is managed by the Office of Information and Regulatory Affairs (OIRA). OIRA is part of the President’s Office of Management and Budget. Its responsibilities include reviewing draft regulations and developing Administration policies involving regulations.

Now in office, Sunstein is charged with signing off on all major proposed regulations. He stoutly supports cost-benefit analysis to assess regulations

despite its improvision and the ease with which it is manipulated to achieved prefered policy outcomes…He supports the centalization of authority over regulatory decisions in the White House—OIRA in particular, according to the July 19 report of Undernews, the online report of the Progressive Review. Sunstein, the report added, is an ardent advocate of cost-benefit analysis and has written that agencies need guidance from do the analysis correctly.

When Sunstein was nominated to head the OIRA, the Rational Capitalist Website May 5 said that his views are completely antithetical to the principle of individual rights upon which this nation was founded.

Sunstein will likely have plenty to say regarding the regulations of the Obama health care overhaul, for example. The law has 41 provisions that require rule-making to implement the law. Sunstein has written that in the absence of an opt-out, every person who dies has consented to donate their organs for transplantation. Also in the health law are requirements for 38 studies and 59 evaluations which undoubtedly will require regulations that will be guided by commendations of the Secretary of Health and Human Services.

Sunstein has expressed some views that are so far out of the mainstream, they don’t seem to be even in the river of rational thought. He said at a Harvard speech, for instance, “We ought to ban hunting.” He also has written that “the law should impose further regulation on hunting, scientific experiments, entertainment, and (above all) farming to ensure against unnecessary animal suffering.” He has written that “we could even grant animals a right to bring suit...I have not been able to find any federal statute that allows animals to sue in their own names. It seems possible...Congress will grant standing to animals to protect their own rights and interests.” The Twilight Zone comes quickly to one’s mind.

The new law to overhaul financial regulations, which is to be overseen by a 10-member council of regulators headed by the Treasury Secretary would supposedly monitor threats to our financial system. It would decide if a company was so big that its failure would crack the financial system. Such companies would have tougher regulation. The law will affect consumer protection, the Federal Reserve System, capital cushions for banks, executives’ pay, mortgage loans, and credit rating agencies.

This vast new law has 533 rules or rule-making provisions, calls for 60 studies, and 93 reports. To indicate the complexity, “the Sarbanes-Oxley law (enacted in 2002, which set a broad range of standards in the aftermath of financial scandals), by comparison, had only 16 rules and six studies," Bruce Josten, executive vice president for government affairs of the Chamber of Commerce, told me. He said, “That took two and a half years to write the rules.” Josten also told me the Waxman-Markey cap-and-trade bill to cut emissions of greenhouse gases, passed by a hair in the House last June, contained 397 new regulations, 1,060 mandates for studies and reports eventually leading to rulemaking, if the Senate should pass a similar version of that bill.

Sunstein has expressed views on what the Internet might be like in the future to provide more diverse views.Websites might use links and hyperlinks to ensure that viewers learn about sites containing opposing views,” he has written. “A liberal magazine’s website might, for example, provide a link to a conservative magazine’s website, and the conservative magazine might do the same. The idea would be to decrease the likelihood that people will simply hear echoes of their own voices. Here, too, the ideal situation would be voluntary action. But if this proves impossible, it is worth considering both subsidies and regulatory alternatives….

“The basic question is whether it might be possible to create spaces that have some of the functions of public forums and general interest intermediaries in the age of the Internet. It seems clear that government’s power to regulate effectively is diminished as the number of options expands.”

In his 2009 book, “On Rumors,” Sunstein dutifully defends Obama’s radical ties. He writes that it is an “insidious lie that Obama pals around with terrorists,” such as Bill Ayers (who bombed the Pentagon in his earlier days). Sunstein was once described as such a prolific writer, he turns out a book as often as most people run their washing machines. Now he will be more than busy with the raft of federal regulations.