A FRIEND OF THE PREDICTION MARKETS IN THE WHITE HOUSE – Part 3

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Previously: Part One – Part Two

Ezra Klein:

CASS SUNSTEIN PREPARES TO NUDGE.

There&#8217-s some confusion over a celebrity thinker like Cass Sunstein being appointed to head an office as obscure and bureaucratic as the Office of Information and Regulatory Affairs. But OIRA is important! It&#8217-s just also boring.

OIRA was birthed in the 1980 Paperwork Reduction Act as part of the effort to streamline the federal government&#8217-s regulatory processes. If Carter had won reelection, the department probably wouldn&#8217-t matter. But he didn&#8217-t. Tucked deep within the Office of Management and Budget, OIRA received relatively little notice until David Stockman, Reagan&#8217-s young turk of a budget director, realized that, properly applied, OIRA could be used to shut down the government&#8217-s regulatory functions by tying new regulations up in endless rounds of analysis and bureaucratic justification.

The key event here, and this gets a bit dull, was Executive Order 12291. Books have been written about this order. Academics still study it. It profoundly changed the nation&#8217-s regulatory machinery. 12291 required that cost-benefit analysis be conducted for “promulgating new regulations, reviewing existing regulations and developing legislative proposals concerning regulations” This meant the OMB was now in charge of reviewing all bureaucratic proposals, thus subjecting the entire federal bureaucracy to tight, centralized, executive control. Where individual regulations used to pass through the relevant agency, they were now subject to a central review by a presidential appointee. It was the agency the president used to fight his own government. OIRA began &#8220-reviewing&#8221- 2,000 to 3,000 regulations a year. This made the OMB so powerful that a non-profit watchdog, OMB Watch, sprang into existence to publicize its role.

Clinton partially repealed 12291 with Executive Order 12866. I&#8217-m not going to explain it because, frankly, you all will stop visiting this blog if I do, but suffice to say it pulled many of Reagan&#8217-s changes back. Regulatory review dropped to about 500 a year. Then came George W. Bush, who appointed the noxious John Graham to OIRA. Graham was famous for his cost-benefit risk analysis techniques, which had spurred him to declare regulations against PCBs, saccharine, and nuclear power evidence of society’s “flustered hypochondria.” In his first year at OIRA, he halted more regulations than the Clinton administration stopped in eight. His finest moment came nine days after 9/11, when he released an extraordinary memo advising government agencies that the administration was no longer evaluating regulations based on health, safety, and other public good metrics. From here on out, they’d also be judged on how they affected business. Nine days after 9/11. Oh, and Bush tried to again strengthen OIRA&#8217-s ability to block regulation, this time with Executive order 13422, which would&#8217-ve required impossibly detailed reports on every regulation. Congress found it objectionable enough that they passed stopping OMB from spending any money implementing 13422, thus defanging it.

The point of all this is that OIRA is quiet, but important. It&#8217-s the chokepoint of the entire federal regulatory apparatus. If used wisely, it facilitates the flow, provides welcome analysis and judgment, and aids in implementation. If used as an anti-government weapon, it can do a lot of damage. Sunstein can do real good there. But why would he want it? He&#8217-s shown a taste for celebrity, and OIRA very much does not provide that.

It&#8217-s worth remembering that Sunstein has recently achieved great fame for Nudge, a book which basically argues that we need to apply the insights of behavioral economics to the construction of regulation. And Director of the Office of Information and Regulatory Affairs is the ultimate staging ground for those ideas. Reagan understood that OIRA was the central clearinghouse where you could affect the whole of the regulatory state all at once. He wanted to virtually shut it down. Sunstein wants to &#8220-nudge&#8221- it.

A FRIEND OF THE PREDICTION MARKETS IN THE WHITE HOUSE

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Under the Barack Obama administration, Cass Sunstein will head the Office of Information and Regulatory Affairs, within the Office of Management and Budget, which is part of the Executive Office of the President of the United States.

Here&#8217-s Cass Sunstein&#8217-s track record on prediction markets:

Infotopia: How Many Minds Produce Knowledge (Oxford University Press 2006)&#8230- which featured prediction markets and collective intelligence. – (podcast)

– Deliberating groups versus prediction markets – (paper)

– A blog post defending the prediction markets after the New Hampshire upset.

Cass Sunstein so-signed the 2008 petition on prediction markets.

UPDATE:

– Chicago Tribune

– WashPost

– Wall Street Journal

Although obscure, the post wields outsize power. It oversees regulations throughout the government, from the Environmental Protection Agency to the Occupational Safety and Health Administration. Obama aides have said the job will be crucial as the new administration overhauls financial-services regulations, attempts to pass universal health care and tries to forge a new approach to controlling emissions of greenhouse gases.

UPDATE: PodCast on behaviorial economics

UPDATE: Cass Sunstein and Bo Cowgill – PDF file

NEXT: Part Three

A FRIEND OF THE PREDICTION MARKETS IN THE WHITE HOUSE – Part 2

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Previously: Part One

Wall Street Journal:

Although obscure, the post wields outsize power. It oversees regulations throughout the government, from the Environmental Protection Agency to the Occupational Safety and Health Administration. Obama aides have said the job will be crucial as the new administration overhauls financial-services regulations, attempts to pass universal health care and tries to forge a new approach to controlling emissions of greenhouse gases.

NEXT: Part Three