Senator Elizabeth Warren (D-MA) argued that “our rulemaking process is broken from start to finish.” Senator Warren blamed “regulatory capture – the [corporate] capture of agencies as they write the rules” – for “undue industry influence.”
In a speech before the Regulatory Capture Forum of the Administrative Conference of the Unites States, Senator Warren recommended five principles to “balance the scales” between Main Street and Wall Street interests:
Senator Warren concluded saying: “reforms must address the central problem – a tilted playing field that benefits the rich and powerful.”
Lofchie Comment: Senator Warren’s populist rhetoric obscures how problematic her policy and process recommendations are as a practical matter. Her recommendations represent oversimplified answers to complex market issues and this latest speech demonstrates an increasing tendency toward stifling valuable dissent and demonizing opponents. Here is a breakdown:
The Public Interest and Its Advocates. What precisely is this thing called the “Public Interest,” and who are the proper “Advocates” for it? The implication of Senator Warren’s remarks is that there is some singular viewpoint that may be defined as the “Public Interest” and that the Senator is confident of her ability to discern it. A contrary view is that there are differing positions as to what constitutes the “Public Interest,” and that at least some of those who advocate for it, may be mistaken in their beliefs that they know what is beneficial for all. This is not an idle debate. Is it so easy to determine what is in the “Public Interest” with respect to, say, the central clearing of swaps or international trade?
In the controversy around the proposed imposition of a broad set of position limits on energy products, it is reasonable to conclude (based on an understanding of energy markets, economics and regulation) that the imposition of such limits seems like a wasteful government project that will impose significant costs on the economy but not produce any material benefit (because if someone were to “withhold” oil from the market, someone else could simply produce more). The Senator believes the opposite. She supports the adoption of a new and complicated set of position limits regulations. What is new in the debate is that the Senator insists now that to be against position limits regulation is to be against the “Public Interest” which the Senator is not only able to discern, but whose advocates she can identify.
As to the debate over free trade, Senator Warren denounced President Obama over his support of the Trans-Pacific Partnership trade treaty. (As the footnotes in her letter demonstrate, it appears that the Senator’s position was taken in response to the President’s criticism of her.) It is not odd that there should be a disagreement (political or otherwise) between the President and a Senator; disagreements between knowledgeable people are to be expected. What should not be expected is a view that one of them has a monopoly on the identification of the “Public Interest.”
The Complexity of Rules. It is easy to agree with Senator Warren’s simplistic statement that rules are too complicated. Here is a test anyone can take: (i) go to a search engine, and (ii) run a search on the phrase, “fiduciary rule” along with “complicated.” So what is one to make of the fact that Senator Warren is a great advocate for that “fiduciary rule” proposed by the Department of Labor. This is to say nothing of her advocacy of Dodd-Frank, which is something of a nightmarish maze of complexity at 2,000 pages of ordinary text, generating hundreds of thousands of pages of rules.
Delays in Rulemaking. The Senator complains that the regulatory agencies are failing to meet Congressional deadlines for the adoption of required rules. Rather than allowing advocates of the “Public Interest” to sue regulators for failing to meet Congressional deadlines, Senator Warren might consider filing suit against Congress for setting fantasy deadlines. As she noted in her remarks, Dodd-Frank required the adoption of hundreds of interrelated rules, many of them within a one-year deadline. As many stated at the time, there was simply no way that this schedule could ever have been met – and it was not. The CFTC, which rushed to adopt rules, still is nowhere nearly done, and it has been forced to issue numerous “no-action” letters to correct mistakes in its rulemaking. Senator Warren might be on more solid ground if she would advocate that Congress be prevented from requiring any more rules on a given topic until its pre-existing rule requirements have been met. At least that might encourage Congress to prioritize.
Two-Step Rulemaking Process. The Senator seems to object to the reality that regulated industries comment on rules that apply to them, and also that different companies will make different comments. When Congress adopts a 2,000-page statute that requires 100,000 pages of rules, the rules are not “simple” to create, and it really does matter what the rules require. The notion that somehow the 2,000 pages of statute may be turned by the regulators into rules that accurately reflect what Congress would have intended, without any forum for discussion, is wishful thinking.
Departing Executives. As to the Senator’s suggestion that companies should not allow departing executives to collect compensation that they would have been paid had they not gone into government, the obvious effect of this is that it discourages qualified people from entering government. Given that such individuals are often taking very significant pay cuts, and uprooting their families, it is a little puzzling why the Senator would want to make it still more costly and less encouraging for qualified people to enter government service rather than find other ways to address potential conflicts concerns. Law firms, for example, often allow their partners to quit early and to enter government without forfeiting their pensions. Government should be trying to encourage knowledgeable experts to offer their services on behalf of the “Public Interest.” Notwithstanding legitimate arguments to the contrary, the Senator’s broad prescription is simplistic and problematic.
Transparency. Many of the Senator’s recommendations on transparency simply would have the effect, and are actually intended to have the effect, of discouraging those who work in heavily regulated industries from talking to the government. What, after all, does it mean to say that businesses should turn over all their data to the government before they comment? How seriously should they take the assertion that company data, once online, would be anonymous?
The Importance of Discussion. The Senator’s recent personal attacks on the ethics of those in academia and government who dissent from her views are in line with the partisan idea of framing her every position exclusively as in the “Public Interest.” Rather than championing her cause with arguments on the merits, the Senator is increasingly attempting to stifle legitimate points of view on complex issues with exclusionary rhetoric and public criticism of the ethics of the opposition. The Senator’s recommendation that the government’s voice should be further amplified by paid “advocates” of the “Public Interest” reflects a world view in which the influence of private voices in opposition is small, but that of the government’s is like the Leviathan incarnate. The Senator’s concerns about the disproportionate voice owned by “big” business should be balanced by like concerns for the disproportionate voice owned by “big” government.