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Not ‘Deregulation,’ But Smart Regulation

11:05 AM, Oct 5, 2012 • By ADAM J. WHITE
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A few years ago, the Environmental Protection Agency lost a string of high-profile lawsuits brought by environmentalists challenging the Bush administration's regulations. And in certain circles, it was fashionable to cite those as proof of the Bush EPA's incompetence if not its utter corruption.


In a much heralded law review article, for example, Harvard's Jody Freeman and Adrian Vermeule wrote that the Bush administration's record illustrated the problem of "politicization of expertise," and that serious judicial review of regulatory decisions would help to ensure that "expertise," not politics, would prevail.

With those memories still reasonably fresh, it has been quite interesting to watch the Obama Administration suffer loss after loss in the federal courts, as it attempts to defend burdensome regulations promulgated by the Securities and Exchange Commission, the Commodity Futures Trading Commission, and other agencies

The administration suffered perhaps its most significant loss last summer, when the D.C. Circuit struck down the SEC's "proxy access rule," published in the aftermath of Dodd-Frank to give shareholders a stronger hand in placing directors on corporate boards. In that case, Business Roundtable v. SEC, the court ruled that the agency failed to adequately consider the regulations' effects on "efficiency, competition, and capital formation," as required by statute.

That decision, and other court cases, allegedly have caused the CFTC and SEC to slow down the regulatory process so that regulators can undertake much more serious analyses of the costs and benefits of upcoming Dodd-Frank regulations.  

If the administration's courtroom losses truly had that effect, then it is cause for celebration.  The agencies' treatment of costs and benefits have been notoriously lousy. 

Last year, for example, the CFTC's inspector general reported that the CFTC had treated cost-benefit analysis as little more than a pro forma exercise, rather than a serious protection of the public interest; its cost-benefit analysis process had been driven largely by lawyers, not economists. CFTC Commissioner Jill Sommers concurred with that assessment, telling Risk Magazine that her agency's analysis of the costs and benefits of Dodd-Frank regulations had been "fairly non-existent."

In short, the Obama administration's record on Dodd-Frank and other regulatory matters strikingly resembled the very ills previously decried by Harvard's Freeman (who eventually joined the White House in 2009), Vermeule, and others: namely, the supremacy of politics, not expertise, in the regulatory process.

But, unsurprisingly, the Bush administration's critics have not exactly celebrated the courts' "expertise-forcing" decisions against the Obama administration.  Where the New York Times's editorial page once applauded the D.C. Circuit for striking down Bush administration rules, the Times's Floyd Norris recently denounced the court's judges as "judicial activists who seem quite willing to negate, on technical grounds, any regulations they do not like."

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