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."
Appropriately (and not surprisingly), the court's latest defender is the very lawyer responsible for many of the successful legal challenges against the SEC's and CFTC's rules. Eugene Scalia (yes, son of that other Scalia), offers a stirring rebuke to the court's critics in today's Wall Street Journal. Noting that the judges responsible for these decisions were appointed by Republican and Democratic presidents alike, Scalia explains that the agencies' high-profile losses are not the fault of the judges, but rather of the regulators themselves that failed to satisfy the requirements imposed by President Clinton and Congress.
His op-ed mentions the complaints of regulators, and pro-regulatory activists, who argue that procedural requires imposed by the decades-old Administrative Procedure Act and other statutes are too much for agencies to bear:
The SEC's defenders bridle at the requirement for cost-benefit analysis—it's so hard! The lament is curious. Financial regulators should be particularly attentive to the financial consequences of their actions.
... I once debated a former SEC staffer who accused business of using procedural maneuvers to defeat salutary regulations. Yet proper procedure is one of Congress's principal means of ensuring regulatory quality. The law authorizing courts to review agency rules is the Administrative Procedure Act. In court, the ends don't justify the means.
Those weak complaints call to mind some of the objections raised by law professors in response to the proposed Regulatory Accountability Act and other reforms that would require all agencies, including "independent" agencies, to undertake cost-benefit analysis and other procedures to ensure the quality of new regulations. In a letter to the House Judiciary Committee, the professors complained that the Act would "greatly extend … the time periods necessary to complete lawful consideration of a proposed rule," and that the Act's "formalities" would invite "obstructionist tactics" that the agencies could not overcome.
This regulator-centric viewpoint reveals much of what is wrong with the Obama administration, and with the academics and activists that champion the modern tidal wave of regulations without serious consideration of their costs and benefits. If regulators think it is hard to comply with procedural statutes, then they ought to trade places for a day with the people who have to understand and comply with their regulations on a daily basis.
Governor Romney touched on this theme at last night's debate:
Regulation is essential. You can’t have a free market work if you don’t have regulation. As a businessperson, I had to have -- I need to know the regulations. I needed them there. You couldn’t have people opening up banks in their -- in their garage and making loans. I mean, you have to have regulations so that you can have an economy work. Every free economy has good regulation. At the same time, regulation can become excessive.
... And what’s happened with some of the legislation that’s been passed during the president’s term, you’ve seen regulation become excessive, and it’s hurt -- it’s hurt the economy.
"We’re not going to get rid of all regulation," Romney said. "You have to have regulation."
But what we need, perhaps now more than ever, is smart regulation. So let's thank the judges (and Mr. Scalia, and his colleagues) who are forcing regulators to get smarter, whether the regulators like it or not.
Adam J. White is a lawyer in Washington, D.C.