Abstract
Asserting presidential preferences in a regulatory review bureaucracy US presidents face many challenges in executing their duties as CEOs of a mammoth sprawling bureaucracy known as the nation’s executive branch. Included among the many offices and bureaus in 2014 were 78 regulatory agencies with more than 276,000 employees who in recent years turned out annually some 80,000 Federal Register pages of rules and rule modifications. A successful president, e.g., one who can be reelected or help to pave the way for the party in the next election, must find ways to steer bureau activities in his preferred direction while delivering on regulatory promises made in the process of being elected. White House review of proposed regulations provides an opportunity for presidents to affect regulatory outcomes in ways that reward politically important interest groups. Our review of all empirical work on White House review as well as our own institutional and statistical findings yield strong support to the notion that the review process provides opportunities to make presidential preferences operational.
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Notes
Rauch (2015, pp. 2–3) explains transactional politics in common sense terms: “The politicos of our grandparents’ generation did a pretty good job of governing the country, despite living in a world of bosses and back rooms and unlimited donations, and many of them understood some home truths which today’s political reformers have too often overlooked or suppressed. In particular, they understood that transactional politics—the everyday give-and-take of dickering and compromise—is the essential work of governing and that government, and thus democracy, won’t work if leaders can’t make deals and make them stick.”
Here, we emphasize the word “targeted.” Command-and-control regulations, unlike the use of economic incentives or performance standards, allow a president to know ex ante which firms, groups, and individuals will gain when rules are imposed. There is strong evidence that groups with rents to gain, business groups, for example, as compared with government groups, will lobby more extensively and more successfully in affecting regulatory outcomes. On this see Yackee and Yackee (2006).
Under the heading Elevation, Cass Sunstein explains how White House review involving controversial regulatory proposals may move beyond a career desk officer’s responsibility and be pushed to a higher level, even to the president himself (Sunstein 2014, p. 28). Sunstein’s remarks were made in the context of his position as President Obama’s administrator of the White House Office of Information & Regulatory Affairs (OIRA), the office charged with conducting regulatory review. We note that the president and his administration have no direct control of independent agency actions; they can influence them only indirectly. In general, though, some heads of independent bureaus may cooperate voluntarily.
Along these lines, we note Scott Farrow’s (2006) empirical analysis of the probability that OIRA would reject a rule, which means returning a proposed regulation to the issuing agency for further work. Farrow examined 73 rules from across the years 1967–1991 and tested for the presence of bureaucratic, efficiency, and political influence effects. He found statistically significant support for our notion that a president’s preferences would contain both a concern for efficiency and political sensitivities.
Indeed, as to subtleties, Coffey et al. (2012) find a strong positive relationship between Washington Redskins’ winning record and Federal Register pages of regulations. They argue that lobbying activity—even lobbying within the executive branch, we would add—is lubricated and facilitated by the presence of a winning NFL football team, allowing the interested parties to take care of business in an enjoyable environment.
As we see the situation, President Nixon’s estimate of the benefits of asserting White House control over agency heads exceeded the political cost of doing so. George J. Stigler (1972, p. 100) reminds us that a subset of the larger political unit, in this case the White House, can succeed in achieving its goal so long as the cost incurred by those who stop the action is large and excessive, relative to that of those who would support the action.
The Council on Wage and Price Stability (COWPS) came into being during a Republican administration, though the Democrats controlled both houses of Congress. It was a time of crisis, of high inflation, sufficiently high to warrant the two parties uniting their efforts. COWPS was created by Congress to deal with price stability, not for the purpose of reforming regulation. But, having incorrectly assessed the cause of inflation as being based on wage and price increases, Congress created a tool with more and varied applications than they may have imagined. The executive branch "discovered" that COWPS could be used to regulate regulatory output. And when COWPS was subsumed by OIRA, which had come into being originally as a paperwork-reducing office, a small unit in COWPS survived to become the seedbed of today's OIRA. We point out that the centralized regulatory review process initiated by COWPS was the first among developed countries, but by 1997, half of the OECD countries had a review process in place, up from two (Finland and the United States) in 1980 (Jacobs 1997, p. 13).
We note that Bagley and Revez (2006) challenge the notion of overly zealous regulators and go on to argue that OIRA’s focus should be broadened far beyond doing benefit-cost and economic impact analysis and made to include assessments of the scientific basis of proposed rules. The 2001 Data Quality Act (Public Law 106-554; H.R. 5658) embraces some of the requirements Bagley and Revesz propose. Lawrence A. Kogan (2015) advanced a similar proposal. As Kogan argues, OMB should be charged with implementing the Information Quality ACT (IQA) that potentially can hold regulatory agencies judicially liable for relying on poor science that leads to the adoption of regulations imposing net-costs on society.
Quite possibly, Bubb and Warren have identified a mechanism for making operational Fred McChesney’s (1987) rent extraction regulation theory. McChesney’s “trolling theory” has the politician announcing costly regulatory possibilities for the purpose of attracting regulatory avoidance contributions from those who seek to escape the proposed rules. Budd and Warren’s centralized regulatory review with presidential adjustment capabilities seems comfortably to accommodate McChesney’s theory. We express appreciation to an anonymous referee of this journal for suggesting this possibility to us.
An earlier assessment of RIA quality by Hahn and Dudley (2006) used an expert scoring technique to review all RIAs submitted across the years, which included 55 documents from across the Reagan, Bush I, and Clinton administrations. They found inconsistent treatment of costs, benefits, and justification of rules selected. They also found no trend toward improvement. The Hahn/Dudley findings suggest that agencies engage in RIA analysis because they must, not as a critical part of a decision making process.
Whether our theory—stating that centralized regulatory review serves as a vehicle for imposing presidential preferences on regulation—can be extrapolated to other countries is uncertain and requires further empirical investigation. A recent working paper by Dudley and Wegrich (2015) discusses centralized regulatory review in the European Union (EU). Recognizing the sharp differences in constitutional powers between the United States and the European Union, this promising study indicates that the EU’s review procedures allow for returning proposed regulations to the issuing agency. Indeed, in 2012–2013, more than 40 % of proposed rules failed to pass centralized review muster (Dudley and Wegrich 2015, p. 20). Unfortunately, we lack sufficient information even to support speculations as to interactions between EU politics and regulatory decision-making that might explain such behavior.
We express appreciation to Susan Dudley and the George Washington University Center for Regulatory Studies for inspiring the figure.
McLaughlin’s (2011, pp. 411–412) review of data for February 1981–January 2009 found that the end-of-period surge in volume of significant regulations (the ratio of significant to all regulations reviewed is higher) appeared to swamp OIRA’s review process; the average review time fell for significant and for all other regulations.
On this see Mercatus Center, Regulatory Studies Program, for a listing of comments, testimony, and studies that focus on alternate ways to accomplish specific regulatory goals and regulation in general. http://mercatus.org/regulatory-studies-program. For an early on-point study of COWPS, see Miller and Yandle (1979).
This preference is seen during two periods. We see clear evidence of presidential effects during OIRA’s founding years, and then at a transition point when the George W. Bush administration appears to have used OIRA to counter the Clinton administration’s regulatory efforts.
Data on OIRA decisions of rules reviewed were retrieved from the Reginfo.gov website (http://www.reginfo.gov). This source offers a count of the total rules OIRA reviewed, by agency and year, starting in 1981. For every agency and every year, the source also provided the number of economically significant rules and the OIRA conclusion action, including how many of the rules were reviewed, returned, exempt from executive review, withdrawn, etc. The database is available from the authors upon request.
The agencies we studied were those that have both an OIRA review record and an ideology index. Our study of returned rules included 49 agencies for a total of 983 observations for the years of 1981–2015 and 39 agencies for a total of 567 observations for the years of 1994–2015. Our study of withdrawn rules, on the other hand, included 28 agencies for a total of 472 observations for the years of 1981–2015 and 26 agencies for a total of 314 observations for the years of 1994–2015. Restricting the years in some of the regressions to only 1994–2015 allows us to account for Clinton’s Executive Order 12866 which allowed OIRA to restrict its regulatory review duties to only economically significant rules; however, it also limits our sample size and eliminates observations from two Republican administrations. Therefore, for every regression we report for the period of 1981–2015, we also report its counterpart for the period of 1994–2015.
It is worth noting that we ran several iterations of regressions using OIRA’s average review time of economically significant rules as the dependent variable and in all iterations one observation stood out, which is that the average review time of economically significant rules seem to be increasing with time. For example, with only controlling for year, total number of rules, the party in office, and agency fixed effects, the coefficient on year was equal to 1.25, statistically significant at the 1 % level, indicating that the average review time of economically significant rules increases about 1.25 days per year. We do not report these results in the paper, but the data and regressions are available from the authors upon request.
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Acknowledgments
The authors express appreciation to Ben Miller for research assistance, to Susan Dudley, Jerry Ellig, Stuart Levenbach, Robert E. McCormick, Roger E. Meiners, Robert D. Tollison and to the editor and referees of this journal for helpful comments and criticisms. Errors that remain are our own.
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Shamoun, D.Y., Yandle, B. Asserting presidential preferences in a regulatory review bureaucracy. Public Choice 166, 87–111 (2016). https://doi.org/10.1007/s11127-016-0316-9
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DOI: https://doi.org/10.1007/s11127-016-0316-9