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Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

The Judge of Nudge

simpler_future_of_government_book_cover

It is rare for a book about regulation to get much press.  But this week saw the publication of one such book:   Simpler: The Future of Government, by Cass Sunstein, former regulatory “czar” to President Obama.  Sunstein served until the end of the first term, and was responsible for coordinating and reviewing regulations on behalf of the President.  A Harvard Law School professor and prolific author, Sunstein has been promoting this book for months.  As I awaited my copy, the only question in my mind would be the content:  Would the book be a memoir, a defense of the President and his regulations, or a plug for policymakers to use behavioral economics? The answer, it turns out, is a bit of each. 

As a memoir, the book is rather light.  We learn of Sunstein’s introduction to Barack Obama, his relatively rough Senate confirmation battle (thank you, Glenn Beck), some info about his colleagues in the White House (fellow OMB official Jeff Zients can throw a tight football spiral), and a couple of instances where his views clashed with others (e.g., the phaseout of Primatene Mist by FDA ).  He also provides his perspective on important topics well-known to readers of his other books (e.g., the precautionary principle, cost-benefit analysis).  No Bob Woodward-esque moments of revelation here.

As a defense of the President and his policies, Sunstein comes across as the ultimate team player.  Much of the book is spent complimenting the foresight of the President to adopt policies that help people (e.g., requiring for-profit colleges to disclose job placement rates).  Sunstein admits that our regulatory system needs improvement, but the book is bereft of any admission of regulatory mistakes.  For example, Sunstein takes pride in defending the President’s decision to reject EPA’s draft final rule establishing a more stringent (and expensive) ozone standard, but he fails to mention his acquiescence in having the rule get that far to begin with, and the political fallout that occurred as a result of the President’s last-minute rejection of the rule.

Although I cannot recommend the book as a memoir or as a complete and objective assessment of President Obama’s regulatory efforts (and I doubt Sunstein himself would characterize his book in this way), I can recommend the book for its penetrating insight into the practice of behavioral economics by the federal government.  In a 2008 book, Nudge, Sunstein and co-author Richard Thayer introduce the field of behavioral economics, the concept of choice architecture, and the myriad ways that people can be manipulated (nudged) toward making better choices for themselves.  Whereas Nudge could be described as a hypothesis in need of greater application, Simpler is its logical sequel:  nudges in practice.

And without question, the Obama Administration has taken the concept of nudging to the next level.  The book includes many examples, which is impressive enough, but Sunstein takes the time to delve deeply into the examples to show the research and theory that support the policies.  Not that these policies have proven to be a success (indeed, Sunstein argues for randomized trials to better determine if proposed policies might work, and for retrospective review to determine if established policies did work), but rather that their design was based on careful consideration of the latest research suggesting effectiveness. (Why didn’t Sunstein employ transparency—a nudge—by requiring regulatory agencies to make publicly available the underlying data for its cost-benefit analyses.  Such a move, it seems to me, would improve the objectivity of analysis used to justify rulemaking.)

To his credit, Sunstein goes to great lengths to present arguments against nudges.  He then responds to each in a mostly effective manner.  And yet, I found myself not-so-convinced on some of the Obama nudges.  For example, the mandate for the placement of graphic images on cigarette packages is defended by Sunstein, and yet it still raises important policy questions for me. If this kind of “nudge” is correct, then why doesn’t Sunstein argue for replacing current regulations that prevent a product from entering commerce with a mandate for more salient information disclosure?  On the other hand, if a product is so bad that the government has to go to extremes to convince people not to buy it, then why shouldn’t the government just ban the product altogether?

Sunstein recognizes the “slippery slope” argument against nudges, and he has much to say on this topic.  He presents a list of potential nudges, ranging from those considered relatively “soft” to those considered rather “hard”.  He lands firmly on the “soft” side.  He also talks about “means” paternalism versus “ends” paternalism, and prefers “means” paternalism.  Sunstein is right to define the boundaries of government nudges.

As I read the book, it occurred to me that private sector nudges represent a new arena for government regulation.  Sunstein acknowledges that marketers of products use nudges in ways that are misleading and unfair.  (Just try to unsubscribe from classmates.com; I dare you.)  He points out that the FTC has started investigating such “negative option marketing”.  But I do not think he carries this idea to its logical conclusion.  It seems to me that federal regulatory agencies will be regulating private sector nudges with greater frequency as “bad” nudges become more widely used  in the marketplace. 

Which raises in my mind a question:  How will conservatives react to Sunstein’s book?  On one hand, they may hate it because it suggests not only a new type of tool for governmental intervention (i.e., a good nudge), but also an excuse for governmental regulation of the free market (i.e., to prevent a bad nudge).  On the other hand, it seems only a matter of time before conservatives recommend the replacement of existing governmental mandates with less-intrusive governmental nudges.

Cass Sunstein is to be commended for writing a book that honestly and deeply examines the practice of nudging.  He had a birds-eye view, and his perspective is both informative and thought-provoking. 

Perhaps he will one day write (1) a memoir of his time in the Obama White House and (2) a book about the many regulatory mandates imposed during his watch.  Consider this suggestion a nudge, Cass.

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