From: Maclean’s

Obama’s ‘invisible hand’ talks ‘regulatory moneyball’  and the potential of policy based on data-driven, cost-benefit analysis

by Luiza Ch. Savage

He is called “the most evil, dangerous man in America” and Barack Obama’s “invisible hand.” Conservatives and progressives alike distrusted his project to use government power to shape human behaviour in ways that people may not even notice. He endured a tumultuous Senate confirmation, battled conspiracy theories and even fended off death threats in his job as the director of OIRA—the Office of Information and Regulatory Affairs—an obscure-sounding but powerful office that has the final say on government rules about everything from air pollution to product safety.

Cass Sunstein, a well-known Harvard law professor and long-time friend of Obama’s, is also married to Samantha Power, recently confirmed as ambassador to the United Nations. Since leaving government, he’s written a book, Simpler: The Future of Government, that is part memoir and part manifesto for injecting innovative economic theories into the DNA of government. He is, as may be clear by now, a smart and well-connected man. And he believes greater alignment between Canada and the U.S. is not just inevitable, but necessary.


He arrived in his job just as Canada and the U.S. were ramping up a bilateral effort at regulatory co-operation. In an interview with Maclean’s, Sunstein spoke about his experiences working with Canada. “On many issues, Canadians, Americans don’t disagree on values or facts,” he observed over a brunch of bagels and cream cheese in a Georgetown café. “When there are different regulatory standards that end up hurting consumers or companies, it’s because of a failure to coordinate.”

Sunstein’s overarching goal has been to focus regulation on data-driven cost-benefit analysis. He wanted to mimic baseball managers who revamped struggling teams by replacing human judgment with cold, hard statistics about individual players, a revolution immortalized in the book Moneyball, and the movie starring Brad Pitt. “We need to proceed on the path toward regulatory moneyball,” writes Sunstein in Simpler. “Too much of the time, regulations have been based on intuitions and hunches.” When aides would worry about upsetting interest groups, environmentalists, or powerful senators, Sunstein recalls telling them to get their minds “out of the gutter.”

He called for more use of the cutting-edge field of behavioural economics—a field that draws on the insights of psychology to reject the notion in classical economics that assumes people make rational economic choices based on self-interest. Empirical experiments have shown that many economic decisions are affected by independent factors. People are more likely to make a risky investment decision on a bright and sunny day rather than a gloomy one, for instance. They are more likely to give to charity if the box they have to check is green instead of red. They are significantly more likely to enroll in a retirement savings plan if they face a choice to “opt out” rather than to “opt in.” Sunstein argued that government can influence decisions, not only through explicit mandates, but also through small, clever manipulations known as “nudges.” (He explored these topics, along with economist Richard Thaler, in their 2008 bestseller Nudge.)

A favourite example of a nudge was the makeover of the U.S. Department of Agriculture’s decades-old “food pyramid” that is meant to encourage balanced eating. The iconic image was “impossibly confusing,” declared Sunstein. The new graphic—called MyPlate—shows a plate divided into segments. Half are fruits and vegetables, one-quarter is grains, and one-quarter protein. Clear, simple guidance is one kind of nudge, which Sunstein hopes will improve health outcomes and save lives. “Plate, not pyramid,” is a refrain throughout his book.

Using cost-benefit analysis helps to “counteract both hysteria and neglect,” says Sunstein. He favoured extensive public comment and required government data, scientific analyses and proposed rules be posted on government websites. But as a regulator, he was only interested in comments that could contribute facts to cost-benefit analysis. “Rules are not improved by sloganeering, fact-free letter-writing campaigns, or special pleading from interest groups,” he writes.

The more than 2,000 rules brought in under his tenure include a ban on airline tarmac delays lasting more than three hours, and higher penalties for overbooking flights. Power plants faced stricter limits on air pollution. But not all rules were tightened. For example, Obama came under criticism from environmental groups for rejecting as too costly a rule proposed by his own Environmental Protection Agency to reduce ozone emissions from power plants. By Sunstein’s count, the Obama administration issued fewer regulations in its first four years than did the administrations of Reagan, Clinton and both presidents Bush.

His data-driven, nudge-based approach was codified in a 2011 executive order signed by Obama—which was controversial because it also required non-monetary values, such as “human dignity,” be included in government cost-benefit analysis. Some Republican lawmakers ridiculed the move as politically correct “gobbledygook” that would undermine the very notion of cost-benefit analysis. It had a variety of effects—from influencing the analysis of what widths of handicapped toilets would best preserve the dignity of amputee war veterans, to an Obama decision in 2009 to eliminate a long-standing ban on the entry of HIV-positive people into the U.S.

Sunstein’s ideas have reverberated outside Washington. The Conservative government of David Cameron in Britain created a “behavioural insights team” that focused on empirical analyses and nudges. Meanwhile, while Sunstein oversaw the Washington side of the Regulatory Co-operation Council—launched by Stephen Harper and Obama to synchronize regulations between the two countries—he recalls, “The business community had said early on that their No. 1 priority was international regulatory co-operation.” Regulatory differences between the two countries imposed double compliance costs on the private sector—and inspection costs on governments, as well as extra time at the border. “Prime Minister Harper was very much interested in removing unnecessary red tape between United States and Canada. President Obama was, too,” he says.

Some observers feared that synchronization among nations would mean a watering-down of health and safety rules to the lowest common denominator. But when the Obama administration brought in tough new vehicle-emissions standards in 2009, Canada harmonized up to the stricter rules. And, likewise, Sunstein recounts a U.S. attempt to impose graphic warnings on cigarette packages after studying Canada’s experience with such warnings. To Sunstein, the graphic images of disease and death were a kind of nudge. The warnings “maintain freedom of choice: they do not prevent anyone from buying a pack of cigarettes.” But they turned out to be a nudge too far. A federal judge struck them down, saying the U.S. government could not require warnings that are meant not to inform but to frighten and disgust. Despite that defeat, Sunstein maintains that harmonizing doesn’t mean diluting.

“You could have coordination that produces the lowest common denominator, or you could have coordination that produces very aggressive regulation. Since President Obama is enthusiastic about cost-benefit analysis—and I encountered no skepticism on the part of my Canadian counterparts—what would come would not be necessarily the lowest common denominator or the most stringent approach, but an approach that would come out of a careful analysis of which was best,” he said.

His goal with Canada was to entrench long-term co-operation. “We tried to do two things: create structures going forward in which we talk to each other as we issue new rules. And that’s very doable. And we tried to take existing rules so that they square with one another a bit better. I think the prize is the coordination in advance.”

In 2011, Obama and Harper announced a joint-action plan of 29 items, and have been making progress in checking them off. For example, they are working on equivalency in meat-testing systems, attempting simultaneous reviews of veterinary drugs, and common classification of hazardous workplace chemicals, to name just a few. They are also looking for ways to align analyses, tests and inspections of goods coming from third countries. In emerging areas such as nanotechnology, the two countries are seeking to develop harmonized regulations from day one.

The U.S. is also working on co-operation with the European Union, and that’s just a start. “All over the world, regulatory systems need their own Billy Beans,” writes Sunstein of the baseball manager who embraced statistics in Moneyball, “carefully assessing and testing rules … and occasionally deposing some highly touted rules, beloved by regulators, onto the s–t list.”