Congress Delays Requiring Cost-Benefit Analysis of Internet Regulation

November 20, 2012

By Berin Szoka and Ben Sperry
Technology Liberation Front

You’d think it would be harder for government to justify regulating the Internet than the offline world, right? Wrong—sadly. And Congress just missed a chance to fix that problem.

For decades, regulators have been required to issue a cost-benefit analysis when issuing new regulations.  Some agencies are specifically required to do so by statute, but for most agencies, the requirement comes from executive orders issued by each new President—varying somewhat but each continuing the general principle that regulators bear the burden of showing that each regulation’s benefits outweigh its costs.

But the FCC, FTC and many other regulatory agencies aren’t required to do cost-benefit analysis at all.  Because these are “independent agencies”—creatures of Congress rather than part of the Executive Branch (like the Department of Justice)—only Congress can impose cost-benefit analysis on agencies.  A bipartisan bill, the Independent Agency Regulatory Analysis Act (S. 3486), would have allowed the President to impose the same kind of cost-benefit analysis on independent regulatory agencies as on Executive Branch agencies, including review by the Office of Information and Regulatory Affairs (OIRA) for “significant” rulemakings (those with $100 million or more in economic impact, that adversely affect sectors of the economy in a material way, or that create “serious inconsistency” with other agencies’ actions).

Republican Senators Rob Portman and Susan Collins joined with Democrat Mark Warner in this important cause—yet the bill has apparently died during this lame duck Congress. While some public interest groups have attempted to couch their objection on separation-of-powers grounds, their ultimate objection seems to be with subjecting the regulatory state’s rulemaking process to systematic economic analysis—because, after all, rigor makes regulation harder.  But what’s so wrong with a cost-benefit analysis?

If there’s any agency that needs some analytical rigor in its work, it’s the FCC—whose underlying legal standard could scarcely be more vague: the “public interest.”  As Randy May said in testimony supporting a similar bill in 2011:

The FCC has had a pronounced tendency over the years, and certainly this tendency was evident with respect to the adoption late last year of new net neutrality regulations, to adopt rules without engaging in the type of meaningful analysis required by [a cost-benefit standard]. Certainly, the requirement that the Commission analyze any claimed market failure and consumer harm before adopting new rules should force the FCC to engage in a more rigorous economic analysis than it often does when it simply relies on the indeterminate public interest standard as authority.

The bill would apply to any “rule” as defined by the Administrative Procedures Act.  So it would require cost-benefit analysis for most of what the FCC does.  But little of what the FTC does is actually “rulemaking” (e.g., consumer protection or antitrust enforcement actions, merger review)  The FTC does do APA rulemaking under statutes like the Children’s Online Privacy Protection Act, the Do Not Call Act, and the Fair Credit Reporting Act.  So, for example, the FTC would face an additional hurdle in the current COPPA rulemaking—where we have raised our own concerns about costs.  And if Congress ever does pass data security, data breach notification, or additional privacy legislation, any rulemakings under these statutes would be subject to this cost-benefit requirement. (Many pending privacy/security bills require the FTC to implement the statute with an initial rulemaking, just as the FTC did with COPPA and its other targeted statutes.)

Some privacy groups might experience a kneejerk reaction against anything that makes it harder for the FTC to protect consumers. As that great sage Homer Simpson put it: “If something’s hard to do, then it’s not worth doing.” Right? Wrong.  The FTC already, in principle is supposed to weigh costs with benefits whenever it applies its unfairness jurisdiction—according to the Unfairness Policy Statement the FTC itself developed in 1980, and which Congress codified in 1994.

Cost-benefit analysis is a tool, not an outcome.  Broad application of such analysis by regulatory agencies should lead to better policy because it encourages thinking about trade-offs rather than the mythical belief in magic bullet solutions. That’s why someone as thoughtful about regulation as Cass Sunstein, head of Obama’s Office of Information and Regulatory Affairs, demands applying such careful thinking to all agencies—including independent agencies like the FTC and FCC.  Cost benefit analysis is a formal process for implementing the kind of regulatory humility at the heart of our Declaration of Internet Freedom:

Humility. First, do no harm. No one can anticipate what the future holds and what tradeoffs will accompany it. Don’t meddle in what you don’t understand — and what you can all too easily break, without even seeing what’s been lost. Often, government’s best response is to do nothing. Competition, disruptive technological change, and criticism from civil society tend to resolve problems better, and faster, than government can.

Rule of Law. When you must intervene, start small. Regulation and legislation are broad, inflexible, and prone to capture by incumbent firms and entrenched interests. The best kind of “law” evolves one case at a time, based on simple, economic principles of consumer welfare.

Let’s hope Congress doesn’t drop the cost-benefit analysis issue.  The more regulations we slather onto the Internet, the more important it will become to think them through carefully. If Congress can’t implement the kind of cost-benefit requirement that can attract bipartisan support, pressure will continue to build on the Right for even more draconian limits on regulatory agencies.  The REINS Act, which passed the House by a 57-vote margin a year ago, would flip the presumption of the Congressional Review Act passed in 1994 as part of the Contract With America such that “significant” rulemakings would actually require Congressional approval (whereas the CRA currently allows a legislative veto).

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