Tag Archives: Executive Order

The Use of Science in Public Policy

For the budding social scientists out there who hope that their research will someday positively affect public policy, my colleague Jerry Ellig recently pointed out a 2012 publication from the National Research Council called “Using Science as Evidence in Public Policy.” (It takes a few clicks to download, but you can get it for free).

From the intro, the council’s goal was:

[T]o review the knowledge utilization and other relevant literature to assess what is known about how social science knowledge is used in policy making . . . [and] to develop a framework for further research that can improve the use of social science knowledge in policy making.

The authors conclude that, while “knowledge from all the sciences is relevant to policy choices,” it is difficult to explain exactly how that knowledge is used in the public policy sphere.  They go on to develop a framework for research on how science is used.  The entire report is interesting, especially if you care about using science as evidence in public policy, and doubly so if you are a Ph.D. student or recently minted Ph.D. I particularly liked the stark recognition of the fact that political actors will consider their own agendas (i.e., re-election) and values (i.e., the values most likely to help in a re-election bid) regardless of scientific evidence.  That’s not a hopeless statement, though – there’s still room for science to influence policy, but, as public choice scholars have pointed out for decades, the government is run by people who will, on average, rationally act in their own self-interest.  Here are another couple of lines to that point:

Holding to a sharp, a priori distinction between science and politics is nonsense if the goal is to develop an understanding of the use of science in public policy. Policy making, far from being a sphere in which science can be neatly separated from politics, is a sphere in which they necessarily come together… Our position is that the use of [scientific] evidence or adoption of that [evidence-based] policy cannot be studied without also considering politics and values.

One thing in particular stands out to anyone who has worked on the economic analysis of regulations.  The introduction to this report includes this summary of science’s role in policy:

Science has five tasks related to policy:

(1) identify problems, such as endangered species, obesity, unemployment, and vulnerability to natural disasters or terrorist acts;

(2) measure their magnitude and seriousness;

(3) review alternative policy interventions;

(4) systematically assess the likely consequences of particular policy actions—intended and unintended, desired and unwanted; and

(5) evaluate what, in fact, results from policy.

This sounds almost exactly like the process of performing an economic analysis of a regulation, at least when it’s done well (if you want to know well agencies actually perform regulatory analysis, read this, and for how well they actually use the analysis in decision-making,  read this).  Executive Order 12866, issued by President Bill Clinton in 1993, instructs federal executive agencies on the role of analysis in creating regulations, including each of the following instructions.  Below I’ve slightly rearranged some excerpts and slightly paraphrased other parts from Executive Order 12866, and I have added in the bold numbers to map these instructions back to summary of science’s role quoted above. (For the admin law wonks, I’ve noted the exact section and paragraph of the Executive Order that each element is contained in.):

(1) Each agency shall identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action). [Section 1(b)(1)]

(2) Each agency shall assess the significance of that problem. [Section 1(b)(1)]

(3) Each agency shall identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public. Each agency shall identify and assess alternative forms of regulation. [Section 1(b)(3) and Section 1(b)(8)]

(4) When an agency determines that a regulation is the best available method of achieving the regulatory objective, it shall design its regulations in the most cost-effective manner to achieve the regulatory objective. In doing so, each agency shall consider incentives for innovation, consistency, predictability, the costs of enforcement and compliance (to the government, regulated entities, and the public), flexibility, distributive impacts, and equity. [Section 1(b)(5)]

(5) Each agency shall periodically review its existing significant regulations to determine whether any such regulations should be modified or eliminated so as to make the agency’s regulatory program more effective in achieving the regulatory objectives, less burdensome, or in greater alignment with the President’s priorities and the principles set forth in this Executive order. [Section 5(a)]

OMB’s Circular A-4—the instruction guide for government economists tasked with analyzing regulatory impacts—similarly directs economists to include three basic elements in their regulatory analyses (again, the bold numbers are mine to help map these elements back to the summary of science’s role):

(1 & 2) a statement of the need for the proposed action,

(3) an examination of alternative approaches, and

(4) an evaluation of the benefits and costs—quantitative and qualitative—of the proposed action and the main alternatives identified by the analysis.

The statement of the need for proposed action is equivalent to the first (identifying problems) and second tasks (measuring their magnitude and seriousness) from NRC report.  The examination of alternative approaches and evaluation of the benefits and costs of the possible alternatives are equivalent to tasks 3 (review alternative policy interventions) and 4 (assess the likely consequences). 

It’s also noteworthy that the NRC points out the importance of measuring the magnitude and seriousness of problems.  A lot of public time and money gets spent trying to fix problems that are not widespread or systemic.  There may be better ways to use those resources.  Evaluating the seriousness of problems allows a prioritization of limited resources.

Finally, I want to point out how this parallels a project here at Mercatus.  Not coincidentally, the statement of science’s role in policy reads like the grading criteria of the Mercatus Regulatory Report Card, which are:

1. Systemic Problem: How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
2. Alternatives: How well does the analysis assess the effectiveness of alternative approaches?
3. Benefits (or other Outcomes): How well does the analysis identify the benefits or other desired outcomes and demonstrate that the regulation will achieve them?
4. Costs: How well does the analysis assess costs?
5. Use of Analysis: Does the proposed rule or the RIA present evidence that the agency used the Regulatory Impact Analysis in any decisions?
6. Cognizance of Net Benefits: Did the agency maximize net benefits or explain why it chose another alternative?

The big difference is that the Report Card contains elements that emphasize measuring whether the analysis is actually used – bringing us back to the original goal of the research council – to determine “how social science knowledge is used in policy making.”

To solve a problem, first understand its cause

A key principle of smart regulation is that regulators should first understand the nature, extent, and cause of the problem they are trying to solve before they write a regulation. (It’s even the first principle of regulation listed in Executive Order 12866, which governs regulatory analysis and review in the executive branch).

On the federal level, this principle is often honored more in the breach than in the observance. For a good example of what can happen on the state and local level when this principle is ignored, one need look no further than a recent study on the costs of excessive alcohol consumption funded by the Centers for Disease Control.

1655-barrel for drunk

Credit: Christy K. Robinson

The study estimates that binge drinking is responsible for about 76 percent of the social costs of excessive drinking, and underage drinking is responsible for another 11 percent. (“Binge drinking” was defined as 5 or more drinks on the same occasion for a man, and 4 or more on the same occasion for a woman. All underage drinking was classified as excessive since it’s illegal.)

Taking these findings at face value, the logical conclusion is that the most sensible policies to reduce the costs of excessive alcohol consumption would target binge drinkers and underage drinkers. Unfortunately, the authors recommend a grab-bag of policies that would penalize anyone who consumes alcohol — not just binge drinkers and underage drinkers.

They refer the reader to the Centers for Disease Control’s “Guide to Community Preventive Services,” which endorses policies like increased alcohol taxes, limitations on days alcohol can be sold, limiting sale hours, limiting the density of retail outlets, and government ownership of retail outlets. The only policies recommended that specifically target binge drinkers or underage drinkers are electronic screening and intervention, and enhanced enforcement of laws prohibiting sales to minors.

Two other initiatives mentioned in the Community Guide that sound like they might help — enhanced enforcement of “overservice” laws and responsible beverage service training — are not recommended because an insufficient number of studies have been done to test their effectiveness. If the CDC took the principles of sound regulatory analysis seriously, it would focus more resources on researching such targeted interventions and less on advocating broad-brush alcohol control policies that penalize citizens who have done no wrong.

Most readers can probably recall a bad experience with “group punishment” in grade school, when an entire classroom or grade got blamed for the misbehavior of a few miscreants. Many of the CDC’s preferred alcohol policies constitute group punishment on a massive scale, applied to adults. A careful focus on the root causes of the problem would help government avoid punishing everyone for the misdeeds of a few.

Where Are The Benefits From Recent Energy Efficiency Regulations?

On Tuesday, President Obama gave a speech announcing his new agenda to combat climate change. As part of his efforts to curb greenhouse gas emissions, the President and his administration plan on releasing a series of energy efficiency regulations, supposedly with the intention of reducing carbon dioxide emissions. The problem is, the vast majority of the benefits from many energy efficiency rules have nothing to do with reducing carbon dioxide emissions, and this is according to the government’s own estimates. Instead, agencies like the Department of Energy (DOE) are eliminating options for consumers, and then counting the loss to consumers as a benefit of regulating.

How do they do this? It all has to do with a relatively new field of social science known as behavioral economics. You can think of behavioral economics as the intersection of psychology and economics. Behavioral economists believe that people exhibit many biases that cause them to systematically act in ways that are out of line with their true preferences. In a lab situation, there are many examples of such biases that have been demonstrated. For example, a person buying a home may bid one price, but if she is selling the same house, she may require a higher price, implying she values the same object differently depending on whether the object belongs to her or not. Or, people may value objects differently depending on time. For instance, a person might choose to receive $100 today over $110 tomorrow, yet at the same time pass on $100 a year from now in exchange for $110 in a year and one day, implying the person is more impatient today than he sees himself being in the future.

As the chart below demonstrates, the Department of Energy recently finalized a regulation related to microwave ovens, and nearly 80% of the benefits of the rule stemmed, not from protecting the environment or public health, but from saving consumers money by preventing them from buying the products they would choose otherwise. DOE does not seem to understand why consumers might choose to pay a relatively low price today for a product that is not very energy efficient, when this person could buy a more expensive energy efficient product that will save money over the life of the product through lower electricity bills. From an economics perspective, DOE does not believe this behavior is rational, hence it is like one of the behavioral biases described above, and in many cases DOE has decided to ban the products it doesn’t like in order to protect consumers from themselves.

Energy Efficiency Benefits from DOE Microwave Ovens Regulation*

Capture4

Federal agencies are ignoring the fact that consumers may value other attributes of products aside from energy and fuel efficiency. With automobiles, consumers may prefer larger and safer cars, to smaller more fuel efficient vehicles. Restaurants may prefer light bulbs that raise electric bills slightly every month, but whose warm glow creates an ambiance that customers enjoy. And in the case of microwaves and laundry machines, it may be that machines that use more energy simply work better at their stated purpose. And it’s not just microwave ovens. DOE, and other agencies like the Department of Transportation and the Environmental Protection Agency, make this same type of assumption with other regulations, like rules impacting commercial clothes washers, light bulbs, and fuel efficiency standards for vehicles. Agencies even assume businesses are behaving in this manner. Does anyone honestly believe that trucking companies aren’t taking fuel efficiency into account when buying new fleets? Or that laundromat owners don’t consider electricity costs when purchasing new equipment? It seems highly implausible, but agencies are assuming just that.

For decades, agencies have been required to identify a market failure or other systemic problem that exists before intervening in the marketplace with a regulation. Market failures include things like a lack of competition, a lack of consumer information, or costs that spill over onto the public as the result of a private transaction. Now, agencies like DOE have begun to expand the definition of market failure to include what they deem to be personal failures on the part of consumers.

So why are agencies doing this? One reason may be because the environmental benefits alone aren’t enough to justify the costs of some regulations. Claiming additional benefits helps agencies justify an inefficient policy, and keeps government programs continuing to employ regulators. Agencies have other ways to make the benefits of rules appear greater too. In the case of the microwave rule, of the small portion of benefits related to carbon dioxide reductions, most will be captured by citizens of foreign countries, with only a small fraction going to US citizens. Counting benefits to foreigners makes the benefits of rules appear greater, even though agencies are asked to only consider benefits to the United States in most cases.

Another reason we may be getting these types of rules is the rules may really be intended to benefit special interest groups more than consumers. A manufacturer that is already producing an energy efficient product may capture market share by getting the products of its competitors banned. Or manufacturers may simply want to force consumers to buy a more expensive product, or replace old products with new ones, while eliminating the possibility of a competitor undercutting them by selling a cheaper product in the marketplace.

Reducing Carbon Dioxide emissions in order to combat climate change may be a noble goal, but recent energy efficiency regulations are unlikely to get us there. Rather than overriding consumer choice, and counting this loss to consumers as a benefit, DOE and other agencies should give the American people a more honest assessment of the benefits of their rules.

* Source: Department of Energy, “Technical Support Document: Energy Efficiency Program for Consumer Products and Commercial and Industrial Equipment: Residential Microwave Ovens – Stand-By-Power,” (Table 1.2.1.), May 2013. Calculated using a 3 percent discount rate. Assumes 15 percent of reductions in CO2 emissions are attributed to the United States. This is the midpoint between 7 percent and 23 percent, the range estimated by the Interagency Working Group on Social Cost of Carbon, “Technical Support Document, Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866,” February 2010.

The March of the Public Sector Union

For the first time in U.S. history membership in public sector unions has surpassed membership in private sector unions. As the Wall Street Journal writes, this is deeply significant for U.S. democracy.

Roughly 51.4% of unionized workers in America belong to a public sector union. Over this same period  membership in private sector unions has declined. While workers in the private sector are still subject to market forces, unionized public sector workers enjoy lifetime protection, “once a city or a state’s workers are organized by a union, the jobs almost never go away.”

This puts public sector workers directly at odds with middle-class taxpayers. Public sector unions enjoy growing support from politicians, enabling them to win greater benefits and higher salaries regardless of budgetary reality. The alliance between politicians and public sector unions is a recipe for dysfunctional government. Elected officials lose claim to being representatives of the people and become nothing for than an insider lobby for public sector worker interests.

A previous post explains the Executive Order that gave rise of the public sector union.