Announcer: From the nation's capital, the American Enterprise Institute for Public Policy Research
presents Public Policy Forums, a series of programs featuring the nation's top authorities
presenting their differing views on the vital issues which confront us.
Today's topic, "Government Regulation: Where Do We Go from Here?"
Mr. Hackes: One of the major promises made by candidate Jimmy Carter in the 1976 political
campaign had to do with reform of government regulatory agencies to make them more responsive
to the wants and needs of the people.
President Jimmy Carter is finding that promise tough to keep largely because it's hard to
determine what regulations are best for both the regulated industries and the public.
Often within a single industry for example there are bitterly opposing views from those
who want less regulation and those who want more.
Often different segments of the public want different regulations.
If we can agree that some regulatory changes are needed then how does a president or a
congress decide which areas should be dealt with first?
Employee safety and health, consumer protection, interstate transportation, environmental controls,
public health?
Is it realistic in fact to believe that government regulation can be streamlined?
Who's paying for government regulation?
Do businesses absorb those costs or are they passed along to the consumer?
Welcome to another Public Policy Forum presented by AEI, the American Enterprise Institute,
a nonprofit, nonpartisan research and education organization.
Today's roundtable discussion is on the topic "Government Regulation: Who Do We Go From
Here?"
Appearing on our panel are:
William Proxmire, a Democrat, Senior Senator from Wisconsin.
Senator Proxmire is Chairman of the Senate, Banking, Housing, and Urban Affairs Committee
and a member of the Appropriations Committee.
He holds two masters degrees from Harvard, one in Business, the other in Public Administration.
John Danforth, a Republican, serving his first term in the Senate from Missouri.
Senator Danforth serves on the Finance, Commerce, and Governmental Affairs Committees.
He is a former Attorney General of Missouri.
Senator Danforth, who is an ordained Episcopal minister, is also a lawyer.
Dr. Harrison Wellford is the Executive Associate Director of Reorganization and Management
at the Office of Management and Budget.
In this position, he has major responsibility for regulatory reform efforts within the Carter
Administration.
In the early '70s, Dr. Wellford headed the Center for the Study of Responsive Law in
Washington and later became the top legislative assistant for the late Senator Philip Hart
of Michigan.
Paul MacAvoy is an Economics professor at Yale.
As a member of President Ford's Council of Economic Advisers, he was Co-chairman of the
Ford Task Force on Regulatory Reform.
Dr. MacAvoy, formerly a professor of Public Policy at MIT, is Chairman of the Technical
Advisory Committee of the AEI Center for the study of government regulations and is an
AEI adjunct scholar.
John Charles Daly is former news corresponded and commentator for both CBS News and ABC
News.
Mr. Daly headed the "Voice of America" during the Johnson administration and is a former
ABC Network Vice President.
Now, here's Mr. Daly.
Mr. Daly: This Public Policy Forum, part of a series presented by the American Enterprise
Institute, is concerned with Government Regulation: Where do we go from here?
Well, we might well start with where we've been.
For our purposes it all probably began back in 1789.
We then had a government agency established to regulate the duties collected on imported
goods.
And in that same year, President Washington established a new federal agency to regulate
the payment of pension benefits to Revolutionary War veterans.
The acronym era may be said to have begun in 1887, with the establishment of the Interstate
Commerce Commission, the ICC.
The Food and Drug Act in 1906 introduced regulation to protect public health.
The Great Depression in the 1930s produced the CAB, the FCC, the Federal Maritime Commission,
the FPC, the SEC, the FDIC, the NLRB, etc., etc.
In the 1960s, regulation took a new turn and sought primarily to pursue social objectives
rather than to meet economic needs.
Thus, were born EEOC, the Equal Employment Opportunity Commission, OSHA, EPA, the CPSC,
the Consumer Product Safety Commission, etc., etc.
After 200 years of effort, we have created a labyrinth of regulatory agencies touching
every aspect of American life.
Paradoxically, the record indicates that the first major concern about the scope, complexity,
and authority of the regulatory labyrinth surfaced during its golden hours, the New
Deal.
President Franklin Roosevelt established the President's Committee on Administrative Management,
the Brownlow Committee, the report of which concludes that the independent regulatory
commissions constitute a serious and increasing problem.
They obstruct effective overall management in the executive branch of the national government.
They hinder coordination of policy and coordination of administration.
Two Hoover Commissions on the organization of the executive branch under Presidents Truman
and Eisenhower followed, and then President Kennedy, prior to his inauguration even, commissioned
James M. Landis to report on the regulatory agencies.
President Johnson established the Administrative Conference of the United States in 1964 to
reform the regulatory process, and President Nixon established the President's Advisory
Council on Executive Organization, the Ash Council, in 1969.
President Ford and the Congress in recent years have moved on reform in several areas,
and President Carter made reform of the regulatory scene a major element even in his presidential
campaign.
Still, the way out of the regulatory seen a major element even in his presidential campaign.
Still, the way out of the regulatory labyrinth eludes us, and our question is where do we
go from here?
Senator Proxmire, does the present Congress consider government regulation a serious problem?
And if so, do you think the problem is getting sufficient attention?
Mr. Proxmire: Well, John, I do.
I certainly consider regulation a serious problem, and that there are conflicting elements
in the public and they're reflected in the Congress that indicate the nature of that
problem.
Number one, I think that the Congress and the public realize that one of the great improvements
in our society in the last 10 year to 20 years has been the deep concern about the environment
and they had been reflected in constructive government legislation to protect the environment.
I think also a much deeper concern and action to protect safety and health, and that's very
constructive.
But at the same time, you have a conflicting view that there's just too much government.
Not only are taxes too high, government too big, but also government interfering too much
in these very areas, environmental protection and safety, and health.
So, you have that kind of a conflict.
Then also, I think people look to the government and regulations to do something about the
very serious burden of inflation.
They feel that if you can handle regulation in the proper way it can ease the great burden
of rising prices.
So you have those conflicting concerns by the public and reflected in the Congress and
you're gonna see action in the Congress I think in this year and in coming years on
that basis.
Mr. Daly: Senator Danforth, can the present regulatory structure be made to operate more
effectively, or perhaps is a completely new structure necessary?
Mr. Danforth: Well, I wish I could say that it would be enough just to tinker with the
existing system and I do feel as a matter of fact that combing through all of the existing
regulations and trying to get rid of those that are useless or unduly burdensome is always
something that is worth doing.
But I am beginning to feel that we need to approach the problem on a more structural
and systematic basis and look not just that those regulations which are particularly harmful,
damaging, but to try to figure out those areas which are appropriate for regulation and those
which are not and to start thinking in terms of alternatives to the very specific kind
of regulatory structure which we so often have, particularly perhaps setting general
goals of performance in various areas and offering a system of rewards or penalties
for meeting or failing to meet those goals rather than to zero in on particular very
detailed regulations and try to solve every problem by simply putting out a new book of
regulations.
Mr. Daly: All right.
Dr. Wellford, you headed President Carter's transition team on government reorganization.
What is the administration's approach to reform?
Mr. Wellford: Well, I'd like to agree with Senator Danforth that one of the most important
things for us to do now is to ask the question, what is the scope of appropriate federal intervention
in the private sector?
Therefore, are we going to emphasize increased competition in the transportation area?
But I should also point out that we're entering really a new era of regulatory policy with
this administration.
The last decade has been characterized by major legislation which has extended the reach
of regulation into vast new areas.
While the increased protection from the public, from occupational hazards, from environmental
hazards, from consumer products has brought great benefits, we have to recognize that
much of these new programs were introduced in response to crises.
They resulted in hasty legislation and hasty regulation.
And as a result, we have a system that in the sheer size of the regulations affecting
the public has grown enormously in the last 10 years, and a system where emphasis on goals,
on regulatory goals, and a relative lack of attention to management feasibility has resulted
in delay, overlap, conflict between regulations, and unnecessary burden on the private sector.
So, in addition to a transportation deregulation theme that I mentioned at the beginning, we're
emphasizing very strongly the need to improve the management of the entire regulatory process.
Mr. Daly: All right.
Professor MacAvoy, to begin to get to the nuts and bolts of the issue, what in your
judgment is the net impact of government regulation on the overall economy?
Mr. MacAvoy: Most of my colleagues may not agree with this summary but it appears to
me to date that the effect of regulation has been to increase the prices that consumers
pay for goods and services.
Trucking rates are too high.
I don't know how much too high.
Airline rates may be $5 billion $6 billion a year too high.
Energy prices as a result of the regulations of the Federal Energy Administration and the
Power Commission may be $5 billion or $6 billion too high.
The FEA, until recently, required 600,000 reports to be submitted every year by companies
that produce energy.
That adds a $150 million or $200 million to our household bills because of the cost of
filling out these reports.
In health and safety regulation the generalization becomes much more difficult.
It appears from the GNP accounts, gross national product, that probably the environmental regulation,
which comes from Senator Proxmire's concern and my concern, does add a couple of points
to the Consumer Price Index.
The safety regulation probably not that much, but the investment that has to be made in
equipment to meet these requirements adds finally to cost and then to prices of consumers.
Economists seem to believe that this has begun, finally, to affect the overall performance
of the economy.
We used to grow at something like 4% per year.
It now looks like maybe a quarter of that, maybe a percentage point or a little more
than a percentage point, of that growth has been sacrificed to regulatory activities.
If you look out over a 10-year to 20-year period that means that we will be significantly
smaller than we would have been in the absence of these regulations.
It becomes very difficult to measure that but it appears at least generally that the
cost of these controls in that reduced growth rate are not compensated for by benefits of
a safer society or a more healthful environment or even more regular airline or trucking service.
Mr. Proxmire: But, Paul, the way we measure a gross national product is very unsatisfactory.
I remember Senator Fulbright always used to be so frustrated with the gross national product.
The more waste you have the more GNP you have in some ways.
You would agree I'm sure that the gross national product doesn't measure a degree
of necessarily a quality or of achievement of any particular kind.
It just adds up all of the goods and services, some of which may be counterproductive.
Mr. MacAvoy: Right.
Mr. Proxmire: So, when you require a company to build an environmental instrumentality
at a cost of $15 million or $20 million that is reflected as growth in the GNP, it seems
to me that the answer to what you've got there is to try to develop some kind of economic
impact requirement for environmental action so that we have some clear notion of the effect,
the cost that the environmental protection is going to give us.
It may or may not be worthwhile.
In many cases I think it would be, in other cases it wouldn't be, but isn't this something
we ought to have?
Wouldn't that move us in the direction of getting a greater quality at least in our
GNP?
Mr. MacAvoy: It would.
You're asking for even more than that though, Senator Proxmire, in that we should begin
to measure the benefits that flow from these health and safety regulatory activities.
The first step in that is to look at changes that have occurred in the physical dimensions
of safety or environmental quality.
For example, what has happened to accident rates as a result of the Occupational Safety
and Health Administration, our infamous OSHA?
What has happened to particulate matter in the atmosphere as a result of EPA enforcement?
What has happened to the number of accidents in the household as a result of CPSC, Consumer
Product Safety Commission, activity?
Those crude numbers, again, they're not any better than the GNP accounts which you and
I feel tyrannize us as they come from the accountants.
But those physical numbers show no significant impact as a result of all this regulatory
activity.
The Council of Economic Advisers in 1975 by creating the Great Recession of that year
did more to reduce particulate matter in the atmosphere than EPA in all its lifetime.
We have not been effective in reducing whatever it is we're trying to reduce.
At the same time we've had a great deal of investment because that ladder has to meet
the OSHA standards or you have to have that stacky [SP] mission device so we've got the
worst of both worlds, equipment that does very little that costs a great deal because
that's what the administrator in that agency says you have to have.
Mr. Danforth: I think that really our goal has been the wrong thing in a lot of these
regulations.
Our goal has not been the results that we want to accomplish.
Our goal instead has been the means by which the regulators think the goal should be accomplished.
So that instead of focusing on how many man-days are lost in a particular industry as a result
of accidents in the workplace, instead, we were focusing on such matters as how big is
a hole and when is a ceiling a floor and how high should the fire extinguisher be from
the floor and so on and so forth.
What we have done is unleash an army of inspectors who have moved through the country for the
sake not of creating safer job sites but for the sake of policing regulations which were
believed by the regulators to create safer job sites.
And I think that the kind of structural change that we need is to put less emphasis on the
regulator's idea of what makes sense with respect to say safety or pollution and so
on and focus on the result we seek to achieve.
If we seek to reduce the number of man-days lost in a particular industry from X to X-Y,
then it would seem to me that the way to go about that would be to set that goal-oriented
standard, and to provide rewards in the form of say tax incentives for meeting that standard,
penalties for not meeting that standard, and leave it to the industry that's being regulated
to make the determination as to how to accomplish the goal, rather than to have the regulator
set the means and then police the means.
Mr. Daly: Dr. Wellford.
Mr. Wellford: I think that the question of how you measure the benefits of regulation
is a fascinating question.
I agree with Ray Marshall that the design of the toilet seat is not fundamental to the
health of the American worker, nor the number of knotholes in a ladder.
But I do think that carcinogenic vapors or carcinogenic dust for example in the workplace
is, at the same time, if the hazard is there, and there's a latency say it's 20 years before
cancer turns up in the exposed worker, how are you going to measure that benefit and
reduce cancer?
Looking at it right now is very difficult.
And I would say the same thing about air pollution, I'd say the same thing about water pollution,
and many other areas where we're talking about long-term hazards with long latency periods
in terms of the impact they have on the victims.
Mr. Proxmire: I just wonder if it's that complicated.
Let me pursue Jack Danforth's proposal, which I think makes a lot of sense.
And there is a practical example of how well this has worked in the Ruhr River in Germany.
That river is the most intensely used by industries in the world.
Every kind of polluter, just about, is on, chemical companies, coal, steel, and so forth.
And yet, it's, you can sail on it.
You can swim in it.
You can drink it.
Now, why?
Because they have put in exactly the kind of incentive system that Jack proposes.
It makes sense.
They provide that the industries that are on the river will have a tax reduction, or
I should say will have to pay a tax depending on the amount of pollution they put into the
river.
In other words, what they recognize is that water is no longer a free good in this sense,
and you have to pay for it.
It's an economic good.
And, Stanley, when I got a chance I want to get on top of Harrison Wellford here on the
banking regulation if you'd let me, John, because this is something that I think the
Carter administration should really get to work on.
When President Carter was running for office, he campaigned on the basis of simplifying
organization.
He had talked about reducing the number of agencies in Washington to 200 and so forth.
Here in banking, we have an opportunity that I think is just asking for the Carter solution.
We have three different separate agencies regulating banking, duplicating, wasting,
their operations.
We get opposition from the bureaucracy because they would like to preserve their empire.
The only way we're gonna get this through is by having you, Mr. Wellford, and the Office
of Management Budget come in and support us on this.
Mr. Wellford: Well, I'm delighted to be able to discuss this issue with my Democratic colleague.
I thought it was two against two.
Mr. Proxmire: I'm just trying to help Jimmy do a good job, you know?
Mr. Wellford: I don't doubt that for a minute.
Mr. Proxmire: Maybe for an hour but not for a minute.
Mr. Wellford: We have put a lot of push behind the airline deregulation bill this year.
We intend to address proposals for increasing competition in the trucking area next.
When we have accomplished those two enterprises, with your help, we will be turning to other
areas, including banking, I suspect.
But really there is a question of what should be at the top of our agenda and I really think
that it's hard to argue that anything is more important right now than addressing the transportation
area.
Mr. Proxmire: Well, just one more.
We're not asking that you say this is number one on your priority agenda.
All we say is that we want the administration to say they favor it.
Now, they oppose it.
We have Secretary Blumenthal who says he doesn't want to do that.
Of course, the controller of the currency which is one of the agencies under his jurisdiction
would cut down on his empire, but what we want is to have the President say that he
favors the bill.
Mr. Daly: Professor MacAvoy?
Mr. MacAvoy: A cry from the right for diversity, Senator.
A great deal of reform has already taken place in regulation of financial institutions, banks,
insurance companies, in particular, stockbrokers, as a result of there being state agencies,
three or four national agencies, some of whom, whether the word is lax or inventive or enterprising,
have tried new ways of providing services to individual consumers.
In Mr. Daly's Massachusetts, we have NOW accounts which will allow us to earn interest on checking
deposits.
We have not failed.
The banks have not failed at an extraordinary rate.
Banks in Massachusetts fail now and again but the effect on individuals there has been
to distribute income substantially in favor of consumers.
That would never have happened if the Federal Reserve were setting standards for interest
rates on checking deposits.
Mr. Proxmire: Well, you just yielded on that point.
Bless your heart.
I'm so glad you brought that up.
Sure, we have 15 different banking commissions.
Mr. MacAvoy: This is not a conspiracy.
Mr. Proxmire: Oh, no.
You've got state regulators in the banking area but you shouldn't have three separate
federal regulators in addition to the 50 state regulators all trying to do the same thing
in the same industry.
It's the only industry that has that.
And I submit that regulation of our financial institutions lags far behind regulation in
the other areas where they have a unified regulator.
Mr. MacAvoy: MacAvoy's Massachusetts law.
Competition among regulators drives out excess regulation.
Mr. Proxmire: If you buy that you'll buy anything.
Mr. Daly: Senator?
Mr. Danforth: I will say this though.
I think that Paul has made a good point about diversity, and I share his point of view.
Mr. Proxmire: Do you want three Federal Power Commissions too?
Mr. Danforth: No.
I mean on the relationship between state government and...
Mr. Proxmire: Oh, fine.
Mr. Danforth: ...the federal governments.
And, for example, the Community Development program, I had a meeting not long ago with
mayors from a number of communities in St. Louis County in my state.
And they told me that the Community Development program has gone sour, that they have become
inundated with regulations.
What was originally thought as being a block grant program which was to permit more diversity,
more decisions being made out their throughout the country, that somehow has become perverted.
And as I understand it, the position of Secretary Harris has been that we really don't want
all those decisions being made out there.
We want to put more strings or, and the word that is now current in the federal bureaucracy,
we want to target the way in which federal funds are spent by the rest of the country.
So in the name of targeting we've developed more forums.
We've developed more restrictions.
We've developed more regulation.
And maybe the whole problem of regulation, or at least a good part of it, is the pretentiousness
that we in Washington have, the notion that somehow this is the font of all wisdom, and
that if only we can make the decisions, we will make the right decisions.
And if we allow somebody to make the decision out in the marketplace as to how to make his
job or his product safer or how to pollute less, somehow they're gonna foul it up, and
therefore, we have to aggregate this responsibility to ourselves.
And I really believe that that is kind of the philosophical problem that underlies this
whole problem.
Mr. Proxmire: Oh, now, come on, Jack.
What you're talking about there is federal money.
Community Development money doesn't come from the states.
It comes from the federal government.
If the federal government is gonna put up the money then I think we have a duty to the
taxpayers to see that it's spent the way it ought to be spent.
So what Secretary Harris has done which is the right thing is saying, "As long as it's
federal money, folks, then you should spend that federal money for the purpose the law
intends for a low-income people and we should insist that it be spent that way."
And I think she's absolutely dead right and I'm gonna do all I can to support her.
I hope you do too.
Mr. Danforth: It just seems to me that the real question is who's making the decisions
in this country and we have used the leverage power of the federal dollar to say to local
communities, to say to state governments, to say to universities such as Yale all over
this country, you know, that, "Okay, we've got all wisdom here in Washington and we've
also got the buck," and particularly with matching fund requirements to leverage the
decision making authority out there in the country I think really has twisted something
that's been very important to the tradition of our country.
Mr. Proxmire: Well, the best answer, of course, is to just cut out spending the money.
If you want to join me in that, I'll do that with you too.
Mr. Daly: Dr. Wellford, you wanted to say something.
Mr. Wellford: We have just completed a review of all of the planning requirements that the
federal government requires when it makes an economic assistance program available to
state and local government.
And we have reports...every agency that imposes a planning requirement to go back and ask
a question.
Is it really necessary?
Can you standardize it?
Is it in conflict with another planning requirement or whatever?
And all the results are not in, but we're going to bring about I think a substantial
reduction in that paperwork required for simply taking part in federal programs.
You know, there's a whole industry now of consultants whose stock in trade is to help
these state and local jurisdictions fill out these forms so they can get federal money.
But there's another aspect to the problem which becomes clear.
First, an awful lot of these planning requirements are mandated by Congress.
We'd have to go back to Congress to change them.
Secondly, the whole economic assistance area, the $50 billion of programs that we're spending
on economic assistance in urban areas, for example, is honeycombed with single-purpose
programs without any real coherence between them, without any strategy to direct them
particularly.
And I think we've got to address a more fundamental question.
You know, what purpose are all these programs serving?
What is the target we're trying to hit?
And, what kind of federal organization is best suited to pursue that target?
Mr. Daly: May I intervene here?
I think we would all agree that the last formal comprehensive review of the needs in the regulatory
area was made by the Domestic Council Review Group that President Ford established in 1974,
which put its report in January of 1977.
And in that report, if I may quote from it briefly, it says, "Conventional wisdom held
that most of the holes, that most of the shortcomings, in regulation result from unqualified personnel,
cumbersome organizational structure, or inefficient operating procedures.
The council agreed that reforms are needed in these management areas, but it believes
that the basic trouble lies deeper.
It believes, one, that some regulation just doesn't make sense," and it gave as the example
the CAB, "That in areas where federal intervention is needed, it has been ineffective or inefficient
because the agencies have not been using appropriate tools."
And here they gave as one example, OSHA, "And three, that far greater efforts are needed
to determine the social and economic effects of regulation."
How do you all feel about that?
Do you think [crosstalk 00:31:16]?
Mr. Proxmire: I think there's a great deal to that.
It seems to me that the answer is to recognize in my view that there are some regulatory
agencies that can be abolished.
I favored for a long time just abolishing the Interstate Commerce Commission.
I think that President Ford took a very constructive step in the right direction by very much reducing
their tendency to do precisely the opposite of what it was created to do in 1887 when
it was created to hold down the railroad rates for the farmers.
These railroads, of course, were the only method of transportation.
Now, you have enormous potential competition in transportation, if the ICC holds the rates
up.
So I think that there are some of these that does go deeper as you say, John.
I think there are some of these agencies that should be abolished.
I think that there are others where you can rely primarily on disclosure as your principal
means of regulation.
What, after all, is the most effective regulatory body we have in Washington?
In my view, it is the Securities and Exchange Commission.
I think they do a superb job.
And they certainly get into plenty of controversies.
Today's paper was filled, as almost every day's paper is, of attacks on the SEC for
what they've done, but I think almost everybody approves the vigorous, and honest, and effective
way they operate.
But what they're doing is disclosure.
They base their operations on disclosure.
The other thing I think we should rely on is more antitrust action and rely more on
competition as the means of the principal regulatory element in our society.
Mr. Danforth: I'd just like to add I completely agree with the emphasis on antitrust.
I think that that is one very promising substitute for all this regulation, to allow a competitive
marketplace to regulate itself.
I'd also like to point out that really the great opponent of deregulation are the industries
which are regulated, that they really don't want the competition.
I mean, for example, on the airline bill, the Commerce Committee hearing room was just
filled with representatives of the airlines day after day after day.
They were opposed to deregulation.
They wanted the system.
Mr. Daly: It's not unanimous, though.
Mr. Danforth: No, it's not unanimous, but there were certainly a lot of them.
The same is gonna be true with trucking in my opinion.
I saw it when I was Attorney General of Missouri in the state government.
We had, for example, a Board of Embalmers.
When you think of it, what is the public interest in regulating embalming?
I mean, as far as the public is concerned, what difference does it make?
It's too late.
But the embalmers wanted it.
That was the point because it was a way to limit the competition, to keep people out
of the industry.
Mr. Proxmire: That's an excellent point.
The fact that the people who are being regulated are the ones who really want that.
Mr. MacAvov: We agree widely on what should be done, Senator Proxmire, but there is real
confusion among economists at least about how to get there from here.
There's a professor at South Carolina who took your suggestion of abolishing the ICC
seriously and looked into the possibility of tearing the building down and having the
people in the civil service who are in the ICC put out in the street and then salting
the Earth so nothing would grow there ever again and found that he couldn't get an environmental
impact statement by doing that.
But more seriously, the question is how do you get from here to there through Congress?
The ICC has been a subject of trenchant criticism by President Kennedy, President Johnson, President
Nixon, and President Ford, and now with Dr. Wellford's help, Mr. Carter is approaching
them directly as well.
The approach is to take it to a subcommittee of the Senate Commerce Committee where the
individuals concerned with this wrote the original bill, perhaps four or five of the
senators who were there in 1887, when the Act to Regulate Commerce was passed do not
take kindly to the notion that the act to regulate commerce is not any longer exactly
right.
They take testimony from those in the industry who say, "There will be chaos, disruption.
The Republic will fall if you pass this bill."
And then the economist or even Dr. Wellford comes in from the administration.
And the response to the proposal for reform is, "You've never run a railroad or a truck
or an airline and you have this notion there is $6 billion of cost out there.
Show us there will be no chaos in the market as a result of this reform."
The proposition that those who reform must bear the burden of proving what is going to
happen every day between now and then is impossible to bear and we do not get the reform.
Mr. Proxmire: That's right.
Mr. MacAvoy: How can we change Congress, Senator, to put the burden of proof on those who are
now advantaged by the special interest regulation?
Mr. Proxmire: Well, you're absolutely...
That's why it's so difficult to change this.
It's so difficult to reduce or modify regulation.
Mr. MacAvoy: You guys won't change.
Mr. Proxmire: Well, I think what you have to do is to grasp the opportunity.
That's why banking is such a marvelous opportunity.
Mr. Daly: Now, let me bring this back to something that I wonder if you think is critical and
very important.
And the Domestic Council Review Group in its report said, "In the regulatory area, almost
without exception, policy has been formulated in unnecessary ignorance."
Now, do you think that that is quite reasonable?
Senator Danforth?
Mr. Danforth: Yeah, I think you're absolutely right.
I've only been here a year, and it's just amazing to me how much is done on the back
of envelopes.
You know, this sounds reasonable.
And, I mean, the public demands, for example, safe jobs.
The public demands clean air, clean water.
And when a bill comes before Congress, people in Congress are politicians and they don't
want to position themselves as being against safety on the job, so they vote for the bill
without really understanding what the effects of the legislation are.
And I think that that's a very, very valuable point to make.
We are not a bunch of wizards in Washington.
Mr. Daly: Did do you want to say a word, Dr. Wellford?
Mr. Wellford: We recently issued a proposed executive order, you may have seen it, which
attempts to get at the problem that you've mentioned.
The basic purpose of the executive order is to bring major regulatory options as proposals
to public attention, for that matter to government attention, much earlier in the process.
Traditionally, the first time the public learns about a regulatory initiative or indeed the
first time that one regulatory agency learns about an initiative by another is when a notice
of proposed rule-making is put in the Federal Register.
We have proposed that a regulatory agenda be created much earlier in the process before
a final decision has been made even to announce it in the Federal Register.
And this is to encourage a much more rigorous exploration of alternatives to a particular
regulatory action and to see whether or not, in fact, the agency has chosen the most effective,
least burdensome way of getting a particular job done.
And you all tried something like that in the Ford administration where you had an economic
analysis of regulations.
But the problem I think with your process was that it came awfully late in the game.
We're trying to have this consideration of alternatives done earlier, so that there can
be a much fuller debate.
Mr. MacAvoy: The problem with our process, Harrison, is that for reasons I can't conceive
no agency ever wrote an economic impact statement that shows the economic impact of their rule-making
was adverse.
Mt. Daly: Right.
Mr. MacAvoy: That may have been coincidence but that never happened here.
Mr. Daly: All right.
I think probably it's time now to let our distinguished friends in the audience and
there are good friends in the audience have an opportunity.
Time to open the question and answer session.
Mr. Hakes: Federal regulatory reform is not something new.
Other presidents and other congresses have tackled the problem with varying degrees of
success.
Where did these efforts go wrong?
Did they try to do too much?
What happened to the regulatory agencies in the process?
Do the agencies serve the public or have they been captured by the industries they regulate?
Now, to challenge our panel members let's get the views of the experts in our audience.
Mr. Daly: All right.
May I have the first question, please?
Ms. Franklin: I'm Barbara Franklin and I'm a member of the Consumer Product Safety Commission.
I'd like to pursue this cost-benefit idea a bit further.
We still wrestle with the question of how do you value a human life, a life saved by
one of our regulations?
My question to the panel is what you think we should be considering on the benefit side
and how you would go about making some of those quantitative judgments like how do you
value a human life?
Mr. Proxmire: Can I just start off on that because I'm very interested in the Consumer
Product Safety Commission.
They come before the subcommittee of the Appropriations Committee which I'm chairman, and we've been
concerned with the operations of the Consumer Product Safety Commission.
I think it's been greatly improved in recent years, particularly in recent months.
But the Consumer Product Safety Commission has a long way to go because it didn't establish
those priorities in the beginning.
And it seems to me that the basis should be the number of lives that are now lost that
might be saved if you improve the product involved, the number of serious injuries that
might be saved if you improve the product involved.
A classic example it seems to me is that one of the first things they picked out were swimming
pool slides.
They found out in the swimming pool slides after they had spent a considerable time designing
standards for them that the principal people who are injured were not children but adults.
And they were injured because they would slide into swimming pools when there was no water
in them and when they had been imbibing in spirits rather freely.
Mr. Danforth: I think that the idea should be to focus on the ultimate objective, namely
saving lives, saving injury, and that for the purpose of developing safe products, a
determination should be made as to what kind of reward or what kind of penalty is necessary
to induce that industry to attain a certain measure of safety.
I'm afraid that that is not the kind of determination that's typically being made because instead
of making a decision as to what's necessary to save lives or what's necessary to make
safer jobs, I think that really the emphasis has been what kind of regulations make sense
to the regulators and what can we do to enforce those regulations for their own sake?
And so that the cost-benefit analysis is not an analysis made on the ultimate objective,
but it's an analysis that's made on the regulation itself.
Mr. Daly: Professor MacAvoy?
Mr. MacAvoy: The senator is on a line of inquiry that economists, technicians, very deeply
appreciate.
And that is if you can avoid having to make an artificial estimate of the value of a human
life, put it in the computer and you get garbage out because it depends upon 12 assumptions,
by all means, do so.
And in many of these instances, the question is not whether some policy is necessary or
justifiable, but if there are 12 different ways of doing that lifesaving exercise, which
costs the least?
That question has come up for example with respect to airbags, and safety belts, and
other devices in automobiles.
And you cannot ask what is the value of the human life saved by the airbag, but can you
reduce accidents by the same number by going to some other method besides the airbag without
imposing the air bag's $300-per-car cost on consumers.
Mr. Daly: Next question, please?
Mr. Whiting: My name is Basil Whiting and I'm the Deputy Assistant Secretary of that
infamous agency, OSHA.
It's troubled, but workers feel it could and should be an important agency.
The question has to do with what I feel troubled about in terms of a facile analogy that some
cite between environmental regulation and occupational safety and health regulation
or health regulation in general.
And that is the analogy between a pollution tax and a so-called injury tax.
And I'd like to ask the panel, especially Professor MacAvoy, what he feels to be the
morality and efficiency of an injury tax because my experience suggests that the market of
ideas in relation to an injury tax and its impact is quite flawed.
Mr. Daly: Professor MacAvoy.
Mr. MacAvoy: We have an injury tax in the form of workers' compensation, one of the
most comprehensive insurance systems in the country whereby those who are injured in a
factory accident are provided with funds to in some way make up for the lost wages or
income and for the cost of the accident.
And these funds eventually derive from payments that have to be made into an insurance system.
The insurance system is faulty in that the amount of the payments that a particular factory
makes is not related to its accident rate in a number of industries.
If it were related to the accident rate, we would have incentives built into the management
scheme in that factory to reduce accidents.
Those incentives were built into the Voluntary Industrial Health Association standards, which
became the OSHA standards.
That is the way injuries are prevented in the factories, as far as I know it, are that
an education process goes on whereby workers and shop stewards and foremen are strongly
educated in the process of accident prevention.
Those who are accident-prone are removed from high-accident operations so as to keep the
number down as low as seems technically feasible, not technically feasible, economically feasible.
Now, if insurance schemes penalize this process then they will be kept down even more.
The first step in reform is to make those insurance schemes quite specific with respect
to each factory.
When that occurs then we've got room to ask whether some of these mandatory physical standards
which were, as the gentleman well-described, voluntary and part of the education process.
You don't put a ladder down the stairwell or you don't leave third-floor exits open
and so forth.
Those standards might then come into question on a case-by-case approach.
I foresee in some instances that there should be outright prohibition of the existence of
certain kinds of hazards in factories.
But I see on a case-by-case approach that if you correct the insurance scheme to penalize
high accident rates, then OSHA as a process comes under very basic question.
We may not need those 20,000 standards anymore to anywhere near that magnitude.
Mr. Daly: The next question, please?
Yes, sir?
Mr. Chapman: My name is Dudley Chapman.
I'm a Washington lawyer, formerly a member of the Domestic Council Review Group.
I'd like to ask any member of the panel to respond to a question that I find very troubling
in terms of where we're going in regulatory reform.
I'm referring to some things that came up during the first part of the session, specifically
the one area in which regulatory reform has so far scored something of a success in the
securities industry, the second having to do with the ICC in which it has so far gotten
nowhere.
The conflict that I see is between the direction of regulatory reform and antitrust which is
another value that was espoused by the panel earlier.
If one is to believe what one reads in the newspapers about the effects of regulatory
reform in the securities industry, one and certainly not only of the principal results
has been a almost massive move toward very heavy concentration in that industry.
Concentration is, of course, a major bugbear of antitrust, and, of course, I'm aware that
the Antitrust Division was a major champion of this particular reform.
The second illusion was to the fanciful idea of abolishing the ICC.
And as Senator Proxmire pointed out one of the major objectives to that legislation was
to bring down railroad rates to farmers, but that was not the only one.
A major issue of that time comparable in its magnitude to Watergate in ours was the Standard
Oil Company.
The path to the successful monopoly that John D. Rockefeller built was his ability to negotiate
more favorable rate reductions from the railroads than his competitors were able to do.
The essence of my question is in moving willy-nilly to dismantle the government's regulatory process,
are we going to recreate the same crisis we had in the 19th Century?
Mr. Daly: Who would like to start on that one?
Mr. Proxmire: All right.
Well, he mentioned my name so I'll begin on it.
I think as far as the SEC is concerned, when the fixed commission rates for brokers was
abolished and competitive rates were established, it was very clear that there would be a consolidation
of brokerage firms.
We may move toward only 18 or 20 or maybe even fewer brokerage firms in the near future.
There would be a considerable concentration.
Now, does that mean weaker competition or stronger competition?
Obviously, you had no competition whatsoever as far rates were concerned before because
the rates were fixed.
They were established.
I think you're getting greater efficiency in the brokerage industry.
I think that the investors are getting a little better break because the brokerage cost is
being reduced.
As far as the ICC is concerned, my point was that we've had a transformation in technology
is an understatement since 1887, especially transportation technology.
We've got a highway system now and a trucking system that transports a very, very large
proportion of all of our freight.
Perhaps any abolition of the ICC in a short time would be impossible and probably a very
serious mistake.
It would have to be phased out.
It would have to be gradual.
That's what President Ford proposed.
But at any rate, I think it's important to do what we can to provide a real competition
among those literally thousands of individual separate firms that are available to compete
in trucking.
Mr. Daly: Senator?
Mr. Danforth: Well, I think it's important to say that I don't know of anybody who is
suggesting a breakneck speed move toward deregulation.
A lot of industries have been created on the basis that we're going to have a controlled
kind of a system.
And therefore, an airline deregulation, in fact, if this bill that's now before the Congress
is passed, it's not going to be a change that's accomplished with breakneck speed.
It's going to be accomplished over a period of time so that hopefully the businesses that
are involved in it will have some time to adjust to the new system.
Mr. Daly: Professor MacAvoy?
Mr. MacAvoy: It's important to add to that that we should try to forecast well and accurately
and thoroughly what's likely to occur in the deregulation process to the structure of the
newly less-regulated or unregulated industry.
I believe that economist and lawyers working on these questions work very hard on these
predictions, that they're subject to terrible criticism from the industry for their lack
of realism and accuracy, but that in each case the issue has been do we get an effectively
competitive market and in each case that I know of where the proposals have been made
around this table, the answer seems to be yes so far, of an effectively competitive
market from reform of regulation.
We don't get more monopoly.
Mr. Daly: Dr. Wellford?
Mr. Wellford: I think you're dead right that the antitrusters and the regulators need to
be, or the deregulators, as the case may be, need to be to talking to each other more.
One example which does not go to the point that you made and I think is important the
mention of the subject is the fact that in many regulatory initiatives that we're taken,
the fact that we developed standards for the larger companies and imposed them on the smaller
ones has resulted in concentration that really isn't I think economically healthy in the
long run.
The meat inspection there is a classic example.
We developed sanitation standards and requirements for very expensive technology that may be
appropriate, that is as far as the technology is concerned for Armour or Swift, but really
isn't appropriate for the small locker plant in a small town.
Mr. Daly: Next question, please?
Mr. Freer: My name is Duane Freer.
I'm with Federal Aviation Administration.
I'd like to suggest that within the federal bureaucracy there's a lot of federal bureaucrats
that feel they too are being swamped with legislation.
Too many laws, too much legislation, perhaps too much patchwork, too much band-aid type
legislation in an almost frantic pace coming from the Hill.
I would like to know the response of the two senators particularly to the suggestion that's
been made recently by several people that the Congress sit fewer days and consider less
legislation.
Mr. Daly: Do you want to start that?
Who wants to start?
Do you want to start it?
Mr. Proxmire: I think many members of Congress would like that and certainly many wives of
members of the Congress and children would like it because the Congress has been sitting
more and more days and taking more and more time, but I think the difficult fact is that
we just have a bigger, more complicated society.
Look how enormously the executive branch has grown, and our country has grown, and the
very great complexities of our economic system are constantly increasing, technology coming
on with a rush.
We have a half-trillion dollar budget coming up and it's going to be vigorous as time goes
on.
There's no way we can stop that.
We would like to.
We hope we can hold back the rate of increase.
But under those circumstances I think that Congress just has to recognize we're gonna
have to do more.
We're gonna have to have, unfortunately, larger staffs.
I just hope that we can hold down the pace of the increase somewhat.
I think you've focused on a very important problem.
I hope we can begin to restrain ourselves in that respect, but I don't have any hope
unfortunately that we can live a simpler life in the future.
It's likely to be more complicated.
Mr. Daly: Senator Danforth?
Mr. Danforth: I have no doubt at all that Congress is, as was described in one newspaper
article a few years ago, the bloated branch of the federal government.
I think that it is overstaffed.
I think that it meets for too much of the year.
I think that it is busy doing more to the American people than it is doing for the American
people.
I think that staff members are busily trying to find what one person called BAFOs in order
to advance their congressman or their senator into some new area that nobody has ever even
thought of before.
I think we spend too much time putting out press releases about new legislative initiatives.
We've concocted in far too little time overseeing what is going on and how the laws that we
have passed are working, and I think you're absolutely right in the implications of what
you've asked.
Mr. Daly: This concludes another public policy forum, presented by the American Enterprise
Institute for Public Policy Research.
Mr. Hackes: This public policy forum on regulatory reform has brought to you the views of four
experts.
It was presented by AEI, the American Enterprise Institute.
It is the aim of AEI to clarify issues of the day by presenting many viewpoints in the
hope that by so doing those who wish to learn about the decision-making process will benefit
from such a free exchange of informed and enlightened opinion.
I'm Peter Hackes in Washington.
Announcer: This public policy forum series is created and supplied to this station as a public service
by the American Enterprise Institute, Washington, DC.
For a transcript of this program send $3.75 to the American Enterprise Institute, 1150
17th Street Northwest, Washington, DC 20036.
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