Forum Post: OIRA - why regulations "don't work"
Posted 12 years ago on Dec. 1, 2011, 10:30 p.m. EST by looselyhuman
(3117)
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Read below about the OIRA. This office seems to examplify the self-fulfilling nature of libertarian-types in their dual-pronged attack on regulation - working (a) from within to undermine regulatory effectiveness and (b) from without to point out regulatory failings (see a). Gotta love it.
From today's Mother Jones: http://motherjones.com/blue-marble/2011/11/obama-bush-environment-oira
OIRA consists of 55 people, mostly economists, whose main function is to review regulation drafts and proposals from various federal agencies. The office doesn't get much coverage in the media, but it's incredibly powerful—reporting right up to the director of the White House's Office of Management and Budget. In 10 years, OIRA altered a whopping 84 percent of EPA rule submissions, undermining protections that the agency is trying to implement. Citing a number of studies, the report notes that "OIRA almost exclusively weakens agency rules." When Obama took office, he appointed Harvard Law professor Cass Sunstein—a buddy of his from their days teaching at the University of Chicago Law School—as OIRA's head. As "regulatory czar," Sunstein is at the forefront of the government's rule-making operation—and yet he has a hefty reputation for being anti-regulatory.
And more in-depth from: http://www.progressivereform.org/eyeonoira.cfm
The Office of Information and Regulatory Affairs has an unenviable reputation. The media can’t seem to resist calling it “obscure,” and often refer to its director as the “regulatory czar.” Among progressives, it’s regarded as an unduly sympathetic ally of industry lobbyists trying to water down or kill protective regulations.
In fact, all those things are more or less true. It’s “obscure” because most people have no idea what it does; its director is fairly described as a “czar” (within the meaning of the term in Washington, not in pre-revolutionary Russia!) because he wields extraordinary power over the regulatory structure; and it is clearly the place where industry lobbyists pitch their tent, hoping to delay, dilute, distort, or defang protective regulations.
OIRA is one other thing, as well. It is also the office that forces regulatory agencies to subject proposed regulations to systemically flawed cost-benefit analysis – a method of regulatory impact analysis that overstates the costs of protective regulations to industry (largely by relying on inflated industry estimates) and understates the benefits of such regulations (often by simply ignoring those that do not carry a price tag).
http://www.whitehouse.gov/omb/inforeg_default
Julie Brown - Vague
Excellent post, Loose.
Thank you.
"Chickens, meet your new security guard, Mr. Fox."
Is this anything like the Fed keeping tabs on the banking sector? ;-)
I'm all for transparency and other reforms, but I don't think it was intended to be a regulatory agency. Insofar as it performs that function, some serious changes are needed.
http://en.wikipedia.org/wiki/Federal_Reserve_System#Purpose
Unrelated deregulation, especially Glass-Steagal, seems to me the bigger problem though. This piece has a lot of editorializing, but does a nice job covering the main events of financial deregulation: http://moneymorning.com/2009/01/13/deregulation-financial-crisis/
Whether or not it was intended as such, it has ended up in that role in many areas, and unfortunately there is little oversight and only token reforms that have come from that direction in recent times.
I agree on Glass-Steagal, for the most part. That was the beginning of the end of any sort of check on the banking sector's power to rape, pillage and plunder for fun and profit.
What transparency we have been able to accomplish via Reuters and the emasculated Audit the Fed bill has shown that the Fed can't be trusted with the extraordinary power they have, and that the unemployment side of their dual mandate is a farce, and the inflation side they consider irrelevant.
Well I think we agree that they're competing mandates. I would like to see the employment mandate taken more seriously and the inflation one less so, at least in the current environment... I think we've already had this conversation and I don't have time to re-hash today, but real inflation is too low right now, given the public and private debt crises, and (22%+ in real terms) unemployment.
We have broached this subject, but perhaps we could get a little deeper into the inflation side, because I think we may be talking past each other.
To monetarists, inflation is always a money supply issue, and if this were true, then we would have totally out-of-control inflation right now, IMO. Friedman (who should have likely been called Helicopter Milton, since he originated the helicopter drop meme) said: "Inflation is always and everywhere a monetary phenomenon." He theorized that the Great Depression was a function of severe monetary supply contraction ( by 1/3 between 1929 and 1933). We shouldn't totally dismiss these theories, since money supply contraction has been a consistent feature of recessions throughout our history. Some even claim it has and is perpetrated by the banking system to create opportunities to expand their holdings by buying cheap assets that appear at the bottom of a crash.
But unless credit expansion via the fractional reserve banking system occurs as a result, price inflation never really kicks in. That's where we are now, where Americans are tapped out with regards to being able to borrow further, so dumping money into the banking system doesn't translate into the credit expansion that would normally result from that. At least not in traditional lending. What is happening instead is that this liquidity is being used to further fund the highly leveraged market plays that have been the hallmark of our post-Glass-Steagal reality. The stock market and commodity markets keep moving up, but without any underlying increase in productivity.
To Keynesians, monetary inflation seems to be taken as roughly synonymous with economic growth, even though Keynes himself was terribly cautious about it, via wikipedia:
"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
To those of the Austrian school, they seem to agree mostly with Friedman, but also with Keynes' quote above, and believe that no one ought to have the power over money supply but the market, being of the belief that currency stability is the bedrock upon which a sustainable economy can flourish. Most then advocate (incorrectly IMO) tying money supply to gold. Although this would democratize base money as central banks only hold a fraction of it, it totally ignores the actual money supply needs of the real economy.
So my question to you, loosely, is that since interest rates and deficits are at all time highs, and the price of inputs on production is going up, and because of global wage arbitrage and rampant unemployment, wages are seemingly hopelessly depressed, how would you instruct the Fed to accomplish this increase in real inflation, and what would be the result? IMO, that sends us into an even more pernicious flavor of stagflation than we had in the 70's.
Your post is so excellent I just had to weigh in !
First you should know I'm a big fan of the modern Federal Reserve that emerged in the post-depression reforms, specifically the Banking Act of 1935 that removed direct political influence over their decisions.
You hit the nail on the head in your comment regarding the limits of what the Fed can do; It can cheapen money and provide liquidity, but it can't create demand, and that's what fuels growth. This is one of the reasons the Fed keeps repeating they can only do so much without fiscal action; the government, by putting people to work using printed money, can create demand.
Unfortunately, we have run smack dab into a paradigm shift regarding debt. The most recent survey of households conducted by the Fed reveals two very interesting changes since 2008. First, every family that responded, regardless of socio-economic status, reported a 200% increase in their perception of how much savings they should hold. Second, every family surveyed, again regardless of socio-economic status, also said they would not necessarily increase spending simply because the economy improved. These trends are surely the result of the 2008 experience, but they have also been brewing behind the increasing popularity of Dave Ramsey, Suze Ormond, and the multitude of authors promoting reduced debt. Unfortunately, most American's don't understand the debt held by America who 'owns' the reserve currency is not the same as their VISA debt, and we now suffer from enormous political pressure to limit spending near an election year. Fiscal stimulus is out until 2013 and likely beyond.
I have to believe the results of the Fed's survey of families were a little off. I expect people will consume again once they feel comfortable with their debt/savings ratio and see prolonged economic recovery and financial stability. The Fed can and is helping in these areas.
On the stability front, the Fed has been doing a fine job of insulating our banks from the shock waves reflecting off the international scene, probably because of Bernanke's deep understanding of how that hurt us in the Depression. He's been paying banks to pump up their reserves and de-leverage, essentially accelerating Basel III provisions, and our banks are in pretty good shape (except for BofA which still suffers from the acquisitions we pushed them into). I predicted his move to inject liquidity in Europe by exploiting our position as the reserve currency to give their banks access to capital and buy Europe some time. Thanks to pressure from the markets/rating agencies, Europe now understand their problem is bigger than the PIGS alone, and they're moving to put their house in order.
The markets are chomping at the bit to move upward, and there's a lot of money sitting on the sidelines due to poor bond yields and the belief gold is near its peak. As soon as there is positive movement in Europe, the markets will jump. We've already see this with each bit of good news. At the same time, all the money hiding behind the safety of the dollar will flee, the dollar will fall, exports will start rising, and inflation of core international commodity prices will start creating some inflation.
The Baby Boomers, who have deferred retirement en mass, will see the jump in their 401Ks, and many will retire and open some jobs. Average consumers, seeing their 401Ks jump as their wages rise will start buying down their debt. All the good news will reduce fear, and seeing their debt loads as a percentage of wages fall, pent up consumer demand will surge forward. We've already seen signs of this pent up demand in the car markets emerging even with the weak domestic recovery, and cars are the largest single expenditure people make besides their home.
The next problem will be getting all those dollars back off the market. Fortunately, I believe the pressures on growth will be explosive, and the Fed will be able to trim a few points off at the window to start retiring some dollars. We will also work with the other central banks to start buying more dollars off the market. It's going to be a very long time before we have them all back out of circulation, so I expect to see a pretty weak dollar for quite sometime. This will help exports and hurt imports, but that's good for us; we will have done what most want to do under the guise of "emergency measures."
The issue remains Europe. We'll recover as soon as they form a fiscal union or decide to unleash the ECB and let them serve as the lender of last resort. As it stands, I think the Germans are leashing the ECB so the crisis persists to put political pressure behind the need for a fiscal union. What's uncertain is just how long they're willing to hold everyone hostage and how long the agreement for a fiscal union will take. The biggest barrier may be fading; France is notoriously nationalistic and has resisted further loss of sovereignty, but Sarcozy recently stood up and starting singing the praises of fiscal union very publicly. If he can sell France on it, the rest will likely follow. If he can't, then they're either going to have to break up the Euro or unleash the ECB. The unknowns are how long the debate over fiscal union will take and whether there's sufficient fear of a break-up to unleash the ECB if it fails.
Note I'm a Systems Engineer, not an economist, but I have put $1 million behind my opinion !
Boy I sure hope you are right about the good things waiting to happen. I think much of the talk of deleveraging by families can actually be explained by the huge increase in foreclosures/defaults. Not that I don't think that there is a much stronger tendency to lean much less heavily on CC, HELOC and the like.
And you are very correct about demand creation. The Fed can't really do anything about that. With unemployment so high and wages not tracking, consumer demand has been drying up.
Good stuff, Rico. I'm just a lowly union carpenter, so please no investing on my humble take on things!
Pretty darned good command of the topic for a 'lowly union carpenter,' at least in the eyes of this 'lowly engineer.' I really enjoy discussing things with people who put some work into understanding the topics they discuss, and you clearly do so.
By the way, you might enjoy the post and discussions at http://occupywallst.org/forum/the-rise-of-the-machines/
QE3 and beyond. But as I mentioned, not a lot of time - need to go deal with reality. On stagflation however, I'll just leave you with this (and note my points about debt and unemployment above):
http://krugman.blogs.nytimes.com/2010/03/18/stagflation-versus-hyperinflation/
This is not our situation today. We have the unemployment but not the cost-push factors (oil shock, especially) - and the lack of inflation shows that we haven't had (enough of) the expansionary monetary policies Krugman mentions. When we have 5%+ inflation and continued high unemployment, we can revisit.
Interest rates are not at all time highs by the way - and that deficits are is an argument for more inflation.
But of course all of this needs to be tied to more fiscal policy.
I agree. The situation we're in today is nothing like the 70's. All your observations are correct, and we'd have to consider the Nixon Shock when Bretton Woods fell apart due to the wolds emergence from the ruins of WW II ( see http://en.wikipedia.org/wiki/Nixon_Shock ).
Right, and thanks for your thoughtful piece above.
That inflation rates are not at all time highs is that we are stuck where they are because we can't afford to raise them because of our debt load. So savers are being hosed, and interest rates are no longer a useful tool. Historic lows in interest rates coupled with essentially non-existent reserve ratios should mean that credit expansion should be in high gear. But obviously that is not the case.
Seriously.
Where did this OIRA come from?
Why is it able to overrule the EPA?