Getting Regulation Right

Much of today’s progressive agenda—on Wall Street, the environment, fair elections, and more—relies on the effectiveness of government regulators, which in turn depends on ensuring that regulators aren’t captured by the industries and interests they oversee. Reviewing a new set of essays, however, Philip Wallach expresses skepticism about the idea of regulatory capture, arguing that it allows “accusations of bad faith to be dressed up as value-neutral scientific evaluations”:

In practice, accusing an agency of being captured relieves the accuser of the burden of showing why a particular policy fails to serve the public interest, because anyone who attempts to rebut their claims can be dismissed as a tool (whether knowing or unconscious) of “special” interests. Claims of capture thus help to end debate about difficult questions—not because they provide definitive scientific evidence bearing on these questions, but because they suggest that seriously entertaining one side’s claims is inherently problematic.

As Wallach notes, complaints about capture are premised on some notion of the public interest: if we’re upset by a regulator who favors the interests of (say) Goldman Sachs over those of the public, then there must be such a thing as “the public interest.” But what, exactly, does that term mean? As Wallach writes, scholars do not think capture is demonstrated merely by “regulated firms getting their way,” but rather by regulators “abandoning the public interest at industry’s behest.” This is “an exceptionally demanding definition,” Wallach writes, “because it is difficult to identify the public interest.” If the “public interest” is an inescapably vague and contested idea, then regulation in the service of a partial interest is unsurprising, and not a particularly good reason to lose sleep. And worries about capture may have an even more perverse result: if they’re little more than dressed-up accusations of bad faith, they distract from legitimate and important debates about the substantive merits of particular policies.

It’s worth asking, however, whether the risks are so high—if charging agencies with capture really prevents more specific policy debates from occurring, or if the elusiveness of the public interest is really so debilitating. To say that we have a hard time agreeing on a definition of the public interest is to say little more than that we live in a democracy, and will have to muddle through despite our disagreements. Articulating a notion of the public interest to guide regulatory agencies is no more, and no less, difficult than articulating a notion of the public interest to guide debate about any other issue.

Strengthening that debate, moreover, might make the public interest appear less elusive than it does today. On certain issues, we’re surely not doomed to ambiguity: it requires no great insight (and not even hindsight) to see the foolishness of giving lax oversight to credit default swaps and deepwater drilling. On less obvious issues, we may reach consensus on policies, even if we can’t reach consensus on the ideals underlying them (as Cass Sunstein has described in his writings on incompletely-theorized agreements). And on still other issues, we can approach a sharper idea of the public interest if we simply lose our skittishness about discussing it. As I’ve noted before, even Democrats—who, at least compared to their opponents, have a reasonably robust idea of the common good—consistently discuss even their deepest civic and egalitarian convictions in the language of sound business and GDP growth. A more frank conversation could restore clarity to our ideas of the public interest. If that makes us more vigilant about perversions of the regulatory mission, all the better.