Regulatory reform: the new Lochnerism?

• Author: Driesen, David M.

1. INTRODUCTION II. CBA: AN INTRODUCTION A. CBA: A Definition B. Origins and History III. LOCHNERISM A. Ideology B. Natural Law Origins C. Skepticism Toward Non-Neutral Legislation 1. Class Legislation 2. Formalism and Neutral Categories 3. Hyper-Rationalism D. The Gilded Age's Cost-Benefit State E. Repudiation of Lochnerism IV. PARALLELS WITH REGULATORY REFORM A. Judicial Activism B. Ideology and Natural Law Origins Attitudes Toward Legislation 1. Favoring Neutrality 2. Hyper-Rationality D. CBA: Then and Now V. IMPLICATIONS FOR THE REGULATORY REFORM DEBATE A. Hyper-rationalism B. Neutral Law and Admiministrative Agencies C. Legislation and Value Choice VI. CONCLUSION I. INTRODUCTION

   In Whitman v. American Trucking Associations (American Trucking), (1) cost-benefit analysis (CBA) proponents urged the Supreme Court to strike down section 109 of the Clean Air Act (2) under a constitutional doctrine not used since the end of the Lochner era, the nondelegation doctrine, or to create a canon of statutory construction favoring CBA to avoid the nondelegation issue. Their argument for a cost-benefit canon portrayed regulation aiming to protect public health as irrational because of the one-sidedness of the health protection principle. (3) By asking the Court to base its rifling on its view of the reasonableness of section 109's health protection principle, they sought, in essence, to revive an approach that prevailed during the Lochner period, when the Court discredited itself by using dubious substantive due process theories to strike down regulatory schemes that it found unreasonable. (4) Harvard Law Professor Laurence Tribe implicitly recognized that some of the CBA proponents' arguments sounded in Lochnerism, for his brief for General Electric disclaimed any reliance on substantive due process to avoid the taint emanating from the Lochner line of cases. (5)

   The CBA proponents deployed these arguments for Lochnerian activism attacking Clean Air Act section 109, (6) which requires the Environmental Protection Agency (EPA) to promulgate national ambient air quality standards protecting public health. (7) This provision reflects a specific value choice, favoring public health protection over competing economic considerations. (8) Accordingly, the American Tracking Court held that enactment of section 109 did not violate the nondelegation doctrine, which prohibits congressional delegation of legislative authority. (9) The Court also rejected CBA proponents' request to construe section 109 to require consideration of cost. (10) In essence, the Court's decision recognized that the Constitution does not prohibit one-sided legislation. (11)

   This Article examines a question suggested by Professor Tribe's brief. To what extent does modern regulatory reform rely upon Lochnerian views of legislation? The diversity of scholarly views about what precisely Lochnerism was about makes this question difficult to answer. (12) One frequently lamented Lochnerian vice, judicial misinterpretation of the Constitution, has played at most a very minor role in the regulatory reform debate. Yet, Lochnerian views about legislation, which played an important role in that period's jurisprudence, play a central role in the regulatory reform debate, as this Article will show. Both the Lochner era Court and modern regulatory reformers derive their views from economic theory with natural law origins. Both Lochnerism and regulatory reform share skepticism of legislative value choices and implicitly embrace the idea that legislation should be neutral. (13) The skepticism of legislation that both share leads to remarkably similar demands for hyper-rationality in regulatory decisions. And both equate CBA with rationality.

   Examining the link between modern regulatory reform and Lochnerism brings the arcane regulatory reform debate into a broader constitutional and administrative law context. Regulatory reformers' arguments serve a Lochnerian vision of neutral, largely value-free, legislative decisions. This Article argues that such a view of legislation is out of place in the post-Lochner administrative state, as American Trucking implicitly recognized. Part II provides relevant background on CBA. Part III discusses Lochnerism. Part IV draws parallels between various aspects of Lochnerism and modern regulatory reform. Part V develops the implications of these parallels for the regulatory reform debate.

2. CBA: AN INTRODUCTION

   Calls for regulatory reform have greatly influenced government in recent years. (14) Regulatory reformers have argued that we need much more emphasis on CBA and much less on health protective policies, like the policy found in section 109 of the Clean Air Act. (15) This Section defines CBA and reviews some of its history.

   1. CBA: A Definition

      CBA of a proposed rule requires a regulator to compare compliance costs to the harms a rule will avoid, which most writers refer to as benefits. (16) In order to facilitate this comparison, CBA requires the analyst to express the value of the avoided harms in dollar terms to the extent possible. (17) This analysis of avoided harm requires two steps. The regulator must undertake a quantitative risk assessment to estimate the number of deaths and illnesses and the amount of environmental harm a regulation will avoid. (18) The regulator must then assign a dollar value to each death, habitat saved, illness avoided, etc. (19) Using these two steps, the regulator can, in principle, estimate the value of some of a regulation's benefits in dollar terms.

      The first step, quantitative risk assessment, usually proves impossible for all environmental effects and many health effects as well. (20) Data gaps and a lack of basic scientific understanding often preclude even crude estimation of the amount of death, illness, and environmental destruction a particular regulation will avoid. (21) When estimation proves possible, uncertainties often lead to an enormous range of scientifically plausible benefits estimates. (22)

      CBA advocates tend to equate all of this quantification with objectivity. (23) But risk assessment and monetization require policy decisions in order to extrapolate risk estimates from limited data and to assign dollar values to particular consequences. (24)

      CBA supporters have varying positions about what role CBA should play in the regulatory process. (25) Sometimes they advocate the "indeterminate position," which simply maintains that regulators should consider CBA. (26) This position does not tell us how precisely regulators should respond to CBA or what role it should play. (27) At other times, however, they advocate some sort of cost-benefit criterion, such as a requirement that the costs of a regulation not exceed its benefits, which provides somewhat clearer guidance. (28) This distinction between the indeterminate position and support for a cost-benefit criterion will aid Part IV's analysis.

   2. Origins and History

      The CBA idea comes from economic theory and relies upon an analogy between environmental protection and the purchase of goods and services. (29) CBA treats government regulation as a purchase of a benefit, rather than as an effort to protect people from harm. (30) Just as a rational consumer purchasing a good or service would not pay more than the benefit is worth, economic theory suggests that the government should not write regulations that cause society to incur costs that outweigh the environmental and health benefits a regulation will bring. (31) This analogy between government regulation and purchase decisions leads to a view that government agencies should consider CBA when writing regulations.

      The courts have interpreted the Toxic Substances Control Act (TSCA) (32) and the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) (33) as requiring application of a cost-benefit approach. (34) Most other environmental, health, and safety statutes employ some combination of mandates to protect public health and safety (such as the mandate found in section 109 of the Clean Air Act) (35) and to require reductions achievable through use of appropriate technology (i.e. technology-based standards). (36) Technology-based standard setting provisions, which are ubiquitous in environmental law, require agencies to consider cost, but do not contemplate comparing those costs to benefits. (37) As a result, regulators crafting technology-based standards may avoid quantifying benefits.

      Nevertheless, a series of executive orders has often required CBA, even under statutes that do not embrace the technique. (38) President Reagan's executive order had the explicit goal of simply reducing the burden of regulation, an objective in some tension with the aims of the Congresses that enacted many of the modern regulatory statutes in the 1970s. (39) In keeping with the Justice Department's view that the President could not authorize agencies to transgress boundaries set by Congress, the order only applies "to the extent permitted by law." (40) The Office of Management and Budget (OMB), an office consisting mostly of economists, not lawyers, (41) administers the cost-benefit executive orders and has used that authority to give CBA much greater primacy than environmental, health, and safety statutes called for. (42)

      Support for CBA has grown both within government and among academics. While originally the executive orders excited a great deal of angst in Congress, in 1995 Congress passed the Unfunded Mandates Act, which generally required its use in considering rules likely to generate $100 million or more in costs. (43) Some judges have also expressed support for CBA. (44) And, in recent years, several very prominent academics have devoted significant amounts of their time to defending increased use of CBA in setting environmental, health, and safety standards. (45)

3. LOCHNERISM

   Scholars traditionally associate Lochnerism with the creation of substantive due process doctrine...