B. Legislative Functions
The agencies create rules that, in effect, are laws. In day-to-day business practice, the rules are likely
to be much more important than the original congressional legislation.
Rules
Agencies enact three types of rules:
Procedural rules—delineate the agency’s internal operating structure and methods.
Interpretative rules—offer the agency’s view of the meaning of those statutes for which the
agency has administrative responsibility.
Legislative rules—policy expression having the effect of law.
The Rule-Making Process
The Administrative Procedure Act provides for both informal (often called “notice and comment”)
and formal rule-making processes for legislative rules. Under both approaches, the process begins
with the publication of a Notice of Proposed Rule Making in the Federal Register (a daily
publication of all federal rules, regulations, and orders). Thereafter, in the case of informal rule
making, the agency must permit written comments on the proposal and may hold open hearings. To
enhance participation in the rule-making process, the federal government provides an online portal
where the public can comment on proposed rules [see http://www.regulations.gov]. Having received
public comments, the agency either discontinues the process or prepares the final rule.
In the case of formal rule-making, after providing notice, the agency must hold a public hearing
conducted with most of the procedural safeguards of a trial, where all interested parties may call
witnesses, challenge the agency evidence, and so on.
Hybrid Rule Making
Although not specifically provided for in the APA, agency rule-making now is often achieved by a
compromise (hybrid) process that combines elements of formal and informal rule-making.
Hybrid rule-making is informal rule making with additions in the form of some trial elements
(more oral testimony and hearings) that have the effect of providing a more detailed record
without all of the procedural requirements of formal rule-making., than a traditional informal
rule-making. [To search the Federal Register, see http://www.gpoaccess.gov/fr/index.html]
Challenging an Agency Rule
The Federal Communications Commission (FCC) is in the midst of a long-running dispute with
Congress and the courts about the Commission’s interest in continued relaxation of rules limiting a
single company’s ownership (called cross-ownership) of radio stations, television stations, and
newspapers in the same market. The rules were designed to protect communities from media
monopolies and to increase diversity in the marketplace of ideas. The FCC, however, points to the
Internet and other technological advances that reduce the threat of media monopoly, thus providing
some space for increased cross-ownership.
C. Judicial Functions
Although informal procedures such as settlements are preferred, agencies commonly must turn to
judicial proceedings to enforce agency rules.
Rule-Making or Adjudication?
An adjudication addresses specific parties involved in a specific present or past dispute.
Rule-making ordinarily involves standards to be applied to the future conduct of a class of
unspecified parties. Regardless, the agencies are, in effect, “making law” either by setting a
judiciallike precedent n the case of an adjudication or by passing a rule that has authority much like
a law.
Administrative Hearing
Typically, after an investigation, a violation of a statute and/or rule may be alleged. An effort is
made to reach a settlement via a consent order, in which the party being investigated agrees to
steps suitable to the agency but under which the respondent makes no admission of guilt (thus,
retarding the likelihood of subsequent civil liability).
Administrative Law Judge
Failing a settlement, the parties proceed much as in a civil trial. Ordinarily the case is heard by an
administrative law judge (ALJ). Parties have the right to present their cases, cross-examine, file
motions, raise objections, and so on. They do not have the right to a jury trial, however. The ALJ
decides all questions of law and fact and then issues a decision (order). In general, that decision is
final unless appealed to the agency/commission. After exhausting opportunities for review within the
agency, appeal may be taken to the federal court system.
Practicing Ethics: Agency Capture, Iron Triangles, and Revolving Doors?
Agency capture is a form of governmental failure that can occur when regulators are too cozy with
the industry being regulated or when industry representatives have the interest and resources to
offer detailed advice on agency business while the public voice, being much less focused, is
seldom or never heard by the agency. Political scientists argue that regulatory capture of both
agencies and congressional committees sometimes produces a stable, nearly impregnable, iron
triangle. Powerful interest groups (often businesses), occupy one corner of the triangle,
congressional committees are at another corner, and agency bureaucrats occupy the third.
Regulatory capture is facilitated by a revolving door wherein agency officials often come from the
very industry they are hired to regulate and agency regulators often leave government to work for
the industry formerly regulated.
IV. Controlling the Agencies
Just as with the constitutional system generally, certain checks and balances constrain agency conduct
while allowing the latitude necessary to achieve effectiveness.
A. Executive Constraints
The president appoints the top agency administrators for the various agencies, thus significantly
influencing the conservative or liberal slant of the agency. Recent presidents have strengthened
executive oversight of agency action by requiring cost-benefit analyses for new rules (President
Clinton) and commanding agencies to cite a specific market failure before issuing a new rule
(President George W. Bush). President Obama has maintained the cost-benefit expectation and he
has introduced a new initiative to get rid of what he has labeled “dumb” rules. Recently, President
Obama ordered all federal agencies to systematically review their existing regulations with the goal of
eliminating outdated rules that “stifle job creation and make our economy less competitive, while
reaffirming the importance of government regulation to assure public health and safety.
B. Congressional Constraints
Congress creates and can dissolve the agencies. Congress controls agency budgets thus can
encourage or discourage particular agency action. Broadly, Congress oversees agency action, and
agencies often check with Congress before undertaking major initiatives. Congress can directly
intervene by amending the enabling legislation or by passing laws that require agencies to take
specific directions.
C. Judicial Review
Agency rules and orders may be challenged in court. Historically, however, the courts have taken a
rather narrow approach to judicial review. The jurists, being generalists in the field of law, have been
reluctant to overrule the judgment of specialists, and very crowded judicial calendars act as a natural
brake on activist judicial review.
Legal briefcase: Federal Communications Commission v. Fox Television Stations and Federal
Communications Commission v. ABC 132 S. Ct. 2307 (2012)
V. The FCC and Indecency Today
As noted in Fox II, FCC rules forbid indecent materials on conventional broadcast services between 6 am
and 10 pm—hours when children are likely to be in the audience. Fines for indecency can reach as high
as $325,000 per violation. That stiff penalty along with the FCC’s broadly drawn indecency standards
have caused some stations to refrain from broadcasting shows with profanity.
Parents’ Duty?
Caroline Fredrickson explained the American Civil Liberties Union’s objections to close government
oversight of broadcasting. The concern was that imposing standards for television programming would be
unconstitutional and damage important values that define America: the right to free speech, and the right
of parents to decide the upbringing of their children.
Part Four—The Federal Regulatory Process Evaluated
Free market advocates want to sharply reduce government, while free market skeptics favor an activist
government engaged in preventing and correcting market failure. At this writing, President Obama and
the Democratic Party have elevated the role of the federal government in American life in an effort to
correct problems they believe the market cannot successfully address. Republicans and Tea Party
activists, on the other hand, have angrily resisted what they see as an overreaching government intruding
in matters such as education and energy policy better left to local communities and the market.
The resulting political war has been powerfully projected to the populace through the debate over the
2010 national health care reform law, the Patient Protection and Affordable Care Act (Obamacare). As
noted, the Affordable Care Act cleared a big hurdle in withstanding constitutional challenges, but its likely
effectiveness is unclear at this writing.
TARP
Fearing the collapse of the American economy, the Bush Administration in 2008 and the Obama
administration thereafter loaned over $400 billion in government money to giant banks such as
Citigroup and Goldman Sachs, insurance colossus AIG, General Motors, Chrysler, and many
others, large and small. Although much of the Troubled Asset Relief Program (TARP) money has
been repaid, taxpayers are still expected to lose as much $25 billion when the program is
eventually concluded.
Financial Reform
Concluding that the financial markets needed more effective and thorough oversight in light of the
nation’s near crash, Congress and President Obama in 2010 approved the Dodd-Frank Wall Street
Reform and Consumer Protection Act to improve America’s financial regulatory structure.
At this writing, more than three years after the enactment of Dodd–Frank, many of its provisions
have yet to be implemented. Critics believe Dodd–Frank threatens small business and consumers
by raising borrowing costs and limiting services while giving too much power to government.
I. Bigger Government?
The threat of a banking collapse and economic chaos for America and the world has generated a
resurgence in federal economic intervention. Obamacare, Dodd–Frank, and very aggressive Federal
Reserve and Treasury Department policies have brought squarely to the attention of the American people
the crucial but divisive question of just how much government does one needs in his/her life. Are people’s
lives excessively regulated or insufficiently regulated? Or are government regulations too often
ineffective?
A. I. Excessive Regulation
In brief, the excessive regulation argument is that government rules reduces business efficiency, curb
freedom, and unjustly redistribute resources while expanding the government bureaucracy and the
taxes/borrowing that fund it.
Perhaps the biggest risk from excessive government is slower economic growth and fewer jobs. The
U.S. Chamber of Commerce argues that the threat of ever-growing regulations brings such uncertainty
to the economy that businesses simply decline to invest out of fear that government might impose
costly, new rules at any time.
Shrink Big Government?
Given the enormous costs involved and the long-term threat of too much government, Americans
routinely plead for lower taxes and smaller government, but when it comes to actually cutting specific
programs that benefit them, sentiments change dramatically.
B. II. Insufficient Regulation
Relentless change and the continuing search for justice mean that new rules are inevitable. Advocates
of increased regulation point to the many successes of government intervention: a vast highway
network, legal equality for minorities and women, cleaner air, safer workplaces, greatly diminished
child labor, enhanced auto safety, and so on.
C. Ineffective Regulation
Just as the market can fail, so can the regulatory system. Critics further charge that the regulatory
process is corrupted by familiar bureaucratic problems including inefficiency, incompetence, low
productivity, and inconsistent policy enforcement.
Your Life: $7 Million?
How much is a life worth? That question is probably the crucial cost–benefit inquiry. When imposing
new environmental or car safety rules. Recently, leading scholar Kip Viscusi and colleagues put a $7
to $8 million value on human life based on what one is willing to pay to save an average American life.
The National Highway Traffic Safety Administration (NHTSA) has announced that it will recommend
the inclusion of rear-view video systems in new cars. New rules were called for by Congress in the
2008 Cameron Gulbransen Kids Transportation Safety Act.
C. Further Deregulation or Reregulation?
Financial Services
The federal government’s Financial Crisis Inquiry Commission’s study of the financial collapse
pointed to an array of problems including ineffective government oversight; corporate governance
failures; reckless borrowing; lending and investment practices; ethical failures, an unregulated
financial derivatives market, and failures in the credit rating agencies (e.g., Fitch Ratings, Moody’s
and Standard & Poor’s).
Doubtless many factors contributed to the meltdown, but the primary concern is the issue of market
and ethical failure and the resulting need for government intervention. Critics of the free market on
the other hand say that deregulation was a big factor in the collapse. Whether the market failed or
not, one should note general agreement that the government failed in its oversight responsibilities.
Regulatory Virtue
Historian John Steele Gordon argues that capitalism needs regulation and that regulation has
made the country more stable and richer.
God Up; Government Down
The Baylor (University) Religion Survey, conducted by the Gallup Poll in 2011, found that people
who strongly believe “God has a plan for me” were much more likely to also believe that “the
government does too much.” Sociologist Paul Froese, coauthor of the study, says the strong
believers see the invisible hand of the free market as God at work. Those who do not believe in
God or who believe God to be more removed from daily affairs tend to be more supportive of
government.
II. The Winner: The Mixed Economy?
Economist and columnist Sebastian Mallaby argues that people should acknowledge a role for both the
market and government in their mixed economy and recognize that the American people will continue to
demand more and more from the government (security from criminals and terrorists, clean air, safe food, good
schools, and so on).
Young People?
What does the future hold for big government in America? Is Mallaby right that the market and
government working together are necessary for success in tomorrow’s America? According to a Pew
Research Center survey, under-30 voters are “the only age group in which a majority said the
government should do more to fix problems.”
III. Global Regulation
One should remember that regulation in the United States remains modest relative to the balance of the
globe. Even though the cost of regulation in the United States is great, government rules are, in fact, less
burdensome in America than in most nations. The global trend, however, seems to be toward more
sensible rules.
One should also understand that regulation, particularly in the banking sector, is an increasingly
cooperative, international process recognizing the value of cutting global red tape while also
acknowledging the necessity of firm rules to maintain a healthy global economy and prevent future
financial crises. The big industrial nations, at this writing, are phasing in new measures (labeled Basel III)
to promote global financial stability.
IV. Two Concluding Cases
Case I. FDA Ban on Menthol Cigarettes?
At this writing, the federal Food and Drug Administration is considering whether it should forbid the use of
menthol as a flavoring in cigarette packets.
Case II. Cell Phones: A Deadly Distraction?
The federal Department of Transportation reported that 3,331 people died in distraction-related crashes in
2011. Research at the University of Utah found that cell phone conversation is a much more dangerous
distraction than passenger conversation.
Guy Davenport: “The telephone is God’s gift to the bore.”