FCC Chairman Ajit Pai has called for the creation of a new “Office of Economics and Data.” As an economist, I might be thought to have a conflict of interest in endorsing his proposal. I do, but not in the direction you may expect.
To paraphrase a former presidential candidate, I was against it before I was for it.
When I was Chief Economist at the Commission in 1991-92, then-Chairman Al Sikes asked me about his idea that every major rulemaking include a formal cost-benefit analysis. I was underwhelmed by it. I had been influenced by empirical research indicating that policy makers did not change their decisions when confronted with new economic analysis. For them economics was a prop, not a tool. Randall Lutter explained that “[T]he ability of motivated bureaucracies to abuse economics to sell pet projects is not news.” And as Robert Hahn and Cass Sunstein later summarized: “there is evidence that the benefit–cost analyses included as part of the regulatory oversight process suffer from serious flaws.” I of course did not oppose economic analysis, but thought that its use would only be as successful as agency officials deemed.
Since then, I’ve changed my mind.
In 2011, Resources for the Future invited me to write a paper about how to improve decision-making at the Federal Communications Commission. It prompted me to observe institutional comparisons. What immediately jumps out is that the FCC, despite engaging in competition policy initiatives that frequently track the concerns of U.S. antitrust agencies, is distinct in flying naked, having no Economic Analysis Group (as does the Department of Justice Antitrust Division) or Bureau of Economics (Federal Trade Commission). In matters of antitrust enforcement, as documented in various economic and political science evaluations, economists routinely emerge as champions of competition, efficiency, and consumer welfare. Indeed, since the creation of offices managed by economists and devoted to the creation of economic studies, antitrust enforcement has visibly moved toward pro-consumer policies.[1] While many arguments continue, and new challenges relentlessly emerge, the distinctly protectionist views of Louis Brandeis – who explicitly criticized consumers for desiring lower prices and making life more difficult for inefficient, high-cost businesses – are now largely relegated to history.[2]
Antitrust economists often join in consensus with the lawyers (and other professionals) who make high-level agency decisions, but they also often challenge the prevailing view. Economists come equipped with a framework that focuses on consumer choice and the benefits of economic growth, and a toolkit that can help clarify the relevant trade-offs.
Putting this analysis in the mix of perspectives tends to expand diversity of thinking. And it is odd to exclude it. “Fundamentally, there is no escaping economic analysis,” as Hahn & Sunstein note. The output – which is actually an input into regulatory decisions — can be improved by upgrading its platform and its purpose.
In order to include economic analysis properly, the FCC should:
- Create an office run by economists, to hire economists and related scholars who are evaluated on professional academic standards applicable to the research and regulatory thinking involved.
- Advance and reward such professionals who engage in academic discourse, publishing, collaboration and conferences, in addition to fulfilling agency duties.
- Assign the office responsibility for designing and producing economic analysis as part of the regular regulatory process.
The office itself would be best managed by a career civil servant with institutional knowledge and prestige within the Commission. The Director of Economics would operate as a long-term player within the body, hire staff, consider how each major docket item could be best analyzed (and by whom), and interact with other bureau chiefs as a peer. The Chief Economist, now a visitor who spends a year or two on leave from their academic home, would be housed here and would serve as an expert consultant to the FCC.
When an economist works as a lone wolf in a bureau run by lawyers, she is assigned tasks by decision-makers who have may have reached tentative (or firm) conclusions about what policy to craft. Her report is typically seen, internally, as window dressing – furniture staging for the policy’s Open House.
But economists have much more to offer. They seek to identify and quantify the gains and losses from alternative policies. They naturally attempt to expand the analysis to all persons impacted by the change. And their models can be made to include long-run considerations that go beyond immediate retail price impacts – investment flows, productivity changes, human capital accumulation – that form key factors in determining long-term economic growth. It is the latter that, while often a casualty of short-term political trading, decides how markets perform over time.
So, it’s a new season. Ajit Pai’s call for an office of economics and data is a home run – even if I struck out when facing a similar pitch a few years back.
* Thomas Hazlett is the Hugh H. Macaulay Endowed Professor of Economics at Clemson University and Member of TPI’s Academic Advisory Board.
[1] The creation of the Office of Plans & Policies at the FCC in the early 1970s (now the Office of Strategic Planning & Policy Analysis) was designed to provide some of this independent, economically-based expertise. Its successes and limits have been detailed in a recent FCC paper by Thomas C. Spavins. The idea for a dedicated “economics and data” office builds upon this experience.
[2] Indeed, when reprising the Brandeis legend in a recent speech, a modern antitrust enforcer failed to mention the late Supreme Court justice’s anti-consumer, pro-seller views. U.S. Department of Justice, Deputy Assistant Attorney General Jon Sallet of the Antitrust Division Delivers Remarks at the Capitol Forum Broadband Competition Conference, Washington, DC (Dec. 16, 2016). On Brandeis’ approach to competition, see the Pulitzer Prize winning history, Thomas K. McCraw, Prophets of Regulation (Belknap/Harvard, 1984), 95-107, 133, 141-2.
