Garbage In, Regulation Out
When it comes to cooking books, the feds are gourmets.

Tuesday, July 9, 2002 12:01 a.m.

President Bush is to unveil proposals today for assuring that we never, ever suffer any more Enrons, Tycos or WorldComs--and that any major corporate executives who are caught fudging the figures will suffer substantial penalties.

Of course, there are already plenty of laws on the books to prevent and punish such corporate wrongdoing. And whatever the president proposes will never be enough for the liberals in Congress and the media, for whom the very act of turning a profit is evidence of scandal. But the White House, being hammered in the media for its supposed lack of action, evidently figures it needs to head off this political wave before it grows any larger.

When it comes to cooking the books, however, corporate America has nothing on the public sector. It would be interesting to see the reaction if the White House insisted that federal bookkeepers and executives were held to the same standards as those in the private sector. If, say, a health-care program busts its budget, then clap Tommy Thompson, the Secretary of Health and Human Services, in the stocks for a spell. Or bring organized racketeering charges against Congress for its failure to stick to its budgets. Or fine Alan Greenspan whenever the value of the dollar fluctuates by 10% or more.

Interestingly, something like this might be in store for federal agencies as a result of a little-noticed law, the Federal Data Quality Act, signed by President Clinton on his way out the door. It was drafted by the pro-business Center for Regulatory Effectiveness in Washington, and inserted into the mammoth year-end appropriations bill in late 2000 by Rep. Jo Ann Emerson (R., Mo.). "The White House noticed it and asked some questions about it, but there was so much going on--Florida, the Clinton pardons and the need to get the appropriations done--that it couldn't be stopped," says Jim Tozzi, co-founder of CRE and a long-time staffer at the Office of Management and Budget.

A Nexis check showed no stories in major newspapers about the potentially revolutionary new rule at the time.

But now that standards are being written to implement the act, activists are in a dither. Not only would data generated by government agencies--ranging from the Environmental Protection Agency to the Securities and Exchange Commission--have to meet quality guidelines, but agencies themselves could require that any studies submitted by third parties, such as the Sierra Club, also meet the same standards.

Anybody affected by the subsequent regulations or activities of the agency would have the right to inspect the data and demand corrections. Moreover, the act applies to the data that agencies already use. The impact could be huge; policy found to rest on inaccurate or misleading data could be suspended or overturned. Mr. Tozzi's organization already has petitioned the White House to view the data underlying a recent Environmental Protection Agency study suggesting that global warming stems from manmade causes and recommending various strategies to combat it. (That's the same study President Bush dismissively referred to as "the report put out by the bureaucracy.")

Not that a lack of data ever stopped a determined regulator or politician. In the 1980s, during the hysteria over "acid rain," emissions from utility and industrial smokestacks were said to be poisoning the forests and lakes of the Northeast. Congress commissioned a $600 million, multiyear study of the subject. As the data came in, researchers made some embarrassing discoveries: Many of the bodies of water had been acidic to begin with, forests in most areas were thriving, and insofar as there might be a problem it would abate anyway as newer technology was installed during the normal course of business.

Not to be cheated out of their opportunity to appear as saviors of the environment, however, Congress decided not to wait for completion of the study. It voted overwhelmingly to impose expensive new emission controls on utility and industrial smokestacks for which we are still paying.

The thought that policy should be based on objective, reproducible information, as the Data Quality Act requires, appalls regulatory zealots. "It ultimately could lead to less government action," Sean Moulton, senior policy analyst for OMB Watch, a left-wing watchdog group, fretted to The Wall Street Journal last week. "If human health is potentially at risk, you can't wait for all the facts to come in."

But until the facts are in, how do you know human health is at risk? As critics like the late Aaron Wildavsky have noted, money spent chasing phantom risks is money you don't have at hand when a real threat materializes. Besides, when is the last time government admitted it might have made a mistake and canceled a program?

In the private sector, the workings of the marketplace at least exert a crude discipline on failed ideas. Its mechanism for doing so is called bankruptcy. In the public sector, lawmakers often reward failure with a redoubling of effort--and money. Remember how Medicare was going to solve health care problems for seniors at a cost of $8 billion a year?

It's fair to wonder how the Data Quality Act will work. By whose standards are data to be judged? And even good data are no guarantee that politicians and regulators will draw the right conclusions. Moreover, the act doesn't provide any penalties. It simply provides that agencies must correct data that are found to be false or misleading, though failure to do so could land the agency in court. (And Mr. Bush today may add criminal and civil penalties for executives who deliberately cook their corporate books in filings with the SEC.)

Several years ago, I asked a top executive of a Detroit auto company why industry didn't do more to counter the hysteria over global warming, perhaps by issuing studies of their own. "We did a survey not too long ago that shows the public simply doesn't believe anything industry has to say on these issues," he said. "What would be the point?"

The public may be about to learn, however, that there are reasons to be just as skeptical of the government's information.
Mr. Bray is a staff columnist at the Detroit News. His column appears Tuesdays.

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