The Realpolitik of Regulation: 
Offensive and Defensive Strategies 

By Harold Furchtgott-Roth 
Commissioner 
Federal Communications Commission 

American Enterprise Institute 
Amgen Forum 
FRIDAY APRIL 28, 2000



Thank you, Chris, for that very warm introduction and thank you to 
AEI for having me here today and to AMGEN for sponsoring this forum.  I 
would also like to thank the CSPAN viewers from across the country for 
tuning in today.

It is humbling to come to AEI to give an AMGEN forum on 
regulation.  This institution throughout its history has stood for the highest 
standards of academic research on regulation.  Practically all the scholars 
here at AEI work on regulation in some capacity or another. I would just like 
to mention a few whose research overlaps perhaps most closely with my 
kind of simple minded work today.  Chris DeMuth your work on the 
expansion of government regulation and your recent addresses on this topic; 
Bob Hahn on national regulatory structures; Greg Sidak and Tom Hazlett on 
the subtleties--and not so subtleties--of telecommunications regulation. 

Government officials often think that academics don't really 
understand what the real world is about, and academics often understand that 
government officials don't really understand what the real world is about. 
AEI provides a very  good bridge for the two.  Having a foot in both worlds, 
I probably don't understand much of anything.  

I have thought about writing a book on regulation.   Someone recently 
put me in touch with a leading book agent on regulation.  This was the 
person who was the most sympathetic to the idea of a book on regulation.  I 
called him up for a lunch appointment to discuss this book possibility. He 
said, "First of all, tell me about this book you want to write." I said,  "Well, 
it's about regulation."

He said, "Thank you, but really there isn't a market for books on 
regulation. No one wants to read about regulation."

 I tried to deepen my voice and sound important. I said:
"I really have some new ideas."  He said: "Save yourself some trouble, kid. 
Photocopy your pages, and hand them out to your ten closest friends. No one 
else wants to read this book.  If you have a book on sex or health, something 
like that - - that's a book I can sell. But regulation -- never!"

I'm just glad I didn't talk to one of the agents who was not sympathetic 
to the idea of a book on regulation.  

People in government sometimes have an inflated sense of self-
importance. Much of the outside world really doesn't care about what goes 
on in government.  I once met with a venture capitalist in California. He 
asked me what I did. I said  that I was an FCC Commissioner.

He said, "That's interesting.  I have a friend who is on some blue 
ribbon panel in Washington. He flies there once a quarter and has a good 
time. So tell me, what's your real job?"
 I said, "Well, I am an FCC Commissioner." The venture capitalist 
was startled to discover this was a full time job. A lot of people in 
Washington are startled too. While the outside world doesn't know much 
about what regulators do, those who have to deal first-hand with regulators 
know all too well.    

There is a story of the regulatee who had been called to a meeting 
with a regulator.  You can pick your favorite regulator to fill in the blank. 
This regulatee was in a lot of trouble, so the company sent a junior officer to 
go to the meeting. 

The regulator just grilled this corporate officer all day long: "So, have 
you filled out these forms and those forms?  Do you know how to fill out the 
forms?"  The officer did not know the answers to any of the questions.  And 
at the end of the day, the regulator turned to the regulatee and asked: "What 
are you going to do?"  

The poor officer said, trembling: "Well, I've no idea what you've told 
me to do. I don't understand what I'm supposed to do, but I'm sure the good 
Lord will see me through this."

The regulator shakes his head and goes in to see one of his 
colleagues.  He says, "Well, I have some good news and some bad news. 
The bad news is: this corporation has no idea what they are supposed to be 
doing. They really don't understand. The good news is: he recognizes that 
we are actually God."

The realpolitik regulation
  
I am going to look at regulation as an economist would.  But at times 
there is this element of god-like nature of the regulators that is troubling. 
That is the theme of my talk today--as Chris so eloquently pronounced--the 
realpolitik of regulation.  

I am also going to suggest that there is a market for regulation with 
demand and supply characteristics.  But I am also going to suggest that pure 
economic analysis alone can only take us so far in understanding regulation. 
We also need to understand some institutional and political considerations of 
the regulators themselves. 

One of the main themes of the talk is that regulation today is 
monopoly provided. There is a government-sponsored set of regulators, and 
we all have to deal with them. We cannot choose a different set. The 
monopoly position of regulators gives them substantial power in regulated 
markets, all of which may harm both competition and consumers in the 
market. 

Regulators expand their power in markets by enhancing their 
discretion to make market-affecting decisions through a series of techniques, 
the realpolitik of regulation.  I am going to list ten of these which will be 
mentioned throughout the talk.  These are: 
a) Lack of strict adherence to the law 
b) Expansion of agency jurisdiction 
c) Refusal to write procedural rules 
d) Refusal to have transparent processes 
e) Refusal to have predictable processes 
f) Refusal to collect, disseminate, analyze, or systematically evaluate 
information on the costs and benefits of regulation 
g) Complexity 
h) Inefficiency 
i) Promotion of benefits and hiding of harm to consumers 
and (j) Treatment of similarly-situated parties in different ways. 

Each of these ten attributes contributes to the ability of a regulatory agency 
to make discretionary decisions that may affect regulated markets. The 
offensive strategy for regulators is the realpolitik of regulation is to expand 
these characteristics;  and to use them as much as possible. The defensive 
strategy for the rest of us is to diminish these powers.  

Let me give a disclaimer-- 

DISCLAIMER: I will speak about regulation generally. By regulation I 
mean government decisions that restrict what can be provided in a market. It 
could occur at any level of government, by any agency, and by any level of 
employee of the agency. Many of my examples will come from the FCC 
because that is the agency that I know best.  But it is by no means the only 
one that these principles apply to.. My comments are academic in nature in 
nature, as befits an academic institution that's hosting this event. They are 
not intended as a criticism or endorsement of any particular agency, or any 
particular person. 

The employees of government agencies in general, and the FCC in 
particular, have, to the best of my knowledge, the highest integrity and 
standards. Chairman Kennard of the FCC has, in many areas, done much to 
limit agency discretion, and I commend him for his efforts. But all of us, as 
regulators and employees of regulatory agencies, must understand how best 
to administer the agencies the public has entrusted with us. In that spirit, I 
offer these comments which apply equally well or poorly to the FCC and to 
every other government agency. 

Economics of regulation

Before I describe in more detail these 10 characteristics of the 
realpolitik of regulation, let's examine briefly the economics of the market 
for regulation. What does the demand for regulation look like? 

Demand: 

There are at least four sources of demand for regulation: consumers, 
businesses, support industries, and bureaucrats. Consumer demand for 
regulation is the public finance, textbook description of regulation. That is, 
regulation is mechanism to cure market failures and to internalize 
externalities. Thus, for example, we have environmental regulation to 
provide for a cleaner environment, because there are externalities to 
environmental quality, and many consumers if not all consumers want a 
cleaner environment. 

Or there may be non-market failures such as high transaction costs, 
high enforcement costs, and high litigation costs.  Thus, we have a county 
recorder of deeds not because there is an externality or market failure that 
prohibits a purely private market solution, but because the transaction costs 
of deed recordation, and enforcement costs associated with property and 
contracts, may be lower with governmental recordation of deeds. 

Similarly there may be cases of peculiar distributions of risk in a 
market, and the government steps in with risk-sharing mechanisms, such as 
government-subsidized health care. These may or may not be better market-
based solutions, but my discussion today is not premised on whether or not a 
specific regulation meets some form of economic rationality. Indeed, the 
general result is that all of the above forms of government intervention can 
be rationalized in a world in which common law, property rights, and 
contract rights are paramount, and in which government intervention is 
merely there to enhance some form of quantifiable social welfare where the 
benefits of regulation demonstrably exceed the costs. Economists will 
quibble about how best to quantify these benefits and costs, but today I 
simply want to discuss something different. 

The second source of the demand for regulation are the bureaucrats 
themselves.  Folks like me.  Folks like employees of the federal government-
- a lot of jobs at stake.  Also, a lot of power.  That's part of the theme of the 
realpolitik of regulation.
The third source of demand is the service industry of lawyers and 
accountants that demand regulation their livelihood depends on regulation.  
The more regulation and the more complex the regulation, the more the 
demand for the service industry to interpret it.  

Finally, businesses also demand regulation, they want regulation 
favorable to themselves and unfavorable to their competitors. In 
Washington, it is called the "level playing field."  Much academic work has 
been directed at all of these sources that have a demand for regulation, and I 
am not going to dwell on them today.  What I am going to describe briefly 
are what an economist would describe as the factors affecting the demand 
for regulation. 

The demand for regulation depends on various price effects both its 
own price and price of alternatives certain quality characteristics and 
income.  I am not going to belabor all of these today. They are the topics of 
chapters of the book that won't be written because no one will read it.  I will, 
however, discuss in some detail the characteristics of  the demand for 
regulation. 

Let me just note in passing that the own price or cost of regulation is 
substantially different for different individuals in an economy. For some 
consumers, who do not drive automobiles, a regulation such as a CAFE fuel 
efficiency standards is a regulation that may be costless.  For others, who 
drive for many hours each day, it may be extremely costly.  Consumers like 
those regulations that favor them individually, and hate those that harm them 
individually, and are indifferent to the vast majority of regulations that don't 
really have an effect on them as individuals. 

Is it possible that some regulations uniformly benefit all consumers or 
uniformly harm all consumers?  It is possible to construct regulations that 
serve no purpose and harm everyone, but it is very difficult to make 
sweeping statements about uniform consumer views on all regulations.  
There are some groups who claim they speak for all consumers on 
regulation.  But this is impossible: actual consumer views on regulation are 
as varied as there are many people. Indeed it seems at times that some 
consumer groups almost get it exactly wrong.  

As an example, about two years ago AEI sponsored a paper here in 
this very conference room in which Prof. Jerry Houseman from MIT gave an 
extremely interesting paper on the distribution effects of taxes on various 
forms of telecommunications services. And the result of Professor 
Hausman's paper was that placing taxes on the elastically demanded minute-
of-use charges on telephone services is one of the most punishing taxes in 
the arsenal of the American government.   It is a tax that probably ought to 
be gotten rid of.  

In contrast a far more efficient tax would be one that is not user 
sensitive, just a simply a flat tax on lines.  Consumers would lose far less 
welfare with that form of tax, but both of the forms of tax are far less 
efficient than the simple personal income tax that the government 
administers. You would think that consumer groups would be all in favor of 
the tax that is the most efficient, the one that harms consumers the least.  
But, paradoxically in a proceeding before the Commission right now to 
reduce access charges on long-distance telephone calls, many consumer 
groups are opposed to shifting access charges--which are usage-sensitive 
taxes--to a flat tax. Instead, many of these groups want yet another usage-
sensitive tax, the universal service fee. This position is to me an 
extraordinarily anti-consumer outcome, and one that I find quite paradoxical 
as being advanced by consumer groups.  

Let me also note that the question of cross-price demand effects on the 
demand for regulation is interesting. In many cases, consumers do not face 
other price effects because they have no alternatives. Regulation is a 
government monopoly and consumers must take or leave it.  There simply  
is not much choice of water sources for consumers who want to clean their 
clothes in their own home. They have to purchase tap water from the local 
water source. 

Consumers may be able to substitute demand for some unregulated 
services or goods.  For example, Consumers can switch to the Internet for 
long-distance service. In this case, less Internet regulation substantially 
lessens demand for consumer use of long-distance services. Conversely, 
raising Internet regulation would likely increase demand for long-distance 
services.

Quality characteristics of regulation
Let me illustrate the quality characteristics of the demand for 
regulation with one of my favorite agencies: your friendly Department of 
Motor Vehicles. Every adult is familiar with it. It is where you go to get a 
driver's license, change title to a car, have your car tested for emissions, and 
so on. The department handles hundreds of thousands of people every year. 
It is slow, tedious, frustrating. But in the end, it works. 

In their demand for regulation, consumers care about at least seven of 
the ten characteristics of the Realpolitik of regulation that I introduced 
earlier. Some, but not all consumers, care about: 

a) Written rules 
When you go to the Department of Motor Vehicles, most procedures are 
written down in simple detail. Required documents are written down. Even 
the questions for a driver's license are written down. There is a written 
standard for appeal if the rules are not followed by DMV. 

b) Predictable processes 
Not only are procedures written down at the Department of Motor Vehicles, 
they are followed in a predictable manner 

c) Rational rules
While some people may not think that everything that the Department of 
Motor Vehicles does is rational, it is difficult to fault them for their 
processes. If you don't think they are doing their process efficiently, you can 
complain. Yes, it is true that they cannot always hire more clerks, but they 
are probably fairly  responsive if you have a useful suggestion 

d) Simplicity 
You don't need to hire an army of lawyers or accountants to get a driver's 
license in the United States.

e) Full disclosure 
The DMV does not try to hide from the public its failings. If it is going to 
take half a day in line, the DMV will tell your that it will take a half a day in 
line.

f) Efficiency 
All right, this is not the strong point of the Department of Motor Vehicles. 
Finally, and to me perhaps most importantly,

 (g) Similar treatment of similarly situated parties
We don't expect to be treated differently from the person in line in front of 
us or behind us  in line at the Department of Motor Vehicles. We certainly 
don't expect to be pulled out of line, put in a separate building, and be told 
that we will face an entirely different process from everyone else. 

Consumer reaction to discrimination based on viewpoint
Consumers do not seem to care much about whether a regulator is 
acting according to law, expanding jurisdiction, or following transparent 
processes.  Just this week a high ranking official at the FCC sent a letter to 
Congress saying that we are not going to meet a date for a spectrum auction 
that is required by law.  I'm sure most consumers will have a big yawn.  
Well, what's the big deal?  The law says "Do it."  The agency says: "No we 
don't want to do it." What's the big deal?  

Nor do consumers particularly care about the expansion of 
jurisdiction.  A few years ago, the Food and Drug Administration decided it 
could regulate tobacco.   That's not precisely what the law said they could do 
but they decided they wanted to do it anyway. This would be good.

 There really was some consumer resistance.  The decision was 
eventually thrown out by the courts, but, for several years, the FDA asserted 
it had jurisdiction. 

 Nor do consumers particularly care about transparency.  Some 
government agencies are supposed to have transparent processes; others 
don't.  The Department of Justice is not supposed to have transparent 
processes.  No one knows exactly how the Department of Justice's Antitrust 
Division is coming to its conclusions about the Microsoft case, but there isn't 
a profound consumer outrage about that either.  

But we do care about discrimination.  We Americans like to express 
our views, but we do not necessarily expect anyone to change his or her 
business behavior as a result of our opinion.  Try this experiment the next 
time you are at a grocery store.  Tell the cashier your views on the 
environment, and see if the cashier charges you any more or any less 
depending on your views about the environment. Of course, there will be no 
difference in the amount charged. A few comments on the environment may 
provide a smile, or frown, but little else. We Americans demand and expect 
to be treated the same as everyone else in line. 

Now flip the experiment around  and suppose the cashier lectured you 
on the environment and then offered you a 10-percent discount if you signed 
a petition or if you decided not to sign the petition you would be charged 10-
percent more, would you be offended?  Of course you would be, and quite 
possibly you would march into the managers office, and demand that the 
cashier refrain from these practices or be fired on the spot.  When it comes 
to business dealings, we Americans expect to be treated the same as anyone 
else, regardless of policy viewpoints. Businesses that treat their customers or 
suppliers differently, based on their viewpoint would, likely, soon go out of 
business. 

Expectations of non-discriminatory treatment based on viewpoint 
extend not only to business dealings but to government activities as well. A 
parent would be dismayed if the principal of a school set school rules that 
favored or disfavored children based on the political viewpoint of a child or 
a parent. A property owner would be offended if the county council set 
property taxes based on the political view of owners such that identically 
situated property owners are taxed at different rates. 

We Americans are not so naive as to believe that lawmakers and rule 
makers have no political views. Of course they do, whether they are 
members of Congress, a State legislature, a county council, or the local 
school principal. But we do expect the laws and rules that they write to apply 
equally to equally situated individuals or businesses. And we don't expect 
laws and rules to single out for reward or punishment individuals based on 
their viewpoint. 

Our expectations of neutrality also extend to those who enforce laws 
and those who adjudicate disputes. Don't expect a sympathetic ear on 
environmental policy from a policeman as he writes you a ticket for parking 
violation.  Nor should you expect the traffic court judge to be amused by a 
long testimonial about your  good ideas on the environment.  

We would be shocked however if we flipped the experiment.  As the 
policeman is writing you a parking ticket, the policeman said: "You know, 
this is what I think about the environment.  If you agree with me, I won't 
write the ticket."   Or what if the traffic court judge said: "Your stock of 
good will in this court has been greatly diminished because you wrote to 
your Senator to support environmental legislation with which I personally 
disagree.  Now if you were to withdraw your letter to your Senator, perhaps 
this parking ticket might go away."   

We Americans expect our government officials -whether federal, 
state, or local - to treat each of us anonymously. We don't expect our views 
or our behavior in unrelated matters to be held against us by government 
officials.  

The supply of regulation
Now, let me describe the supply of  regulations. How do regulators 
supply it?  Keep in mind, regulators are monopolists.  In economic terms, 
they are not price takers like competitive entities. They implicitly set 
marginal revenue or marginal benefits equal to marginal costs where 
benefits are unlikely to be revenue, but a motive associated with some 
welfare function other than profit.  Which welfare function?  The public's? 
The agency's? The individual  regulator's? Who knows? It can and does vary 
by regulator. Is the welfare function to follow the law?  To promote certain 
values?  Promote competition? Protect consumers?  When you listen to 
regulators in Washington, you'll hear each of these and other welfare 
functions described.  But all too often, it is not simply "follow the law"; 
instead, it's something else.  

Moreover, the marginal costs in the monopoly calculation are not 
necessarily the costs to a business, industry, or even the economy.  They 
may be some other form of cost, perhaps even the costs of regulation to the 
regulatory agency. 

In any case, we do not have the standard monopoly result for profit 
maximization for a normal good in which the supply by a monopolist would 
be less than what exists in the competitive market. If anything, there is far 
more regulation than exists in some hypothetical competitive market for 
regulation, although it is difficult to describe what a competitive market for 
regulation would look like.  This empirical result is at least suggestive of the 
shapes of the regulatory marginal benefit and marginal cost curves in the 
regulatory decision-making process relative to the actual economic marginal 
benefit and marginal cost curves.  

The actual economic description of prices and technology in the 
formulation of regulation by government monopolists is a fascinating topic 
for yet another chapter of this unwritten book on regulation.  Suffice it to 
say, one could take any standard textbook on public finance or on regulation 
and develop a fairly accurate description of what rational regulation might 
look like. And at the end of the day, it would likely have many of the quality 
characteristics that many consumers demand, certainly rationality with  
benefits exceed costs. 

But for anyone who has spent any time in Washington, one realizes 
that that is not how regulation is done in Washington. There isn't a textbook 
model where regulators look at a social welfare function and try to calculate 
costs and benefits of regulation. It simply doesn't happen. 

Moreover, in a textbook setting, one might expect some consistency 
across agencies and across regulators in the 10 characteristics of Realpolitik 
that I have discussed. In practice, they diverge substantially. To some extent, 
they diverge because some regulators have an objective to go out and  
simply "do good."  To some regulators, "doing good" is what regulation is 
all about, and to do the most good you want to do it by having the most 
discretion which gives you the opportunity to do even more good.   

So how does an agency do the most good?  Here are some strategies 
that are often followed by Washington regulators.  

(1) Don't worry about strictly following the law.  Well, frankly, the law is 
often vague. What do you do if the law is vague and at times even self 
contradictory? Why follow it if you are not required to do so?  When 
agencies don't follow the law, there's no punishment.   

(2) Expand agency jurisdiction. Never miss an opportunity to expand agency 
jurisdiction. This goes on at every agency in town  They go into court and 
assert they have lots of jurisdiction. The next time they're in court, they have 
even more jurisdiction. For instance, the FCC has held that all packet-
switched telecommunications services are interstate in nature and therefore 
under FCC jurisdiction.  This might put state regulators out of business. It 
probably extends FCC jurisdiction to central Australia, central Africa, and 
outer space.   There's no limitation on the assertion of FCC jurisdiction. And 
it is a good way of getting rid of potentially competing regulatory bodies.   

(3) Refuse to write procedural rules.   This is one of my favorites.  The FCC 
has tens of thousands of license transfer applications every year  The FCC 
has few written rules though on how to deal with these tens of thousand of 
license transfer applications every year.  If you want to know how you're 
supposed to be treated, there is no written process for guidance.  You hire a 
Washington lawyer to try to figure it out. At the of the day, you have no 
written rule on which you can go to the FCC or to court to complain that 
procedural rights are not being followed.  

(4) Refuse to have transparent processes. An agency gets a bit more 
discretion if outside people don't know exactly what you're doing.  For 
example the SBC/Ameritech transfer license of a year ago involved weeks 
and months of meetings behind closed doors. The public wasn't invited to 
these meetings.  Who knows what happened at these meetings?  A deal was 
struck that involved a lot of conditions on license transfers, conditions that 
had nothing to do with the transferred licenses.  But these conditions had 
everything to do with unrelated matters involved in the merger. The parties, 
facing a monopoly regulator, agreed to the conditions for the lack of an 
alternative. 

Many of the conditions broke the law. Sections 251 and Section 252 
of the Telecommunications Act of 1996 were violated by the negotiated 
conditions. The only parties, however, with standing to object apparently 
were the parties that cut the deal. The FCC has not been held accountable.

(5) Refuse to have predictable processes. At the FCC, timelines and possible 
conditions for license transfers are unpredictable. If you are one of the tens 
of thousands of license transferees at the FCC, you really don't where you 
stand in the process.   The Office of General Counsel has invented some 
timelines without Commission approval.  The same Office of General 
Counsel can unilaterally change those timelines.

(6) Refuse to collect, disseminate, analyze, or evaluate systematically 
information on the costs and benefits of regulation.  When I was Chief 
Economist for the House Commerce Committee, the Committee would send 
out annual survey forms for dozens of agencies under the Commerce 
Committee jurisdiction.  The surveys had some simple questions about the 
collection of information on the costs and benefits of rules that the agency 
had made in the past year.  Not a single agency had any complete 
information for a cost benefit analysis of rules.  The vast majority of 
agencies in Washington do absolutely no cost-benefit analysis, and the few 
that do any analysis do it only minimally as required.  No agency has a clue 
about whether a single regulation that had promulgated in the past year or 
any time in its history had benefits that exceeded cost.   

(7) Make regulations complex. Complexity seems to define regulation.  
At the FCC, we have a computer cost model that is supposed to describe the 
cost of telephone service.   Now, you might think the FCC would know 
something about the cost of phone service.  We regulate a lot of phone 
service, and we collect much information on those regulated services. We 
know what rates companies charge customers for a large range of services.  
If any government agency should be able to point to some cold, hard facts 
for the costs of phone service, it should be the FCC.  And we should be able 
to describe them in a hurry.

The FCC does not seem to be in much of hurry when it comes to 
describing the costs of phone service.  Nor did we want to make it simple 
and transparent.  It seems, we needed a cost model that no one could 
possibly understand, because if people understood it then they might 
challenge it.  So how do you develop a cost model that no one can 
understand?  You hire a bunch of programmers to develop a model that is 
not intended to be a cost model.  Then you force the new model to be a 
"cost" model.  

The net result is a cost model that takes 180 hours to run. I don't think 
you have to be a rocket scientist to know that, in the year 2000, a model that 
takes 180 hours to run is a model that does not work.   By definition, it 
doesn't work. No one believes it works.  Everyone know that it doesn't work, 
but it is too complicated to say precisely why it doesn't work, because it 
takes more than a week to do one run.  Yet this is the cost model that the 
FCC insists on using for universal service.  The agency would like to use it 
for all sorts of other proceedings.  Few people believe its results, yet the 
agency hides behind the model's complexity to be able to say: "It's so 
complex it must be right."

(8) Be inefficient. We'll leave that for another day.   

(9) Promote benefits while hiding of harm to consumers.  Part of the 
game of regulation is to persuade people that you doing a lot of good and 
you're not doing any harm.  So one way of doing that is to prohibit people 
from describing any harms that there might result from regulation.  For 
instance, last year the FCC had a proceeding that is called the "Truth and 
Billing" proceeding.  Now, anytime any government agency employs the 
word truth, watch out!  It is a word that is more commonly used by other 
governments-like Cuba or China. It is word rarely used by the government 
of  the U.S. 

This proceeding essentially prohibited telephone companies from 
describing the details of universal service programs to the consumers.  
Companies are prohibited by regulation, not by statute, from telling their 
consumers about the costs of universal service. The public doesn't know.  
Cal Thomas wrote an op-ed piece earlier this week in which he praised Bell 
Atlantic for disclosing the amount of his universal service fee contribution. 
But Cal Thomas wasn't really told for what purpose the money was 
collected, and he wasn't told precisely how much Bell Atlantic was 
contributing on his behalf.   

(10) Treat similarly-situated parties in different ways. This is the 
fundamental basis for the realpolitik of regulation.  For maximum discretion, 
a regulator must treat different parties in different ways. How do you do 
this?  Well, one of the ways you do this is you promote the idea that there is 
such a thing as good will, or political capital at agency.  Recently a high-
ranking official at FCC suggested that a certain industry had  lost "good 
will" at the FCC by lobbying for legislation at Capitol Hill.  Are industries 
or businesses treated differently at regulatory agencies depending on their 
stock of good will at any given point in time? Do agencies keep running tabs 
on good will?  Does an outside party lose its free speech and opportunity to 
petition Congress if it is involved in regulatory proceeding?   The answers to 
these questions are just too chilling. 

Conclusion

With all of these ten attributes of the realpolitik of regulation at work, 
it is impossible to determine whether the benefits of regulation exceed the 
costs. It is not surprising, therefore, that agencies refuse to engage in the 
collection, dissemination, and analysis of the cost and benefits of their 
regulations.  Different agencies have different combinations of these 
characteristics. In general we are at a disequilibrium where consumer 
demand does not match the regulatory supply, because regulators often have 
no incentive to do so.  Perhaps the regulators really are god.  The offensive 
strategy for regulators in the realpolitik of regulation is to expand these 
characteristics; the defensive strategy for everyone else is to diminish them. 
Although a regulator by trade, I am interested in diminishing these attributes 
at the FCC and  at other agencies.