The SEC and the Non-Cost Benefit Analysis Analysis (Part 2)

We are discussing the hearings last Tuesday on the cost benefit analysis conducted by the Commission.  Some have argued that the SEC's cost benefit analysis for the shareholder access rule was lacking and have pointed to the analysis of the DC Circuit in Business Roundtable as evidence on how it should be done. 

This opinion in Business Roundtable does not provide a guide post for an adequate cost benefit analysis.  The SEC discussed the costs and benefits in 80 pages.  The DC Circuit combed the 80 pages and either found a number of small mistakes or found errors when none really existed. On this basis, the court struck down the rule. 

This is not the appropriate role of a court.  Under our system of administrative law, the standard of arbitrary and capricious (the legal standard used by the DC Circuit to strike down the rule) requires a deferential approach to the agency.  See Nat'l Ass'n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 658 (2007) (noting that arbitrary and capricious standard is "deferential" to the agency).  There is no evidence in the opinion of a deferential approach (the court does not even mention this approach in the opinion).

Given this lack of deference, there is no reason to believe that the court's decision would have been altered had the SEC turned over the analysis to a raft of economists, as some have suggested.  Those economists presumably would have produced 80 pages of more quantitative analysis.  Yet any quantitative analysis would have had to be based on an assortment of variables, assumptions, and legal standards.  There is no reason to believe that the court would have been any more deferential to 80 pages of that type of analysis than the analysis actually presented in Business Roundtable.