My goal in this chapter is to see how we might cut sludge. The emphasis is on government, but the general lesson is broader. As we have seen, hospitals impose a lot of sludge; much of it is required by the government, but not all. In education, there is far too much sludge, and it hurts students, teachers, and parents alike. The nonprofit sector could do much better if it eliminated sludge. Relationships between employers and employees could be improved if the former took steps to reduce administrative burdens imposed on the latter. But let’s begin with a glance at how, exactly, sludge gets weaponized.
Mail-in forms provide people with an opportunity to obtain real money, often in the form of a check, but they require people to overcome inertia.1 With respect to such forms, I received a personal lesson a number of years ago, when I bought a new cell phone. It was quite expensive, but the package came with a mail-in form, with a pleasant opportunity: if you actually mail it in, you will get $200 in return. What a good deal! But I misplaced the form, and after two hours of searching, I just couldn’t find it.
Companies are well aware of that challenge. Across various markets, redemption rates are pretty pathetic. They usually range between 10 percent and 40 percent, which means that a strong majority of customers forget or simply do not bother.2 Because of the power of inertia, that might not be terribly surprising. What is more striking is the finding that people are unrealistically optimistic about the likelihood that they will ever redeem forms. Inertia and unrealistic optimism are a fiendish combination, and a marketing opportunity. A company might sell cell phones, or whatever, at a high price, but add that if you just send in a form, you can get a chunk of your money back. If consumers are unrealistically optimistic and suffer from inertia, that is a smart strategy. Most of the time, companies get to keep the money.
The problem is documented in a study with a memorably precise name: Everyone Believes in Redemption.3 In the relevant study, people thought that there was about an 80 percent chance that they would send in a form and collect some money within the thirty days they were given. The actual redemption rate was 31 percent. It is an overstatement to say that everyone believes in redemption—but most people certainly do.
In the same study, the researchers made three efforts (with different groups of people) to reduce the massive difference between the predicted and actual redemption rates. First, they informed participants, very clearly, that in previous groups with similar people, redemption rates were below one-third. Second, they issued two clear reminders, one soon after purchase and another when the deadline for redemption was close. Third, they reduced sludge, making redemption far simpler by eliminating the requirement that people must print out and sign a certification page.
As it turned out, not one of the three interventions reduced people’s optimism! In all conditions, people thought there was about an 80 percent chance that they would mail in the forms. Moreover, and somewhat surprisingly, the first two interventions had no effect on what people actually did. When hearing about the behavior of other groups, people apparently thought, “Well, those are other groups. What do they have to do with us?” In other contexts, reminders often work because they focus people’s attention and reduce the power of inertia. But in this case, reminders turned out to be useless.
Only one of the interventions was effective: simplification, also known as sludge reduction. That intervention had a strong impact on what people actually did. By making it easier for people to mail in the form and thus cutting sludge, simplification significantly increased people’s willingness to act. The redemption rate rose to about 54 percent, which means that the disparity between belief and behavior was cut in half. In short, sludge reduction made all the difference. It dramatically altered people’s behavior.
Return to a number that we encountered earlier: 11.4 billion. That is the number of hours of paperwork burdens that the US government imposes on the American people. How can that number be reduced?
In a deeply polarized time, that question should appeal to people who disagree on many political issues. Large-scale political divisions—with respect to climate change, tax rates for the wealthy, and immigration—are generally irrelevant to the question whether to reduce sludge. In the United States, both Democratic and Republican administrations have battled against sludge. To be sure, we have seen that on some issues (such as abortion and voting rights), sludge is contentious. But a great deal can be done to reduce sludge without getting close to political divisions. This point should hold in many nations. In Europe, for example, there is far too much sludge, and much of it has grown by accretion, without anyone in a position of authority ever asking: Aren’t we requiring too much?
When I worked in the White House, I issued a guidance document, requiring federal agencies to test their paperwork burdens—a kind of case-by-case Sludge Audit. This was at the explicit direction of President Obama. The guidance document read as follows:
To the extent feasible and appropriate, especially for complex or lengthy forms, agencies shall engage in advance testing of information collections, including Federal forms, in order (1) to ensure that they are not unnecessarily complex, burdensome, or confusing, (2) to obtain the best available information about the likely burdens on members of the public (including small businesses), and (3) to identify ways to reduce burdens and to increase simplification and ease of comprehension.4
It would be possible to be far more ambitious. A good way to motivate sludge reduction, in both the public and private sectors, is to conduct regular and general Sludge Audits, by which people simply try to measure how much sludge is out there. Governments agencies should be conducting Sludge Audits. So should companies of all kinds, and educational institutions as well.
A mundane example: The US Department of Education might begin by measuring the annual paperwork burden that it imposes on the nation’s educational institutions. It might start with its own estimates, testing them for accuracy, and then engage those institutions to see if the estimates need adjustment. The department might offer, for its own assessment and preferably for the public, a disaggregated picture, showing where the numbers are highest and where they are lowest. It might specify the different mandates that produce different burdens, and show the magnitude of those burdens on different institutions and subpopulations (e.g., administrators and students).
A full accounting would take a good deal of work (and feel a bit like sludge to those who have to do it). But comparatively speaking, it is unlikely to take excessive work. It could also pay big dividends. For example, there is good evidence that sludge is taking a significant toll on the productivity of research.5 The National Academy of Sciences has found that inconsistent and duplicative requirements—ranging from conflict of interest forms to reporting mandates—are greatly diminishing the return on federal investments.6
In the easiest cases, Sludge Audits would immediately show institutions that the existing level of sludge is too high, and not in anyone’s interest. The leadership of the Department of Education might well be shocked to see the sheer volume of what is now being required. (In fact, I predict that it would be.) Some of what is now required is undoubtedly too much, and just seeing it might be enough to motivate change.
Or turn to private sector examples. If it turns out to be difficult for consumers to do what must be done to buy a product—say, a refrigerator or an automobile—a company might simplify the experience. Doing so should attract more customers and produce a wide range of reputational benefits. It is not exactly news that consumers have a far worse experience with businesses when it is difficult to obtain a response to their complaints. Many companies, such as Apple, have innovated creatively in an effort to reduce waiting time and to make it easy to fix products that are not working. We could easily imagine a kind of competition to be a sludge-free company with respect to everything that matters to consumers. The same could be true for employees, investors, and students.
At the opposite pole, companies might know, or learn, that sludge is in their interest, and a Sludge Audit would not create an incentive to reduce it. It might well be good business to make it very easy to start a subscription—and sludgy to stop. Careful testing might show that such a strategy is optimal. A complaint process that involves a degree of sludge might not merely filter out unjustified complaints; it might also save money when complaints are justified. Under imaginable circumstances, sludge is in the competitive interest of firms. If so, the question remains: Is this a kind of behavioral market failure for which a regulatory response is appropriate? The answer will often be “yes.”
We have seen that every year, the United States compiles an Information Collection Budget. Covering the entire federal government, and compiled by OIRA, the budget collects agency-by-agency burdens and aggregates them. It should not be difficult for governments all over the world to produce a similar Information Collection Budget, cataloging paperwork burdens. As we have seen, some of those burdens are undoubtedly justified. In addition, the worst forms of sludge might not be paperwork at all (consider time waiting in line). But for governments, an Information Collection Budget is an important start, not least because it is likely to spur sludge-reduction efforts.
Private institutions should be producing similar documents, if only for internal use; and public transparency might also be a good idea. Banks, insurance companies, hospitals, and publishers could save a great deal of money by reducing sludge, and they could improve the experience of countless people who interact with them. It is worth underscoring the case of hospitals, in which sludge can not only create immense frustration but also impair health and even cost lives.
I have noted that Office of Information and Regulatory Affairs was created by the Paperwork Reduction Act, which it is entrusted with overseeing. As I saw close-up, OIRA has a lot of room to maneuver. One of its jobs is to pass on each and every information-collection request from federal agencies. (The word request is a euphemism. Most of the time, the government orders people to produce information.) If the Department of Health and Human Services wants to collect information from hospitals, or if the Department of Transportation wants to get information from automobile companies, OIRA has the final say. Under the law, it is entitled to say “no” a lot. It could develop a working presumption: no more sludge.
Of course, OIRA is just one part of the federal government, and fights are not much fun. At least some of the time, the officials who work there are tempted to take the path of least resistance and to say “okay” to officials at the Environmental Protection Agency, the Department of Treasury, or the Food and Drug Administration. A great deal depends on the guidance from leadership: Does the OIRA administrator care about excessive paperwork? Is that a priority? But in any particular period, OIRA can do a lot or a little to reduce sludge.
It can mount a war on paperwork burdens. Alternatively, it can ignore them. It can be relatively lenient to agencies when they ask its approval to make information-collection requests—or not. Its leadership can give a strong signal of leniency—or not. Because OIRA assesses such requests on an individual basis, it can work in an ad hoc manner to reduce the volume of paperwork burdens added each year.7
More ambitiously, OIRA can work in a more systematic way. Every six months or so, OIRA announces a data call, by which it tells federal agencies what it wants them to do with respect to paperwork. With that data call, it can direct agencies to undertake aggressive sludge-reduction efforts.8 It can also issue binding guidance documents, which might include ambitious targets for burden reduction.9 It can work with other White House offices, and the president personally, to produce presidential memoranda or executive orders. If the president of the United States orders a reduction in paperwork burdens or directs federal agencies to reduce sludge, we would almost certainly see real movement. (A question: How many times has that happened in American history? Answer: Never.)
Over the last decades, OIRA has not done nearly enough, but it has done some of these things. When I was administrator of OIRA in 2012, for example, the office directed agencies to take specific steps to reduce paperwork burdens.10 It called for “significant quantified reductions” in burdens, targeting agencies that imposed high paperwork burdens (including the Department of Treasury, the Department of Health and Human Services, the Securities and Exchange Commission, the Department of Transportation, the Environmental Protection Agency, the Department of Homeland Security, the Department of Labor, and the Department of Agriculture). These agencies were instructed to identify at least one initiative that would eliminate two million hours or more in annual paperwork burdens. All agencies were instructed to attempt to eliminate at least fifty thousand hours in annual burdens.11
OIRA has repeatedly encouraged the reduction of sludge by directing agencies to use short-form options, allow electronic communication, promote prepopulation of forms, make less frequent information collections, and reuse information that the government already has.12 These are standard formulations, and they can be enforced with different levels of enthusiasm. The United States and other countries should consider Australia’s SmartForms initiative, which uses prepopulation, appears to improve accuracy, and is a terrific sludge reducer.13
It is also worthwhile to consider novel formulations, which could be far more aggressive. If we keep the 11.4-billion-hour figure in mind, we might be able to agree that OIRA should undertake an unprecedently bold effort to reduce sludge, with an emphasis on both the flow of new burdens and the existing stock. For purposes of illustration: With a presidential directive (the most powerful instrument) or a directive from OIRA itself (also good), it could announce an initiative that would require, in the next six months, the following:
An initiative of this kind could be specified in many different ways. Discussions between OIRA and relevant agencies could undoubtedly produce fresh ideas. With respect to policy priorities, different administrations would make different choices. Some administrations might want to reduce information-collection burdens under the Affordable Care Act; others might emphasize sludge imposed on small businesses and start-ups; others might emphasize burdens imposed on the transportation sector or on educational institutions; others might do all of these. In the domain of education, a great deal should be done to reduce sludge, which imposes a large toll on schools at all levels (and students as well).
Importantly, many administrative burdens are imposed by state and local governments. Although OIRA has no direct authority over them, it should use its convening power to remove sludge, especially where federal, state, and local governments must coordinate.15
There are lurking questions in the background. If the federal government imposes paperwork burdens in violation of the Paperwork Reduction Act, is there a legal remedy? Are courts available? Is sludge unlawful? Ever? Suppose, for example, that the Department of Health and Human Services requires hospitals to fill out a host of confusing or difficult forms. Suppose, too, that the burden is plainly ridiculous and thus inconsistent with the PRA, in the sense that it has not been minimized and has little practical utility. Can hospitals invoke the PRA and seek invalidation of the requirement? The answer is clear: No.
The general rule is that so long as OIRA has approved an information-collection request, people have to comply with it.16 The clear language of the law suggests that the PRA requires only that an information collection has and displays a control number, which shows that it has been approved by OIRA. That is most unfortunate. Sooner rather than later, the PRA should be amended to allow people to object more broadly. The Administrative Procedure Act—the legal charter for the regulatory state—generally allows judicial review of arbitrary or capricious decisions by public officials.17 That standard should be applied to sludge as well, given its high cost and intrusiveness. In less technical language: if the government has imposed a paperwork burden or some other kind of sludge, and if that imposition cannot be justified by reference to legitimate reasons for sludge (see chapter 5), courts should be directed to strike it down.
Should the PRA be amended in other ways? OIRA itself historically has been skeptical of the idea, on the ground that even if one or another amendment would be a good idea, putting the statute in play in Congress would open the door for other amendments, which might turn out to be uninformed or counterproductive. Nonetheless, some ambitious proposals deserve serious consideration. In particular, four reforms would do a great deal to improve the current situation.
1. Much sludge is explicitly mandated by Congress itself. For that reason, the executive branch has no authority to eliminate it under the PRA. That is a serious problem, and it has stymied some good-faith efforts by OIRA and others to eliminate paperwork requirements. Relevant committees of Congress should initiate a process to revisit those requirements and other kinds of sludge, with the goal of reducing them significantly.
2. Congress should require federal agencies to undertake a periodic lookback at existing paperwork burdens—and thus require both general and specific Sludge Audits. The goals would be to see if the current stock of sludge can be justified and to eliminate administrative burdens that are outmoded, pointless, or too costly. This reform would build on existing lookback requirements for regulation in general.18
With respect to sludge, the lookback could occur every two years, alongside a requirement of a publicly available report to Congress. That report could be combined with the currently required Information Collection Budget. Ideally, the requirement of Sludge Audits would lead to guidance documents from OIRA, including some sort of template for capturing best practices.
3. Congress should explicitly require agencies to choose the least burdensome method for achieving their goals. This is essentially a requirement of cost-effectiveness, and its importance cannot easily be overstated. If, for example, annual reporting would be as effective as quarterly reporting, then agencies should choose annual reporting. If electronic reporting would be as good as paper reporting, then agencies should allow electronic reporting. As we have seen, current law can be understood to require cost-effectiveness, but an explicit legislative signal would do considerable good. It would put the federal agencies on notice.
4. Congress should explicitly require the benefits of sludge to justify the costs. With respect to paperwork, cost-benefit balancing can be seen as required by the PRA in its current form. But the statute is hardly clear on that point, and my own experience suggests that at OIRA, there is no general sense that agencies must demonstrate that the benefits of paperwork exceed the costs. Here again, Congress should give an explicit signal to this effect.
With respect to sludge, as with regulation in general, it is important to appreciate the difference between cost-effectiveness and cost-benefit analysis. The former requires the least costly way of achieving a specified goal. For that reason, cost-effectiveness is a significant but modest idea, and it should not be contentious. Who would support an unnecessarily costly way of achieving a particular goal?19 A burden might be cost-effective but nonetheless fail cost-benefit analysis—and therefore be a bad idea. In general, it is important to say that even if a burden is cost-effective, it should also be assessed in cost-benefit terms to ensure that it is worthwhile on balance.
It is true and important that cost-benefit balancing is not always simple for paperwork burdens. When agencies engage in such balancing, the general goal is to compare the social benefits and the social costs, understood in economic terms. A paperwork burden may or may not generate social benefits, understood in those terms. When the IRS imposes paperwork burdens on taxpayers, it might be trying to ensure that they do what the law requires. We can speak of economic costs (in terms, perhaps, of monetized hours) and of economic benefits (in terms, perhaps, of dollars gained by the Treasury).20 But that is not standard cost-benefit analysis. Or sludge might be imposed to ensure that people applying for benefits actually deserve those benefits—as, for example, when the effort is to avoid giving educational subsidies to people who are not entitled to them. Again, that is not standard cost-benefit analysis.
In such cases, a reasonable approach would be to understand the cost-benefit justification not as an effort to compare social costs and social benefits, understood in economic terms, but instead as entailing an assessment of proportionality. Are significant costs likely to serve significant legitimate purposes? What is the magnitude of the costs? How big is the burden? What is the magnitude of the gains? Real numbers would help inform decisions and combat excessive burdens. And for reasons previously outlined, the analysis of costs and benefits should include an analysis of distributional effects: Who is being helped and who is being hurt? Is sludge principally affecting (for example) people who are poor, elderly, or sick?
It is worth emphasizing the fact that even a crude form of cost-benefit analysis would be information forcing. It would create a stronger incentive for agencies to offer accurate accounts of the number of burden hours and also to turn them into monetary equivalents. It would simultaneously create an incentive for agencies to be more specific, and more quantitative, about the expected benefits of information collections.
We need far more information about the benefits of collecting information. In that regard, a requirement of cost-benefit balancing would be a big help. It should also help to spur improved and perhaps creative ways to test whether the benefits of sludge justify the costs.
1. See Matthew Edwards, The Law, Marketing and Behavioral Economics of Consumer Rebates, 12 Stan. J.L. Bus. & Fin. 362, 419–421 (2007).
2. Id. at 108.
3. Joshua Tasoff & Robert Letzler, Everyone Believes in Redemption: Nudges and Overoptimism in Costly Task Completion, 107 J. Econ. Behav. & Org. 107, 115 (2014).
4. Memorandum from Cass R. Sunstein, Admin., OIRA, to Heads of Executive Agencies and Departments, Testing and Simplifying Federal Forms (August 9, 2012), https://obamawhitehouse.archives.gov/sites/default/files/omb/inforeg/memos/testing-and-simplifying-federal-forms.pdf.
5. Inconsistent, Duplicative Regulations Undercut Productivity of U.S. Research Enterprise; Actions Needed to Streamline and Harmonize Regulations, Reinvigorate Government-University Partnership, Nat’l Acads. Sci., Eng’g, & Med. (Sept. 22, 2015), https://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=21803.
6. Nat’l Acads. of Sci., Eng’g, & Med., Optimizing the Nation’s Investment in Academic Research: A New Regulatory Framework for the 21st Century (2016), https://www.nap.edu/catalog/21824/optimizing-the-nations-investment-in-academic-research-a-new-regulatory.
7. OIRA provides a public account of information-collection requests under review. The account deserves far more attention, academic and otherwise, than it has received to date. See Information Collection Review Dashboard, OIRA, https://www.reginfo.gov/public/jsp/PRA/praDashboard.myjsp?agency_cd=0000&agency_nm=All&reviewType=RV&from_page=index.jsp&sub_index=1 (https://perma.cc/PD5L-9BNJ).
8. See, for example, Memorandum from Neomi Rao, Admin., OIRA, to Chief Information Officers 8 (Aug. 6, 2018), https://www.whitehouse.gov/wp-content/uploads/2018/08/Minimizing-Paperwork-and-Reporting-Burdens-Data-Call-for-the-2018-ICB.pdf (https://perma.cc/KF9L-N6NZ), hereinafter Memorandum from Neomi Rao (Aug. 6, 2018) (including a request that agencies reduce paperwork burdens in a data call); Memorandum from Cass R. Sunstein, Admin., OIRA, to the Heads of Executive Departments and Agencies (June 22, 2012), https://www.transportation.gov/sites/dot.gov/files/docs/OMB%20Memo%20on%20Reducing%20Reporting%20and%20Paperwork%20Burdens.pdf, hereinafter Memorandum from Cass R. Sunstein (June 22, 2012) (same).
9. Memorandum from Cass R. Sunstein, Admin., OIRA, to the Heads of Executive Departments & Agencies & Independent Regulatory Agencies (Apr. 7, 2010), https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/assets/inforeg/PRAPrimer_04072010.pdf (https://perma.cc/D3VW-ZD8T).
10. See Memorandum from Cass R. Sunstein (June 22, 2012), supra note 7.
11. Id.
12. Memorandum from Neomi Rao (Aug. 6, 2018), supra note 7; see also Memorandum from Howard Shelanski, Admin., OIRA, and John P. Holdren, Dir., Off. of Sci. & Tech. Pol’y, to the Heads of Executive Departments & Agencies and of the Independent Regulatory Agencies (Sept. 15, 2015), https://obamawhitehouse.archives.gov/sites/default/files/omb/inforeg/memos/2015/behavioral-science-insights-and-federal-forms.pdf (https://perma.cc/M8MX-9K6C) (recommending the use of behavioral sciences when crafting initiatives to reduce paperwork-burden hours).
13. SmartForms, Australian Gov’t, Dep’t of Indus., Sci., Energy, & Res. (Feb. 3, 2020), https://www.industry.gov.au/government-to-government/smartforms.
14. See Memorandum from Cass R. Sunstein (June 22, 2012), supra note 7 (recommending a reduction of two million burden hours for those agencies imposing the highest burden and a reduction of fifty thousand burden hours for all other agencies).
15. See Dep’t of the Treasury Off. of Econ. Pol’y, Council of Econ. Advisers, Dep’t of Labor, Occupational Licensing: A Framework For Policymakers (July 2015), https://obamawhitehouse.archives.gov/sites/default/files/docs/licensing_report_final_nonembargo.pdf (https://perma.cc/67Z3-26CV) (demonstrating the power of the federal government to convene state and local government officials and recommending elimination of other forms of sludge).
16. See Pac. Nat. Cellular v. United States, 41 Fed. Cl. 20, 29 (1998).
17. 42 U.S.C. § 706.
18. See Cass R. Sunstein, The Regulatory Lookback, 94 B.U. L. Rev. 579, 592–596 (2014).
19. It is true, however, that paperwork burdens can be seen as a kind of tax—and for some purposes, a tax should be increased. Consider paperwork burdens imposed on tobacco companies as part of a regime of regulation. It is not obviously unreasonable to think that although cost minimization is generally a good idea, it is not necessarily a good idea if it reduces the equivalent of a tax imposed on harm-creating activity. Perhaps OIRA should not work especially hard to minimize paperwork burdens imposed on cigarette companies. This point is meant not to offer a final conclusion but simply to flag the issue.
20. For relevant discussion, see generally David Weisbach, Daniel J. Hemel, & Jennifer Nou, The Marginal Revenue Rule in Cost-Benefit Analysis, 160 Tax Notes 1507 (2018).