‘Free Market’ Crusaders

Most Americans probably know little or nothing about the White

House Office of Management and Budget, but Washington insiders

are well aware of OMB’s power. The office’s 500-plus staffers

oversee preparation of the federal budget, and they evaluate the

effectiveness of federal programs and regulations.

That’s why it was seen as an unprecedented lobbying

opportunity when OMB asked the public in 2001 for suggestions

about federal regulations that should be revised or rescinded.

Plenty of corporations and trade associations responded to the

call, among them the American Chemistry Council, the American

Petroleum Institute, IBM, and Procter & Gamble. In all, OMB

received 71 suggestions from 33 different trade groups,

corporations, municipalities, and nonprofits. But of all the

respondents, none was as prolific as an obscure affiliate of

George Mason University called the Mercatus Center.

The center submitted 44 of the 71 proposals, most of them

taking a hard line against government regulation. And of the 44,

OMB gave its stamp of approval to 15-including Mercatus critiques

of a proposed Interior Department rule prohibiting snowmobiles in

Rocky Mountain National Park, a Transportation Department rule

limiting the hours a trucker can drive, and an Environmental

Protection Agency rule limiting the amount of arsenic in drinking


“Our list dominated because we were the only group doing

comments in any comprehensive way,” said Susan Dudley, deputy

director of the regulatory studies program at Mercatus. “They

called it our ‘hit list,’ ” she added with some amusement,

referring to critics of the group. Overnight, Mercatus-an

organization whose Latin moniker names the activity of markets,

trade, and commerce-became an influential player in Washington.

Of course, it didn’t hurt that John Graham, the head of

OMB’s Office of Information and Regulatory Affairs, was once an

adviser to Mercatus, or that three Mercatus employees, including

Dudley, were once OMB officials.

When OMB put together a similar report in 2002, the

number of overall submissions quadrupled, and the roll call of

organizations offering ideas rose from 33 to 1,700. Mercatus was

again a prolific commenter, but influencing the OMB report was

only one of several ways the group continues to turn heads.

Bush administration officials drafting the 2003 budget

proposal, for example, consulted with Maurice McTigue, head of

the government accountability project at Mercatus. And just this

week, former Reps. J.C. Watts, R-Okla., and Tim Roemer, D-Ind.,

signed on with Mercatus as part-time distinguished scholars.

Meanwhile, the center’s Capitol Hill campus last year

drew more than 1,000 Hill staffers to lectures on everything from

bankruptcy law to tax policy. Mercatus topped its year off when

economist Vernon Smith, who had left the University of Arizona in

2001 to join George Mason and the center, won the Nobel Prize for

economics. Smith was noted for his work in developing role-

playing techniques that demonstrate the efficiency of markets.

The center expects that its 2003 retreat for congressional chiefs

of staff, to be held next month, will be the most successful to

date. Basketball legend Earvin “Magic” Johnson will deliver the

keynote address, outlining his efforts to start businesses in

low-income urban areas.

Mercatus promotes the idea that “free markets lead to

great prosperity,” said the center’s president, Paul Edwards. “We

don’t believe that good ideas should stay cloistered in the

library. We want to get these ideas into the hands of people [on

Capitol Hill and in federal agencies] who can use them


The folks at Mercatus insist they shouldn’t be tagged as

conservatives. “I don’t consider us ideological,” said Tyler

Cowen, the center’s general director.

The scholars at Mercatus are an eclectic group. Cowen is

considered a leading expert in the economics of the arts.

Edwards, who became president of the center last March,

previously worked at George Mason University’s Institute for

Humane Studies, a libertarian group that seeks to “enlighten”

young journalists on the benefits of free markets and “limited

government.” The institute shares space with Mercatus on the

fourth floor of George Mason’s law school, a distinctive modern

building in Arlington, Va.

The head of the regulatory project is Wendy Gramm, one-

time Enron board member, wife of former Sen. Phil Gramm, R-Texas,

and former administrator for information and regulatory affairs

at OMB during the Reagan administration. McTigue, whose

government accountability project publishes an annual report on

the effectiveness of federal agencies in communicating with the

public, is a former New Zealand Cabinet minister.

Making it all possible financially is the Charles G. Koch

Charitable Foundation, which got Mercatus off the ground in 1997

with a five-year, $10 million grant, and which remains the

center’s largest donor. In 2001, the foundation provided a $3

million grant to lure economist Smith from the University of


Koch, the CEO of Kansas-based Koch Industries, is a

longtime funder of conservative and libertarian causes. The

Washington-based groups that his foundation has supported include

the American Legislative Exchange Council, Citizens for a Sound

Economy Foundation, and the Federalist Society. “The Koch

foundation believes that advancement of market-based solutions is

the most certain means of assuring the long-term well-being of

all Americans,” explained Tony Woodlief, a foundation spokesman,

in a written statement for National Journal.

Koch’s support for Mercatus has raised eyebrows among

environmental activists. In 2000 and 2001, Koch Industries paid

$40 million in fines related to violations of various

environmental regulations. Liberal interest groups, concerned

over Mercatus’s comments on federal regulations, have called the

group a front for corporate interests.

Public Citizen, which is affiliated with Ralph Nader,

says in a just-released report that Mercatus’s approximately $6

million annual budget comes from such big companies as BP Amoco,

General Motors, Pfizer, and Philip Morris. “Mercatus regularly

files comments with government agencies aimed at preventing

enactment of rules that could impact its patrons’ bottom lines,”

the report argues.

In January 2002, the Clean Air Trust named Wendy Gramm

its “clean-air villain of the month,” citing the Mercatus

Center’s attacks on environmental regulations in the 2001 OMB

report. Mercatus “basically rents the [George Mason] university’s

name to give a patina of credibility to Wendy Gramm’s anti-

environmental agenda,” the trust said in a news release.

Susan Dudley, who is the day-to-day manager of the

regulatory project, responds that Mercatus examines “regulation

from the perspective of the public interest.” But she

acknowledges that the group’s arguments have been controversial.

Among the most controversial were comments by Dudley on

the EPA arsenic rule, and her opposition to the Occupational

Safety and Health Administration’s ergonomics rule. Dudley argued

that EPA, in requiring lower arsenic levels in drinking water,

had not demonstrated the benefits of lower levels, and that

“compelling communities to reduce arsenic takes money that could

be used to protect against bioterrorism threats, or to buy better

schools, new emergency response equipment, or increased traffic

safety.” The Bush EPA took steps to reconsider the arsenic rule,

but after a public outcry, the agency approved it.

Mercatus had more success in opposing OSHA’s ergonomics

rule. That rule would have required employers to take new steps

to prevent workplace injuries. Dudley, in her comment, argued

that the agency had proposed a one-size-fits-all solution that

didn’t account for differences in workplace risks. In 2001,

after vigorous lobbying by an array of business groups and a

concerted effort by conservative Republicans, Congress overturned

the ergonomics rule.

Meanwhile, at the Capitol Hill campus, attendance at the

center’s policy lectures has taken off in the last two years.

Cohen and other Mercatus employees sometimes teach, but more

often the center flies in professors from various universities.

Cowen said that Republican attendees outnumber Democrats but that

the numbers are close. “We have plenty of speakers who are

Democrats or left wing, and we have debates,” Cowen said. “Our

audience wants that and needs that.”

Richard Boykin, chief of staff to liberal Rep. Danny K.

Davis, D-Ill., calls the lectures an “intense indoctrination on

key issues facing Congress.” He says he “understands the

suggestion that this is Republican rhetoric. But I think it goes

beyond that.” Boykin says he often disagrees with a speaker, but

enjoys the give-and-take.

The next goal for Mercatus is to establish programs that

will appeal to members of Congress. To that end, Mercatus wooed

former House members Roemer and Watts. And in November, the

center made another high-profile hire, bringing on Lawrence

Kudlow, a former Reagan-era OMB official and conservative

television pundit, as a distinguished scholar.

Still, Lawson Bader, who heads the Capitol Hill campus,

says Mercatus isn’t planning to jump into the lobbying game. “We

aren’t looking to kill a bill, or put a new bill in place,” he

said. “The hardest thing we have to deal with is the ‘So what?’

question. My personal sense is that if we take someone who is

hostile to or naive about markets, and that person winds up being

less naive or hostile, I view that as a positive.”

LOAD-DATE: January 13, 2003