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Rebuttal: The Benefits of Cost-Benefit Analysis

Responsive Government Defending Safeguards

This post is the third in a three-post point-counterpoint-rebuttal series. The other posts, written by Member Scholar Richard J. Pierce and Senior Policy Analyst James Goodwin, are available here and here.

At the request of Senior Policy Analyst James Goodwin, I posted a brief summary of an essay in which I described the advantages that I see in expanding the scope of the White House Office of Information and Regulatory Affairs (OIRA) and combining its use of cost-benefit analysis with some doctrines that the U.S. Supreme Court has already adopted. I did so, and Goodwin suggested pairing it with a “counterpoint” post he subsequently prepared and also gave me the opportunity to rebut that counterpoint. I do so here.

Goodwin’s counterpoint post is a crude and ill-informed slash-and-burn attack on both OIRA and cost-benefit analysis. His approach contrasts starkly with the thoughtful efforts of scholars like former Supreme Court Justice Stephen Breyer, current OIRA Administrator Ricky Revesz, and Michael Livermore, an environmental law professor at the University of Virginia, to engage in the kind of detailed constructive criticism that has the potential to produce improvements in both cost-benefit analysis and OIRA.

Goodwin characterizes cost-benefit analysis as a “libertarian” tool that is used by OIRA to “go rogue” and to take actions that are “in direct conflict with the goals of the president.” Every word of that characterization is false.

A Useful Aid

First, cost-benefit analysis is a utilitarian tool that each of the last eight presidents has found useful as an aid in making regulatory decisions that are informed by data and analysis. None of those presidents was a libertarian, and none of the people who have headed OIRA over the last 50 years were libertarians. I would be surprised if any of the 57 career civil servants who work at OIRA are libertarians. If any share that philosophy, I am confident that they do not let their personal beliefs interfere with their life’s work of analyzing data relevant to regulatory decision-making.

Second, Goodwin’s characterization of OIRA must be based on a belief that each of the last eight presidents was a fool. The president appoints the head of OIRA and can remove the head at any time. If OIRA went “rogue” and acted in ways that “directly conflict with the president’s goals,” the president would remove the head of the agency in a heartbeat and appoint a replacement who shares the president’s goals.

Goodwin obviously believes that OIRA and cost-benefit analysis are nothing but obstacles to socially beneficial regulation. I have neither the time nor the expertise required to provide a detailed critique of that belief. I would urge anyone who shares Goodwin’s belief to read the thousands of pages of books and articles that have been written by scholars like Breyer, Revesz, and Livermore. The title of one of their many books accurately summarizes the relationship that they see between cost-benefit analysis and regulation: Retaking Rationality: How Cost Benefit Analysis Can Better Protect the Environment.

Benefits for the Nation         

I will mention two of the many ways in which cost-benefit analysis performed by OIRA has benefited the nation in recent years. First, many opponents of government regulation have urged adoption of a regulatory budget that would have the effect of prohibiting any agency from issuing any new rule unless it can show that it is repealing rules that impose costs that are at least equal to the costs that would be imposed by the new rule.

I have written several essays, made numerous speeches, and testified before Congress in opposition to adoption of a regulatory budget. I have relied heavily on OIRA’s annual reports of the results of its cost-benefit analyses. OIRA reports that the average major rule that it reviews and approves generates benefits that are six times greater than the costs imposed by the rules. That means that the nation earns an average 500 percent return on every regulatory investment that it makes. If we had adopted a regulatory budget approach instead of a cost-benefit analysis approach to regulation 50 years ago, we would have foregone many trillions of dollars of net social benefits. 

Second, President Donald Trump attempted to persuade agencies to repeal hundreds of rules. His failure to accomplish that goal was largely attributable to the cost-benefit analyses that agencies and OIRA produced at the time that each rule was adopted. When an agency considered whether to attempt to repeal a rule, it had to think seriously about how it could persuade a reviewing court to uphold a decision to repeal a rule when the agency and OIRA had previously estimated that the rule would yield massive net benefits to the nation. In most cases, the agency abandoned any attempt to repeal the rule based on its well-supported belief that it could not accomplish that daunting task.

Turning from the past to the future, I believe that an expanded version of OIRA would be particularly valuable in today’s conditions of extreme political polarity. Every newly elected president will be subject to extreme political pressure from the base of their party. The base of the Republican Party is on the far right, while the base of the Democratic Party is on the far left. I cannot imagine a worse system of government than one that lurches from far right to far left and back on every policy issue every four to eight years.

The need to subject every major rule to a cost-benefit analysis produced by an agency and reviewed by OIRA will reduce the risk that we will enter that abyss. Many of the most extreme proposals of the far Right and the far Left cannot be supported through use of cost-benefit analysis. Many administrative law doctrines have similar effects, such as the judicially enforced duty of an agency to engage in reasoned decision-making before making a change in policy and the requirement that an agency must conduct a data-rich notice-and-comment proceeding before it can issue a substantive rule.Let’s not abandon a tool and an office that have proven useful in the past and hold the promise of protecting the ability of agencies to do their jobs during our current polarized era.

Responsive Government Defending Safeguards

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