Then economists began training their cost–benefit sights on federal regulation. Throughout the 1980s, 1990s, and 2000s, CBA often served as a speed bump — if not a firm barrier — against expansive federal regulation, environmental regulation in particular. Not surprisingly, this made progressives suspicious of the tool. Among other things, they worried that it failed to account for hard-to-quantify, yet real, benefits of regulatory interventions for public health, ecological systems, and the less fortunate. Concluding a regulation would cost too much in relation to its expected benefits was a way to let corporations off the hook, they argued. Critics of regulatory proposals often reinforced those fears, citing CBA results as evidence that much regulation was excessive and even did more harm than good.
Not all progressives were willing to jettison CBA, however. In their 2008 book Retaking Rationality, University of Virginia law professor Michael Livermore and New York University law professor Richard Revesz maintained that “progressive opposition to cost–benefit analysis was ineffective and counterproductive.” They sought to rehabilitate it as a tool of progressive government. They argued that there was nothing inherently anti-regulatory about CBA and challenged their progressive colleagues to mend, rather than end, the federal government’s reliance upon it in regulatory policymaking. Shorn of unnecessary anti-regulatory biases and focused on the full range of potential benefits, they argued, CBA could be a powerful tool
Much of what they urged was taken up by the Barack Obama administration. Under the leadership of noted law professor Cass Sunstein, Obama’s Office of Information and Regulatory Affairs pursued an aggressive regulatory agenda while retaining a central place for CBA. While there were differences in the way the tool was used by Obama and his immediate predecessors, Livermore and Revesz argued that the overall approach represented a consistent emphasis on rigorous analysis of the likely effects of regulatory decisions, leading to better regulatory outcomes.
Along came Trump / And then, they say, everything changed, prompting them to write this book, Reviving Rationality.
Donald Trump’s administration broke with business-as-usual regulatory analysis. Under Trump, Livermore and Revesz argue, “what is called cost–benefit analysis in a Republican administration is all but unrecognizable.” CBA was no longer a tool to ensure policymakers were aware of potential regulatory consequences, but a game in which analyses were to be twisted and spun to support predetermined policy conclusions.
The result, in their view, was not simply the adoption of incoherent and harmful policies, but an assault on longstanding “norms in the American system of governance that have constrained and informed agency decision making.” That, in turn, demoralized the federal workforce. What is needed now, they argue, is an effort to “double-down” on the Obama administration’s approach and go “even further to integrate cost–benefit analysis with a progressive regulatory agenda.”
Much of Reviving Rationality is devoted to critiquing the Trump administration for its ill-grounded and poorly executed deregulatory initiatives. According to the authors, many Trump actions were undertaken with insufficient analytical grounding and without regard for relevant legal constraints and procedural requirements. As a consequence, the administration lost early and often when its actions were challenged in federal court. The Environmental Protection Agency, in particular, suffered numerous early defeats in court and ultimately accomplished little in the way of lasting change, deregulatory or otherwise.
The authors’ detailed critiques of several specific Trump administration initiatives are forcefully presented and often compelling. Some of their broader claims about the role of regulatory review and CBA are less powerful and are less likely to persuade those who do not share their progressive outlook and regulatory sympathies. It is one thing to excoriate the Trump administration for its disregard of the legal and administrative norms governing regulatory agency activity. It is another to brush aside concerns for aggregate regulatory burdens or suggest that ex ante cost–benefit assessments should be the central focus of regulatory policy.
It is certainly true that we should want the benefits of any given regulatory proposal to exceed the costs. Government interventions should do more good than harm. An expectation that benefits exceed costs is the least we should demand of governmental interventions that constrain or direct private decision-making, particularly when we recognize that even the best-intentioned interventions can do harm.
One benefit of a liberal market order is economic dynamism and discovery. Governmental interventions tend to foreclose avenues and constrain private choice, which is why many presidencies, perhaps starting with Jimmy Carter’s, have operated on the assumption that private market ordering is to be preferred and that governmental intervention is only necessary when there is a market failure to correct. There is little evidence in Reviving Rationality that the authors share this intuition, potentially limiting their argument’s appeal to those less enamored with regulation.
CBA’s limitations / One purpose of centralized regulatory review is to discipline agencies, check their inherent tendency toward tunnel vision, and ensure that regulatory interventions are consistent with prevailing law and administration policy. CBA can play an important role in this process, but it need not be the lodestar of regulatory analysis.
CBA’s precision and sophistication have improved over the last 50 years, but it remains far from perfect. Many regulatory consequences are difficult to quantify. Further, as progressive critics like to note, agency CBAs often overestimate the costs of compliance. Yet, as retrospective review has shown, agency CBAs tend to overestimate the benefits as well. An oft-cited Office of Management and Budget report found “a greater tendency for costs to be overestimated than underestimated” in the rules it analyzed. Less often cited is the same report’s finding that the benefits of regulatory interventions, including lives saved, tend to be overestimated as well, and that, overall, the ratio of benefits to costs is overstated more often than the reverse.
CBA is imprecise because such analyses are always conducted with imperfect information, particularly concerning how market actors are likely to respond to regulatory constraints over time. As the sage Yogi Berra supposedly remarked, “It’s tough to make predictions, especially about the future.” Market conditions, technological constraints, and consumer demands all change over time in ways that are difficult to foresee. If a problem has attracted the attention of a federal regulatory agency, there is a decent chance it has attracted the attention of firms, consumers, and activists as well, perhaps triggering non-regulatory or non-federal responses.
The Obama administration’s Clean Power Plan (CPP) is perhaps a case in point. This ambitious effort utilized Section 111 of the Clean Air Act to justify regulating greenhouse gas emissions from the power sector. Issued in 2015, the CPP was to reduce power sector emissions 32% below 2005 levels by 2030, at an initial cost of $1–$2 billion per year. Such costs were justified, according to the EPA, because the plan would quickly generate net benefits that would only increase over time, both by reducing the risk of climate change as well as by curtailing other forms of air pollution generated by fossil fuels.
The CPP was never enforced, however. It was first blocked by the Supreme Court in 2016 and then put on ice once the Trump administration took over the regulatory reins. And yet, the power sector’s greenhouse gas emissions dropped to 33% below 2005 levels by 2019. The plan’s purported benefits were obtained without imposing any of its costs — which was not what the EPA had expected.
It should not be surprising that private action and state-level regulatory interventions are sometimes capable of achieving dramatic environmental or other gains at far lower cost than federal regulations. However well-intentioned, regulatory impositions often constrain dynamic market responses to emerging problems. The imposition of permitting or approval regimes, in particular, hamper the development and deployment of welfare-enhancing technologies and business practices. Incentives created by regulatory interventions sometimes work against their purposes. Insofar as such developments may have been unforeseen, they will not have been accounted for in prospective CBAs, no matter how rigorously they were conducted.
Criticisms of Trump / Livermore and Revesz are particularly critical of the Trump administration’s focus on regulatory costs and steps taken by OIRA toward the creation of a regulatory budget, not unlike the fiscal budget the OMB produces. The “one-sided” emphasis on costs “makes a mockery of cost–benefit analysis” and risks having a “pernicious” effect on needed health and environmental protections, they write.
The authors are particularly exorcised about the administration’s attempt to impose a regulatory cost cap on federal agencies and demand that agencies repeal two existing regulations for each new regulation adopted. Trump’s “one-in, two-out” requirement was admittedly a gimmick and vulnerable to agency gamesmanship (perhaps fitting, given the president), but this critique is overstated. Concern for the aggregate federal regulatory burden was hardly unique to the Trump administration, and there is value in having agencies consider repealing old regulations before adopting new ones.
The focus on costs as a primary metric defies common sense, the authors claim, writing:
In our daily lives, we might decide that it is not worth spending $50 to prevent a stubbed toe. But we are likely to feel quite differently if, instead, the result is the loss of a limb. To set a goal of saving $50, no matter the consequences, is obviously foolish.
This does not quite make their point. Few people would risk life or limb to save a mere $50, but this does not mean such costs are irrelevant. Most of us, in our daily lives, operate under budget constraints, so if it is necessary to spend $50 to save a limb, we may need to make up for that cost somewhere else. Cost constraints often require families and firms to consider tradeoffs and divert resources from one set of worthy purposes to another.
When operating under a budget, it is not enough that a given expenditure or investment will produce a positive return. There must also be funds available. Individuals, families, and firms never have sufficient resources to make every potential investment with an expected positive return. Choices must be made. CBA is useful — perhaps even essential — in the prioritization process, but so is an awareness of the ultimate cost constraint.
The federal government generally operates under fiscal constraints when it comes to taxing and spending, but not when it comes to regulating. This often creates pressure to accomplish through regulatory diktat what could better be achieved through fiscal means. Adopting a regulatory budget is a means to constrain regulatory appetites and account for the extent to which governmental decisions command and direct private resources. The authors persuasively show how the Trump administration lacked sufficient underlying analyses, but they overshoot in suggesting that concern for regulatory costs is misplaced.
Like many critics of the Trump administration’s regulatory policies, the authors note the federal government’s poor record in defending Trump-directed initiatives in court. Such critiques are more than fair, as is their claim that, at least in some instances, “the Trump administration’s rejection of expertise and evidence has tarnished what might otherwise have been an attractive opportunity to pursue deregulatory actions.” Going forward, it will be interesting to see whether such legal failures were an artifact of the Trump administration or are signs of larger problems within the administrative state, including Congress’s failure to update and revise the statutes delegating rulemaking responsibilities to federal agencies. If the Biden administration likewise struggles in court, it may be a sign of deeper rot and not something that was particular to Trump. Early signs are mixed.
Conclusion / At its best, Reviving Rationality identifies the potential value of sensible CBA and identifies many of the foibles of CBAs gone wrong. Livermore and Revesz’s detailed analyses of several Trump administration regulatory actions are insightful, even if one thinks they occasionally overstate their case.
At times, the authors seem to suggest CBA has more to offer than is actually realistic, and they too readily accept the argument that net economic benefits suggest there is a market failure that government must correct. They nonetheless offer hope that serious CBA can constrain at least some regulatory excess within progressive administrations. (Indeed, it is a shame, at this point, that neither author has been tapped to lead Biden’s OIRA.)
While Reviving Rationality might not convince CBA’s fiercest critics, it is an important entry in the relevant literature. It firmly establishes Livermore and Revesz as the leading progressive advocates of cost–benefit analysis.
