Cost-Benefit Analysis Faded Under Trump. Biden Can Fix That.
(Bloomberg Opinion) -- President-elect Joe Biden just got an excellent suggestion about how to approach regulation of food safety, clean air, clean water, highway accidents and occupational health.
It comes from a brief but illuminating passage in “The Promised Land,” the new memoir by his former boss, President Barack Obama:
Those of us who believed in the government’s ability to solve big problems had an obligation to pay attention to the real-world impact of our decisions and not just trust in the goodness of our intentions. If a proposed agency rule to preserve wetlands was going to lop acreage off a family farm, that agency should have to take the farmer’s losses into account before moving forward.
For that reason, Obama believed in cost-benefit analysis — not as a numerical straightjacket, but as a way to apply science and economics to measurement of the real-world impact of decisions by government agencies.
Suppose, for example, that a proposed regulation from the Department of Transportation, requiring vehicles to be equipped with a new technology to reduce crashes, would cost $900 million. What would we get in return for that expenditure? How many lives would be saved? Would it be worthwhile?
In 2009, Obama appointed me as administrator of the White House Office of Information and Regulatory Affairs, and he directed me to focus intensely on those questions. During my four years in government, Obama asked me to try to quantify both benefits and costs — and to make sure that for every regulation that I approved, the former would be higher than the latter.
As Obama notes, the benefits of his regulations, over eight years in office, ended up exceeding their costs by a ratio of six to one, a finding that can be found in reports from the administration of President Donald Trump. Those benefits include not only economic savings for consumers (coming, for example, from energy efficiency and fuel-economy rules), and not only savings from deregulation (Obama did plenty of that), but also savings from prevented deaths and illnesses produced by cleaner air, safer workplaces and reduced highway deaths. Admittedly, some of those benefits are not easy to monetize.
For the Biden administration, Obama’s record provides an excellent model. Still, the president-elect is about to face three new challenges.
The first comes from the political left. As Obama points out, some progressives have been unenthusiastic about cost-benefit analysis, seeing it as a way for corporate interests to stall sensible regulations.
They’re right that cost-benefit analysis has sometimes been used that way. The best response is simple: prevent it from happening. In the context of food safety, careful attention to costs and benefits can spur aggressive regulations; it need hardly discourage them. The same is true of regulations that protect clean air.
If the Biden administration plays it straight with the numbers, cost-benefit analysis won’t be a way to stall sensible regulations. It will be a way to help public officials, and the American people, decide which regulations are sensible.
The second challenge comes from a series of blunders over the last four years. Trump has issued executive orders that direct agencies to focus on costs, but to neglect benefits.
His administration has also treated the benefits of reducing greenhouse-gas emissions as tiny. And under Trump’s leadership, the Environmental Protection Agency has moved in the direction of refusing even to consider co-benefits, which occur when a regulation, designed for example to reduce one air pollutant, leads to the use of technologies that will also reduce other air pollutants.
The Biden administration will have to correct these and other blunders, and to do that in a hurry.
The third challenge, and in some ways the hardest, involves continuing questions about the limits of cost-benefit analysis.
Obama’s executive order on federal regulation, still in effect, directs agencies to consider “equity, human dignity, fairness and distributive impacts.” Like Obama, Biden is concerned about all of those things. But when and how, exactly, should they be considered? What’s their relationship to cost-benefit analysis? No administration has adequately answered these questions.
Biden’s transition website refers to “racial equity” as a priority area. Regulations that combat discrimination, and that increase equal access to higher education, are designed to promote equity and human dignity. For public officials deciding whether to go forward with them, costs and benefits surely matter, but cost-benefit analysis just isn’t the right framework.
Or consider regulations that are designed to reduce illnesses and deaths (including those from Covid-19) in the workplace. Those regulations have a lot to do with equity, human dignity and fairness.
“Distributive impacts” matter as well; in other words, we need to know who, exactly, is helped and who is hurt. If a regulation prevents 500 workplace deaths annually, it might be worth doing even if it costs a great deal of money — and even if it ends up increasing the price of the goods that workers produce.
In producing a new framework for regulation, Biden has a terrific opportunity. By answering the unresolved questions, he really can build back better — and improve on the work of his former boss.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Cass R. Sunstein is a Bloomberg Opinion columnist. He is the author of “Too Much Information” and a co-author of “Nudge: Improving Decisions About Health, Wealth and Happiness.”
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