(Bloomberg Opinion) -- “I told you so.” That is what some progressives are saying about bipartisan policies that Democratic presidents carried over from their Republican predecessors and that the Trump administration is sometimes putting in a less-than-wonderful light.
A case in point: cost-benefit analysis.
In 1981, President Ronald Reagan issued an executive order requiring regulators to assess the costs and benefits of their proposals, and to proceed only if the benefits outweighed the costs. Some progressives were skeptical of the idea from the start. They worried that important regulations protecting health, safety and the environment would not survive cost-benefit analysis. Right-of-center ideology and powerful private interests, they said, would ensure that the analysis was anything but a neutral tool.
Under President Trump, unfortunately, two bad things have happened.
First: He has focused on costs at the expense of benefits. He has sometimes promoted “cost analysis,” not cost-benefit analysis. His 2017 executive order imposes a “regulatory cap” of zero costs. That might sound impressive, but it’s a terrible idea.
Suppose that the Department of Transportation could issue 10 safety regulations with total benefits of $2 billion and total costs of $500 million. On net, Americans would gain $1.5 billion. Those savings are likely to include the prevention of a lot of deaths and injuries. Does it make even a little bit of sense to forbid those regulations from going forward, merely because their costs are greater than zero?
Second: When the Trump administration has engaged in cost-benefit analysis (and it deserves real credit for that), it has sometimes played politics with it, in a way that seems to vindicate the objections of the progressive critics of the approach.
A prominent example involves “co-benefits,” which can be found when a regulation designed to reduce one problem also reduces another. Suppose, for example, that an energy-efficiency regulation, designed to reduce dependence on foreign oil, also saves consumers money. Or suppose that an air-pollution rule, designed to reduce mercury, also reduces other air pollutants, such as particulate matter and ozone.
Both Republican and Democratic administrations reached the obvious conclusion that co-benefits count.
Under intense pressure from self-interested private companies, the Trump administration seems to think otherwise. It has proposed to give no consideration to co-benefits under an important provision of the Clean Air Act.
Climate-change policy may be the most egregious example of the politization of cost-benefit analysis. For calculating the benefits of reducing greenhouse gases, the key figure is the “social cost of carbon,” which represents the monetary cost of a ton of carbon emissions. Often described as “the most important number you’ve never heard of,” it was around $40 under Obama. (Disclosure: As administrator of the Office of Information and Regulatory Affairs from 2009 to 2012, I helped convene the technical working group that originally produced the social cost of carbon.)
Whatever you think of that particular figure, it was produced through an intensive, highly technical, nonpolitical process, as the General Accounting Office found after repeated objections from Republican politicians.
The Trump administration has slashed the social cost of carbon to somewhere between $7 and $1 (meaning, close to zero). That means that the monetary benefit of reducing greenhouse gas emissions is bound to be low – which means in turn that climate change regulations aren’t going to be producing a lot of benefits, and so will be tough to defend on cost-benefit grounds.
Trump’s regulators have produced these low numbers without offering much of an explanation. That suggests that politics, and not science or economics, is behind its decision.
Pointing to examples like these, some progressives emphasize that cost-benefit analysis can be manipulated. They’re right. With this objection in mind, a future Democratic president might reduce the role of that form of analysis or even jettison it entirely. In 2019, some Democratic politicians, especially on the left, seem to be focusing more on making the right kinds of statements than on specifying the right kinds of policies, which cannot be developed without careful attention to trade-offs.
In the real world, trade-offs are inevitable. If a regulation would do little to improve worker safety but would cost a ton of money, it will probably end up hurting consumers, who will pay more for goods and services, and workers, who may find themselves with lower wages and fewer jobs. One virtue of cost-benefit analysis is that it puts that possibility on the regulators’ view screen.
It is true that regulators should focus not only on the total amount of costs and benefits but also on who is enjoying the benefits and who is bearing the costs. If a regulation would help people at the bottom of the economic ladder, there’s a reason to go forward with it.
This may not happen as long as Trump is in office. But for Democrats (and Republicans as well), the right approach to cost-benefit analysis is simple: Mend it. Don’t end it.
To contact the editor responsible for this story: Katy Roberts at kroberts29@bloomberg.net
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 “The Cost-Benefit Revolution” and a co-author of “Nudge: Improving Decisions About Health, Wealth and Happiness.”
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