Notice & Comment

An Analysis in Search of an Audience, by James Goodwin

*This post is part of a symposium on Modernizing Regulatory Review. For other posts in the series, click here.

The Biden administration’s recent proposed revisions to Circular A-4 — the official instruction manual for agencies on how to perform cost-benefit analysis for their new rules — represent a fundamental rethinking of not only the methodologies and techniques for producing a useful analysis; they also suggest an entirely new regulatory philosophy, one that is unwilling to sacrifice widely shared values like dignity and equity for brutal, cold, calculating efficiency. With so much being re-examined, it’s a fitting occasion to explore a question I’ve long pondered: Who is the audience for all of these cost-benefit analyses anyway?

This question is important because the identity of a target audience should help determine what is written and how it is written. I certainly strive to resolve this issue before I sit down to write. What I write about Circular A-4 for this blog — which is primarily trafficked by academics and wonks — will wildly differ from what I might write for a newspaper op-ed, which would be read by a broader cross section of the public. (Alas, I might think twice before writing anything about Circular A-4 for a newspaper op-ed.)

Despite its importance, though, this question has been taken for granted in broader debates over cost-benefit analysis. To be sure, a careful read of the Circular A-4 revisions suggests at least four types of audiences: lawmakers; judges; agency decision-makers; and the public. But recent experience with cost-benefit analyses casts doubt on the actual importance of these audiences.

Lawmakers

For starters, do lawmakers care about regulatory cost-benefit analysis? Do they rely on it to inform their oversight of regulatory programs within their committee jurisdiction? For a time, this use of cost-benefit analysis appeared to be one of few issues that enjoyed bipartisan support. Conservatives saw it as crucial for preventing “overregulation” of programs they oversaw, while — despite some early skepticism — liberals came to embrace it as a means for defending those programs against attacks. 

But as the partisan gap over regulatory policy continues to widen, this consensus has largely unraveled. Conservatives have abandoned their focus on cost-benefit analysis in favor of various “regulatory budgeting” schemes, best exemplified by the Trump administration’s so-called two-out, one-in executive order. While the particulars vary, these schemes seek to place a hard cap on overall regulatory costs, forcing agencies to repeal existing rules before they can implement new ones. Importantly, all new rules, no matter their cost-benefit ratio, are subject to these constraints. From this perspective, regulatory budgeting assumes the form of a “cost-only” analysis insofar as the benefits side of the ledger are practically irrelevant. One way to interpret this shift is that conservative lawmakers have changed the focus of their oversight from better regulations (as evaluated through cost-benefit analysis) to fewer regulations, full stop.

To be sure, conservative lawmakers do push for laws such as the Regulatory Accountability Act that would expand the role of cost-benefit analysis in the rulemaking process. Given that this bill would create more than 60 new procedural hurdles for agencies to overcome when developing new rules, its supporters appear to value cost-benefit analysis as a means for tying agencies up in procedural knots — not improving the quality of decision-making.

At the same time, skepticism of cost-benefit analysis is growing among lawmakers on the left, with more coming to accept the foundational critiques regarding its myriad theoretical and practical flaws. Specifically, many progressive lawmakers take issue with the methodology’s inability to account for important values like human dignity and equity and its inattention to distributional concerns — positions reflected in the cost-benefit analysis reform provisions of the Stop Corporate Capture Act. That bill includes a sense of Congress that cost-benefit analysis has consistently underestimated regulatory benefits while separately requiring agencies to do a better job accounting for nonquantifiable benefits.

At this point, centrist Democrats appear to be the last real constituency for regulatory cost-benefit analysis among lawmakers — and their numbers continue to dwindle.

The Judiciary

The next potential audience for cost-benefit analysis is the judiciary. For decades, industry repeatedly sought to invite the U.S. Supreme Court to read cost-benefit analysis requirements into agency statutory authorities where none was specifically called for, with the hope they might provide a more powerful avenue for challenging rules on judicial review. The Supreme Court, however, repeatedly rejected these invitations. At most, it was willing to bless agencies’ voluntaryuse of cost-benefit analysis under these circumstances. 

The decision in Michigan v. U.S. Environmental Protection Agency (EPA) signaled a potential change was brewing. There, the Court’s conservative majority held that in making its Clean Air Act-mandated threshold determination that regulating toxic air pollutants from fossil-fueled power plants was “appropriate and necessary,” the EPA had erred by not performing something akin to a cost-benefit analysis. (The late Justice Antonin Scalia, though, was careful to note in his majority opinion that the EPA was not obliged to perform the kind of formalized cost-benefit analysis contemplated by Executive Order 12866 and Circular A-4.)

For many on the right and centrist technocrats, the Michigan decision heralded a new “cost-benefit state” superintended by our federal judiciary. Cost-benefit analysis would provide the judiciary with the tools it needed to ferret out regulatory excess. Subsequent history has not borne that out, however. Instead, the gradual demolition of Chevron deference — and, in particular, the ascendancy of the Major Questions Doctrine — has become the preferred vehicle for conservative judges to block agency regulations.

To the extent that the underlying analysis for the Major Questions Doctrine focuses on a regulation’s “cons” (i.e., the political and economic consequences that make it “controversial” in the first place), this legal doctrine can also be understood as a form of “cost-only” analysis, and thus a spiritual cousin of regulatory budgeting. (Indeed, all the benefits in the world wouldn’t obviate the doctrine’s demand for clear congressional authorization.) This, too, might explain the Major Question Doctrine’s appeal to conservative judges relative to cost-benefit analysis.

It’s harder to gauge where more left-leaning jurists stand on cost-benefit analysis. Justice Elena Kagan’s dissent in Michigan, however, suggests ambivalence at best. For the foreseeable future, federal judges will likely defer to agency’s voluntary use of cost-benefit analysis, but it’s hard to imagine they will demand it where not specifically required.

Agency Decision-Makers

A third potential audience is the agency decision-makers themselves. At first blush, targeting this audience makes a lot of sense, given that cost-benefit analysis is intended to provide information about the merits and demerits of different regulatory approaches to a particular policy problem. But again, there are important complications. For one, few statutory authorities require, much less permit, agencies to explicitly rely on formalized cost-benefit analysis to guide their regulatory decision-making. Instead, in these situations, the analyses performed under the auspices of Executive Order 12866 are not decision-making rules but rather regulatory impact analyses in the strictest sense — they are “for informational purposes only.”

The more cynical basis for questioning the value of cost-benefit analysis to agency decision-makers flows from advocates’ (both on the left and the right) critique that it provides little more than elaborate post hoc rationalizations for regulatory decisions made by other means. Proponents of cost-benefit analysis, like Harvard law professor Cass Sunstein, have famously documented its inherent malleability. This feature of cost-benefit analysis, the argument goes, enables agencies to adjust data, models, assumptions, and menus of alternatives to engineer a cost-benefit analysis that just happens to support nearly any preferred regulatory decision. Of course, there are constraints on both the deregulatory side of the spectrum (illustrated by the Trump administration’s rollback of greenhouse gas standards for passenger cars) as well as the regulatory side (illustrated by the Obama administration’s rule mandating rearview cameras for cars).

In short, whether and to what extent cost-benefit analysis provides useful information to agency decision-makers is debatable.

The Public

Last, but not least, the public is often held out as a potential audience for cost-benefit analysis. No doubt this is true — but only for a rarefied elite with formal training in graduate-level economics (or the resources to hire someone with such training) that is necessary to meaningfully digest these complex, technical documents. The revised Circular A-4 acknowledges as much, directing agencies to write their analyses such that “a qualified third party reading the analysis should be able to understand your analysis, underlying assumptions, and the way in which you developed your estimates.”

This exclusive nature of cost-benefit analysis raises the specter of a rulemaking process in which people can’t participate on equal terms — a specter all the more troubling if cost-benefit analysis is to play the disproportionately influential role that its supporters call for. Its use risks further marginalizing everyday citizens, especially those who have been systematically excluded in the past, including the working poor and communities of color.

The last few years have seen a growing recognition among policymakers and academics of the importance of ensuring that individuals play a more meaningful role in shaping regulatory implementation. The Biden administration has taken steps to affirmatively support greater participation by individuals, including through the president’s Modernizing Regulatory Review executive order and its Broadening Public Engagement in the Federal Regulatory Process initiative. To the extent that cost-benefit analysis systematically excludes individuals, it would run at cross purposes to those important efforts.

In sum, careful consideration of each traditionally recognized audience for cost-benefit analysis raises significant questions and concerns. For each — lawmakers, judges, agency decision-makers, and the public — the methodology offers little practical or legitimate use; worse still, it risks creating undesirable unintended consequences. This insight is important, though, because it offers a new mode of thinking about the project of reforming regulatory impact analysis. Instead, we might begin by asking ourselves what such an analysis would look like if it were to be useful to these four audiences. As it is now, these audiences would likely agree, if they’re being honest, that it would not look like cost-benefit analysis.

James Goodwin is a Senior Policy Analyst at Center for Progressive Reform.

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