Notice & Comment

Cost-Benefit Analysis in Polarized Times, by Jonathan S. Gould

For a half-century, cost-benefit analysis has been a mainstay of the regulatory state. Presidents of both parties have either promulgated or retained executive orders mandating regulatory cost-benefit analysis. Many have sought to expand its scope. While so much about regulatory law and policy polarizes the two parties, cost-benefit analysis finds support among Republicans and Democrats alike. Why?

I tackle this question in a new article: Cost-Benefit Analysis in Polarized Times, recently published in the Administrative Law Review. Here, I summarize the paper’s core arguments, discuss their relevance for current politics (especially Biden-era reforms to cost-benefit analysis), and suggest directions for future research.

Republican and Democratic administrations have certainly not both embraced cost-benefit analysis because they agree on the content of regulatory policy. To the contrary, the parties disagree on nearly every major regulatory policy question. Given this disagreement, some scholarly work on the topic emphasizes institutional reasons why cost-benefit analysis has persisted: Presidents of both parties have reasons to want to centralize authority in the White House and tightly supervise agencies, and cost-benefit analysis provides a way of doing that. But cost-benefit analysis isn’t the only way to centralize authority, and it is easy to imagine centralized presidential control—requiring agencies to submit information and for the White House to have the last word on proposed rules—without cost-benefit analysis. This raises the question of why cost-benefit analysis persists.

To answer this question, I turn to the two parties. Given polarization, it seems likely that Republicans and Democrats have different reasons for retaining cost-benefit analysis. And that is precisely what I find.

Republicans and Cost-Benefit Analysis

Cost-benefit analysis is strongly associated with the Republican Party: it was institutionalized by President Reagan, and more recently congressional Republicans have supported new legislation that would legally mandate that agencies undertake cost-benefit analysis. But the method itself often points toward progressive policy outcomes. Most notable here is climate change: the most important climate regulations have had overwhelmingly positive net benefits. The same holds for other Democratic administrations’ rules, on topics ranging from immigration to health and safety. Why, then, do Republicans continue to promote cost-benefit analysis?

The Republican case for cost-benefit analysis finds perhaps its strongest support in the method’s potential to throw sand in the gears of agency operations. Steve Bannon’s (in)famous call for government to pursue the “deconstruction of the administrative state” can shed light on some Republicans’ attitudes toward cost-benefit analysis. The contemporary Republican Party’s approach to many areas of administrative law and policy are oriented toward making it more difficult for agencies to effectively enact and enforce regulations. Cost-benefit mandates—both current executive branch requirements and proposed legislation to codify the method—can be understood in this light, as part of a pursuit of “paralysis by analysis.” On this logic, even if cost-benefit analysis may favor Democrats on particular rules, it can further conservative agendas by increasing the hurdles to agency action.

Even on the particular rules when cost-benefit analysis may favor progressive policy outcomes, Republican administrations can often distort or circumvent cost-benefit analysis to achieve their desired objectives. Two of the legal academy’s leading observers of cost-benefit analysis have documented how the Trump Administration “treated cost-benefit analysis as a charade” by “ignor[ing] the benefits of regulations,” “question[ing] those benefits at every opportunity,” and “invent[ing] sham benefits out of thin air to support a favored deregulatory action.” In other instances, such as the Trump Administrations’ repeal of the Obama-era “Affirmatively Furthering Fair Housing” rule, agencies can simply decline to do cost-benefit analysis at all. Cost-benefit analysis holds the promise of restraining agency action, but in at least some prominent instances it fails to constrain deregulatory actions even when those actions might have negative net benefits.

Conservatives have also begun using statutory arguments to circumvent cost-benefit analysis. When a pro-regulatory outcome would have positive net benefits, conservatives can simply argue that the agency is required to take an anti-regulatory action because the pro-regulatory one would exceed the agency’s statutory mandate. This is precisely what happened in West Virginia v. EPA: Challengers to the Obama Administration’s Clean Power Plan did not question the rule’s (overwhelmingly positive) cost-benefit analysis. They instead focused on statutory authority arguments, contending that the EPA was not authorized to promulgate the rule in the first instance. Given the recent rightward swing of the Supreme Court and the development of the major questions doctrine, these sorts of arguments will often succeed—as they of course did in West Virginia. The result is that in many important cases, Republican administrations can avoid the potentially progressive results that would come from cost-benefit analysis by making statutory arguments instead. This means that Republicans can continue to support the method without worrying that it will hamstring their agendas.

Democrats and Cost-Benefit Analysis

Democratic administrations support cost-benefit analysis for very different reasons. The Clinton Administration’s Executive Order 12,866 ratified what Cass Sunstein has called the “cost-benefit state,” and both the Obama and Biden Administrations have retained EO 12,866 and the basic architecture of regulatory cost benefit analysis. This support for cost-benefit analysis poses a bit of a puzzle, given that many progressives have long criticized the method, and then-Senator Joe Biden once criticized cost-benefit analysis as “incredibly presumptuous and elitist.” Why, then, have Democratic administrations retained cost-benefit mandates?

One answer is that the Democratic Party has discovered the progressive potential of cost-benefit analysis. Across a range of policy issues that matter for Democrats, cost-benefit analysis supports progressive rulemakings. “Proregulatory interest groups will often be pleased with the results of properly conducted cost-benefit analysis,” Ricky Revesz, now the Biden Administration’s OIRA Administrator, once observed. “The benefits of saving lives, preserving nature for future generations, and avoiding environmental catastrophe, properly calculated, will often outweigh the short-term costs of regulation.” To be sure, cost-benefit analysis still has dissenters from the progressive left. But some prominent Democrats—both inside and outside of the executive branch—have come to see the method as perfectly consistent with progressive policymaking, and in fact a useful tool for shaping policy content.

Even if a Democratic Administration wanted to abandon cost-benefit analysis, it would face an obstacle in doing so: the courts. The courts have never expressly found that the Administrative Procedure Act requires a monetized cost-benefit analysis, but courts have at times vacated rules on arbitrary-and-capricious grounds for failing to consider benefits and costs in a rigorous manner. In other instances, courts have read cost-benefit requirements into agencies’ authorizing statutes, even when those statutes do not expressly require cost-benefit analysis. Moreover, many of the decisions on these topics predate the changed composition of the Supreme Court and federal judiciary more broadly in the aftermath of the Trump Administration. In this context, a cautious agency general counsel tasked with developing a rule to further a progressive priority—say, to protect consumers, workers, or the environment—could reduce legal risk by conducting a traditional cost-benefit analysis. Doing so provides no guarantee that the rule will be upheld, but declining to engage in cost-benefit analysis invites avoidable legal risk.

This backdrop helps explain the Biden Administration’s approach to cost-benefit analysis. One might have assumed that the Biden Administration would have rethought cost-benefit analysis from the ground up. After all, progressive advocates have long been critical of the method, and White House has not been shy about staking out progressive positions on other regulatory and domestic policy matters. Instead, however, the administration opted for a moderate, incremental, and evidence-based approach to reforming cost-benefit analysis. Rather than ending or cutting back on cost-benefit analysis, it made modest reforms that sought to put the method on sounder analytical footing.

Consider, in this regard, the revisions to OMB Circular A-4 finalized late last year. Circular A-4 was originally issued in 2003, and parts of its guidance had become out of date over the ensuing two decades. As a result, the Biden Administration’s revisions focused on making much-needed updates, including to the discount rate used for deciding how much to value future benefits and costs in present-value terms. It also provided guidance on how to address several longstanding challenges in the practice of cost-benefit analysis: how to account for the distributional consequences of regulation, how to think about regulations with impacts beyond U.S. borders, and how to account non-monetized effects of regulation. In each instance, the Biden-era reforms rested on widely accepted (even if not universal) economic reasoning and a strong evidence base of academic research—and revisions to Circular A-4 themselves were subject to peer review and a notice-and-comment process.

Looking Ahead

So long as the parties have such divergent regulatory agendas, their approaches to cost-benefit analysis will also be different. While some have hoped that cost-benefit analysis could “replace contested, corrupt politics with neutral, scientific economics,” cost-benefit is in fact just one more battleground on which political contestation plays out.

As such, the future will likely feature fights about the appropriate methods for going about cost-benefit analysis. Conservative pushback to several of the Biden Administration’s 2023 reforms have already begun drawing the battle lines on these issues. The future will likely see contestation, most obviously, about the discount rate, the appropriate role of distributional analysis, questions of who counts in cost-benefit analysis, and how to account for regulatory impacts that are hard to monetize. The wide gap between the parties’ agendas—on issues ranging from climate to labor to health and safety—mean that the parties will likely continue to disagree about how cost-benefit analysis applies in practice.

For scholars, this means two things. First, it underscores the importance of research into the mechanics of how cost-benefit analysis works on the ground. This includes descriptive work (how have agencies gone about dealing with contested methodological questions in the past?) and normative work (how should agencies address those questions in the future?). Legal scholars, economists, and philosophers each have something distinctive and important to add to the conversation. To the extent that fights about cost-benefit analysis will lie on the terrain of the details the method’s operation, there will be a premium on good work that dives into the weeds.

Second, from a more external standpoint, more work needs to be done on how the rules that structure the administrative state create winners and losers. Which types of policymaking are made easier by the entrenchment of regulatory cost-benefit analysis? Which types are made harder? The regulatory state is a large and diverse place, it is likely that cost-benefit analysis has heterogeneous effects: sometimes making policymaking easier and sometimes more difficult, sometimes favoring Democrats and sometimes Republicans. Greater attention to the winners and losers that come from our cost-benefit state will shed important light on how public law rules shape the policies under which we all live.

Jonathan S. Gould is an assistant professor at UC Berkeley School of Law. He previously worked on regulatory policy issues as a special advisor at the White House’s Office of Information and Regulatory Affairs (OIRA) in 2021–22. The views expressed in both this blog post and the academic article that it discusses are his alone.

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