Notice & Comment

Regulatory Analysis in Unsettled Times, by Daniel Farber

*This is the ninth post in a series on Michael Livermore and Richard Revesz’s new book, Reviving Rationality: Saving Cost-Benefit Analysis for the Sake of the Environment and Our Health. For other posts in the series, click here.

Just before Barack Obama took office, Richard Revesz and Michael Livermore published Reinventing Rationality. Their book sought to defend cost-benefit analysis as a way of making regulatory decisions — and in particular to argue that environmentalists were wrong to dismiss its potential to advance their goals. That book has much in common with Reviving Rationality, their latest effort. But there are also three significant changes.

The first change is that, while Livermore and Revesz continue to extoll cost-benefit analysis (CBA), most of what they say is equally valuable to people who have little faith in putting monetary values on regulatory benefits. 

You don’t have to believe in quantitative CBA as the litmus test for regulations to think that regulators should competently assess compliance costs and regulatory benefits. For instance, suppressing crucial evidence about health risks is obviously no way to regulate pollution, whatever your preferred decision method. And you don’t have to be an economist to see something wrong with the argument that cutting the cost of new cars will result in fewer cars being on the road, improving traffic safety. That was the Trump Administration’s justification for cutting fuel efficiency standards.

One of the book’s important contributions is its meticulous documentation of just how incompetent, if not dishonest, the Trump Administration was in its regulatory analysis. The book also shows how often the Administration violated the practices of its predecessors, Democratic and Republican alike. Many of the individual episodes Livermore and Revesz discuss are familiar, but the level of detail and range of incidents they provide will be useful to readers with many different perspectives on government regulation.

The second change is encapsulated in the “guardrails” metaphor that runs throughout the book. The fundamental thesis of the book is that CBA and its associated structure of White House review provides safeguards against unreasonable regulatory decisions. To make the case for an established norm of CBA-based decision-making, Livermore and Revesz have to show that the norms were (mostly) followed under very different presidential administrations. Barack Obama and George W. Bush had very different approaches to regulation — if CBA accommodates both approaches, there’s obviously considerable maneuvering room between the guardrails. Calling CBA a guardrail is a more modest claim that proclaiming it the one valid way of making decisions.

It seems to me that this is a much more defensible claim than the stronger claim that CBA equates with good social policy. It provides much more room for normative disagreement about what values government should pursue. It is also a claim that comes closer, at least in my view, to what CBA can actually deliver, given the data gaps, modeling difficulties, and unquantifiable benefits that are an inevitable part of the enterprise. There are advantages to having a fairly uniform, administrable indicator for whether regulations are unreasonably draconian or weak, even if the indicator is imperfect. In a different setting and with a very different methodology, the Congressional Budget Office provides a similar service to Congress in estimating the budgetary impacts of proposed fiscal measures.

The third change is the note of dismay that surfaces in the book, the fear that the norms shattered by Trump may be gone for good. A good chunk of the Republican party seems to share Trump’s disdain for expertise in all forms, a phenomenon dramatized by the current fad for a horse-deworming drug as protection against a deadly virus. Moreover, conservatives who supported CBA as a deregulatory measure were horrified to learn under Obama that benefits of major regulations actually can exceed their costs. On the other hand, there’s a segment of the Democratic party that is dismissive of regulatory costs and uncertainties about regulatory benefits, prepared to plunge ahead with regulation without too many worries about feasibility. The constituency for cost-benefit analysis seems to be shrinking, as Livermore and Revesz are well aware.

In the end, the best that Livermore and Revesz can do is suggest improvements in regulatory analysis in the hope that their proposals will find a political constituency somewhere. Again, the issues they raise go beyond CBA. Their anxiety about the future speaks to many who are not fans of CBA but who worry that the center may not hold and that something very scary just might be slouching toward Bethlehem.

The basic project of Reviving Rationality is to defend CBA, and the White House agency that oversees it, from assault on both sides of the political spectrum. I think Livermore and Revesz are right that CBA can most effectively be defended as a guardrail against bad decisions rather than a monorail to ideal ones. CBA also may benefit from being seen as one of the tools for sound decision making, rather than the sine qua non. In the end, however, it seems to me that basing regulatory decisions on good science and good economics is more important than any one decision-making technique like CBA. I suspect that Livermore and Revesz would agree.

Daniel Farber is the Sho Sato Professor of Law at the University of California, Berkeley.