The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

This post is part of a series on President Trump’s deregulatory record and what we might expect in the new administration.

 Benefit-cost analysis has been a part of the United States regulatory process for a long time.  It began in the 1970s with efforts by Presidents Ford and Carter to centralize presidential control of regulatory agencies as regulations to protect public health proliferated (https://www.jstor.org/stable/23065472).  In Executive Order 12291, President Reagan required that agencies conduct regulatory impact analyses (RIA) (which included attempts to measure benefits and costs) for a subset of regulations.  While the process was continually revised afterwards (most notably by President Clinton, issuing Executive Order 12866 in 1993), the process for agency issuance of regulations and the role of RIAs looked roughly the same in 2016 as it did in 1981.

Benefit-cost analysis was frequently criticized throughout this period.  Supporters of stringent regulation on the environment and public health often opposed the monetization of such protections, and felt that these benefits were always undercounted (https://thenewpress.com/books/priceless).  Those who thought the use of benefit-cost analysis would curb the activity of regulatory agencies faulted the RIAs for inflating benefits and minimizing costs (https://www.journals.uchicago.edu/doi/abs/10.1093/reep/rem012).

But something of an equilibrium was reached throughout this nearly 40-year period.  The science of benefit-cost analysis regularly improved (thanks in part to members of SBCA!).  Most regulatory agencies improved their RIAs as a result. Courts and media reports began to regularly cite the bottom line results of the analysis.  In cases where agencies were able to estimate both benefits and costs, the benefits were frequently much higher than the costs as reflected in the aggregate reports to Congress produced annually by the Office of Management and Budget (https://obamawhitehouse.archives.gov/omb/inforeg_regpol_reports_congress).

Then came 2017.  The Trump Administration did not discard benefit-cost analysis to be sure.  But its central regulatory initiatives were the implementation of a regulatory budget and a requirement that agencies remove two existing regulations for every new regulation issued (https://www.federalregister.gov/documents/2017/02/03/2017-02451/reducing-regulation-and-controlling-regulatory-costs).  The first of these measures ignored regulatory benefits and instead mandated the sole consideration of regulatory costs.  The latter ignored both benefits and costs in favor of an arbitrary tradeoff. 

The Biden Administration repealed both of the Trump Administration initiatives upon taking office.  And in a sense they restored the Ford-Obama status quo.  But they also made major revisions to Circular A4, the document that guided agencies in conducting benefit-cost analyses .  These revisions required distributional analysis as a part of RIAs and made major changes to the recommended discount rate used, among other changes.  While many supported these changes, they were contentious.  Given that they were issued relatively late in President Biden’s term, and President Biden did not win re-election, agencies never really incorporated the new A4 into their analyses.

I don’t think it is controversial to say that the actions thus far in President Trump’s second term are a much more extreme version of his first term.  Nowhere is this more explicit than regulatory policy where he has now ordered agencies to eliminate ten regulations for every new regulation they issue.  This order seems to leave even less room for thoughtful analysis in regulatory decision-making than was present in the first Trump term (the analyses that were done in that first term were regularly cited as deeply flawed (https://scholarship.kentlaw.iit.edu/cklawreview/vol94/iss2/7/).

Where does this leave regulatory benefit-cost analysis?  The consensus that seemed to exist among presidents of both parties from the 1970s until 2016 seems to have evaporated.  

Jonathan Gould has recently written an insightful paper about the diverging motivations for Democrats and Republicans in their support of cost-benefit analysis.  He argues that Democratic administrations like the support BCA has proven to provide for many regulatory initiatives (particularly environmental protection), and that such support may strengthen the legal case for regulations. Republicans support the additional proceduralization of the regulatory process, and the ability to use benefit-cost analysis to argue against strict regulatory requirements. He concludes by saying these divergent motivations “will likely feature fights about the appropriate methods for going about cost-benefit analysis.”

But I suspect that for those of us that support the use of cost-benefit analysis in the regulatory process this is too optimistic.  During the first Trump Administration, I wrote (https://www.elr.info/articles/elr-articles/oiras-dual-role-and-future-cost-benefit-analysis) that cost-benefit analysis may no longer fit in the executive branch as part of regulatory review.  The first few months of the second Trump Administration have hardened this sentiment for me.

Republican administrations, as long as the party has its current ideological orientation, is not a home for benefit-cost analysis.  Democratic administrations have never been the most welcoming home for BCA either, despite the points that Gould notes.  Given these sentiments, it is hard to envision a return to the rough consensus that existed for decades. 

Those of us (like the members of SBCA) that support the use of benefit-cost analysis to assist regulatory decision-making need to start to think about how to decouple it from executive review of regulations.  The incentives for presidents to support benefit-cost analysis have changed, perhaps irrevocably.