President Reagan began regulatory reform with Executive Order 12291, titled simply “Federal Regulation”; President Clinton watered it down with EO 12866; and President Trump beefed it up with EO 13771 (“Reducing Regulation and Controlling Regulatory Costs”) and EO 13777 (“Enforcing the Regulatory Reform Agenda.”) The executive orders required a cost/benefit analysis to assure that the costs of major regulations would be compared with their benefits. But on his first day in office, President Biden revoked those executive orders with his own memorandum titled “Modernizing Regulatory Review.” If you read the memorandum carefully, you’ll see that the word “modernizing” is inapt. Indeed, the memorandum would more accurately be labeled “Replacing Cost/Benefit Analysis with Rock, Paper, Scissors.”
This is from David R. Henderson, “Open Season For New Regulations,” Defining Ideas, February 4, 2021.
Another excerpt:
But even if that weren’t a problem, there are two other major problems. First, notice that the OMB is being put in a position not so much to screen regulations as to propose them. Does this mean the agencies will quit proposing regulations and passively await direction from the OMB? No way. Indeed, the memorandum reads as if President Biden is proposing that OMB be a cheerleader for new regulation. He states that he wants OIRA to “play a more proactive role in partnering with agencies to explore, promote, and undertake regulatory initiatives that are likely to yield significant benefits.” Rah, rah, sis boom bah.
The second major problem is one that anyone with much experience dealing with bureaucracy will probably notice: with so many possible criteria, regulators will have running room to implement regulations they like because those regulations pass some criteria even while they fail others. The regulators might, for example, choose a regulation that promotes public health and safety but at the expense of economic growth. Without cost/benefit analysis as a guide, how will they trade off between these two criteria? Any way they like.
Note also the disappointment I express with Cass Sunstein’s take. He should know better.
Read the whole thing.
READER COMMENTS
Kevin Dick
Feb 4 2021 at 3:16pm
I thought the full article was an excellent exposition of the history. I had not realized how much the use of CBA depended on these executive orders. That seems like a bug.
Daniel Kuehn
Feb 4 2021 at 4:49pm
Do you really see Trump’s EO 13771 as having beefed up regulatory reform?
I taught on Biden’s EOs in my Cost-Benefit Analysis class this Monday and in particular the problems with EO 13771 from the CBA perspective (noting, of course, that that’s not the only perspective to take). It was a good review of how cost minimization or control is not always consistent with selecting the highest net benefit and is often inconsistent with it. My line to them was that we did not need to get into the politics of it and some of them might have other priorities (like cost minimization), but sticking strictly with the principles cost-benefit analysis revoking EO 13771 was a significant improvement in regulatory practice.
I can see why you might criticize the memo on the same grounds as I’ve just criticized 13771. It also breaks with principles of cost-benefit analysis. Proponents will say that the memo (and 12291 for that matter) is important because it acknowledges the fact that net benefits are only one metric and CBA is only one tool, and there’s no reason why regulation shouldn’t have distribution, justice, and other priorities built in as well. At that point it’s just a disagreement over values, and it is what it is. But I certainly wouldn’t characterize Trump’s EO’s as beefing up regulatory reform.
I’ll have to take a look at Mulligan on negative cost deregulation examples. I did mention in class that revisiting regulations is important because analyses and parameters change over time. So reassessment is good, and 13771 tries to get at that, but the cost cap is a step back from good practice.
David Henderson
Feb 4 2021 at 6:05pm
You wrote:
Yes, and the proof of the pudding is in the eating. Do take a look at Mulligan’s book. If you don’t want to buy it, follow the link to my Hoover article on deregulation and click on the CEA report.
Thomas Hutcheson
Feb 5 2021 at 8:04am
Use of cost benefit analysis did not seem to protect us from trade wars and immigration restrictions. Is it any surprise that the concept may be tarnished?
David Henderson
Feb 5 2021 at 11:10am
You write:
True, but that’s not because it was used; it’s because it wasn’t used. If it had been used, it would almost certainly have protected us from those inefficient policies.
Jon Murphy
Feb 5 2021 at 12:01pm
To the extent any cost-benefit analysis was used, it appears to have been quite glib. For example, Navarro invoked the optimal tariff theory once or twice to justify the tariff policy. Generally speaking, there was no real analysis of the policies as proposed and the institutional/social arrangements in which they occur. Rather, supports of the tariff policy created various justifications that gave the appearance of cost-benefit analysis
KevinDC
Feb 5 2021 at 12:13pm
I agree. In practice, I suspect this process of fully accounting for “regulatory benefits that are difficult or impossible to quantify” will simply be creative writing exercise that will serve as demonstrations of flowery language describing lofty ideals, with little real substantive content.
This is especially true for the mandate that the OMB should “provide concrete suggestions on how the regulatory review process can promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations.” Most of these terms have no widely accepted meaning. Ask ten different people what “human dignity” means, especially as it relates to public policy, and you’ll probably get twelve different answers. Piling on this many terms, each with a range of possible meanings so vague and so broad, provides no real guidance or restraint on the scope of what should be pursued. In practice, it amounts to little more than a Post-It note saying “do whatever you feel like.”
Ken Costello
Feb 7 2021 at 7:28am
Trump’s actions did impose restrictions that could violate some benefit-cost principals; these restrictions include costs confined within a regulatory budget and the elimination of two regulations for every one newly adopted. While undoubtedly constraining new regulations, these arbitrary actions have the potential to throw out regulations that pass a benefit-cost test. It seems then that the main intent was to constrain new regulations, which was commendable but not necessarily in line with economic principles.
David Henderson
Feb 8 2021 at 7:24pm
You write:
True, but remember the point I made in my article. There is so much regulation already and it’s hard to believe that an agency that wants a new one can’t find enough old ones that have costs to offset the cost of the new one.
You write:
Possibly true, but we economists often emphasize that we should make a distinction between intent and outcomes. So I refer you, as I did Daniel Kuehn above, to the link in my Hoover article to my piece on the CEA report on deregulation.
Ken Costello
Feb 10 2021 at 11:12am
Thanks for responding, David.
Perhaps one additional point needs to be made: During its last days and hours, the Trump Administration did what previous administrations did: it rushed through several regulations in the absence of any serious review. This action seems to undermine the perception that one of Trump’s successes was to lighten the burden of regulations on industries and society in general. I guess in the end the last 4 years weren’t really that great in terms of less regulation. But to answer this more definitely, one needs to do an empirical analysis.
LEB
Feb 9 2021 at 3:02pm
It appears we may now have our explanation for Cass Sunstein’s sudden reversal on cost-benefit analysis (link 4):
https://marginalrevolution.com/marginalrevolution/2021/02/tuesday-assorted-links-300.html
Comments are closed.