Is OMB Stacking the Deck for More Progressive Cost-Benefit Analysis?

The Biden Administration is revising the rules for how agencies conduct cost-benefit analyses, and some CBA experts have expressed concerns.

Earlier this year, President Biden issued an Executive Order seeking to "modernize the regulatory process to advance policies that promote the public interest and address national priorities." Among other things, this EO called upon the Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA) to revise OMB Circular A-4, which provides agencies with guidance as to how they should conduct regulatory analysis when considering and proposing new regulations.

As called for in the EO, OIRA has proposed a range of revisions to Circular A-4 to update its requirements. Many of the changes are welcome revisions. Others, however, have prompted concerns, particularly with regard to how the revisions would affect cost-benefit analyses of proposed agency regulations.

On Monday, all former Presidents of the Society for Benefit-Cost Analysis submitted a letter to OIRA identifying concerns with the proposed revisions that, in their view, could unnecessarily politicize cost-benefit analyses, and reduce the value of centralized executive branch review of agency regulations. They write:

Circular A-4 (OMB 2003) provides guidance to agencies for considering the impacts of alternative regulatory actions as required by Executive Order 12866 (Clinton 1993). That order directs agencies to "promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling public need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people." It further directs agencies to "assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating," and to "select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach" (Clinton 1993, Sec.1.a). It recognizes that all significant impacts should be considered, although some may be difficult to quantify or monetize.

E.O. 12866 and Circular A-4 have proven durable across different presidential administrations² because they are based on objective and nonpartisan principles and are designed to provide information to policymakers on an important dimension of policy decisions—the efficiency of different approaches to achieving policy goals. It is appropriate to update the Circular to reflect new data and advancements in economic understanding of regulatory impacts over the last 20 years, and we commend OMB for its efforts. However, to retain the Circular's acceptance and stability, it will be important not to stray from widely accepted principles and methods.

The proposed revisions contain worthwhile updates, but also some guidance that deviates from the best available current economic science. To the extent that the Circular is perceived as not being neutral, or as embedding practices that favor certain policy preferences, it risks the stability of the longstanding bipartisan support for regulatory impact analysis. . . .

Some of the proposed changes depart from widely accepted practices, principles, and evidence, and could be perceived as favoring particular policy preferences. If that is the case, a future administration with a different set of policy preferences would likely replace this circular with another designed to support its preferred policies, leading to wide swings in regulatory actions. We believe that after 20 years, revisions to Circular A-4 are appropriate and timely. However, we also believe that the Circular should have bipartisan support and not be subject to revision with each incoming administration.

Among the particular concerns raised in the letter is the proposal to weight cost-benefit analyses to account for particular normative concerns, such as the potential distributional consequences of proposed regulations. While consideration of such concerns is appropriate when making policy, the letter writers warn, it distorts the role of cost-benefit analysis to embed such value judgments in what is supposed to be a neutral assessment of a regulatory measure's expected impacts.

Two of the letter's signatories, Susan Dudley and W. Kip Viscusi, make a similar point in a WSJ op-ed:

OMB's draft revisions to longstanding guidance stray from widely accepted principles and methods in several areas, including by assuming individuals don't act in their own best interests (and that regulators know better), by counting global effects instead of distinguishing between domestic and foreign ones, by "weighting" impacts by income to exaggerate their benefits to low earners, and by lowering the discount rate to create a better benefit-cost picture of costly regulations that promise future benefits.

Each of these changes would embed values other than economic efficiency in the benefit-cost analysis, rather than encourage career staff to present the best evidence and leave value judgments to politically accountable officials. OMB's draft opens the door to putting scientific-sounding numbers on inherently qualitative values like social justice, environmental stewardship and human dignity. That would vitiate the transparency and integrity of regulatory-impact analysis, which for decades has served as a ballast across administrations with widely varying policy objectives.

The argument here is that cost-benefit analyses should inform regulatory policy decisions, not determine them, and for cost-benefit analyses to play that role, they should not embed contested normative assumptions.

For more on the proposed changes to Circular A-4 and other Biden Administration proposals to modernize regulatory review, check out the Yale Journal of Regulation Notice & Comment Blog's symposium on the subject, which contains a range of views from multiple perspectives.