Cass R. Sunstein: Costs, benefits and regulation post-Trump

Cass R. Sunstein: Costs, benefits and regulation post-Trump

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“I told you so.” That is what some progressives are saying about bipartisan policies that Democratic presidents carried over from their Republican predecessors and that the Trump administration is sometimes putting in a less-than-wonderful light.

A case in point: cost-benefit analysis.

In 1981, President Ronald Reagan issued an executive order requiring regulators to assess the costs and benefits of their proposals, and to proceed only if the benefits outweighed the costs.

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Cass Sunstein | Bloomberg News

Some progressives were skeptical of the idea from the start. They worried that important regulations protecting health, safety and the environment would not survive cost-benefit analysis.

Right-of-center ideology and powerful private interests, they said, would ensure that the analysis was anything but a neutral tool.

Despite these fears, Presidents Bill Clinton and Barack Obama enthusiastically embraced Reagan’s basic approach.

Under both Republican and Democratic presidents, cost-benefit analysis has generally served Americans well. Sure, it can be politicized. But most of the time, it has halted regulations that don’t make much sense – and crucially, encouraged regulations that are good ideas (and that save lives).

Under President Trump, unfortunately, two bad things have happened.

First: He has focused on costs at the expense of benefits. He has sometimes promoted “cost analysis,” not cost-benefit analysis. His 2017 executive order imposes a “regulatory cap” of zero costs. That might sound impressive, but it’s a terrible idea.

Suppose that the Department of Transportation could issue 10 safety regulations with total benefits of $2 billion and total costs of $500 million. On net, Americans would gain $1.5 billion. Those savings are likely to include the prevention of a lot of deaths and injuries. Does it make even a little bit of sense to forbid those regulations from going forward, merely because their costs are greater than zero?

Second: When the Trump administration has engaged in cost-benefit analysis (and it deserves real credit for that), it has sometimes played politics with it, in a way that seems to vindicate the objections of the progressive critics of the approach.

A prominent example involves “co-benefits,” which can be found when a regulation designed to reduce one problem also reduces another. Suppose that an energy-efficiency regulation, designed to reduce dependence on foreign oil, also saves consumers money. Or suppose that an air-pollution rule, designed to reduce mercury, also reduces other air pollutants, such as particulate matter and ozone.

Both Republican and Democratic administrations reached the obvious conclusion that co-benefits count.

Under intense pressure from self-interested private companies, the Trump administration seems to think otherwise. It has proposed to give no consideration to co-benefits under an important provision of the Clean Air Act.

Climate-change policy may be the most egregious example.

For calculating the benefits of reducing greenhouse gases, the key figure is the “social cost of carbon,” which represents the monetary cost of a ton of carbon emissions. Often described as “the most important number you’ve never heard of,” it was around $40 under Obama.

Whatever you think of that particular figure, it was produced through an intensive, highly technical, nonpolitical process, as the General Accounting Office found after repeated objections from Republican politicians.

The Trump administration has slashed the social cost of carbon to somewhere between $7 and $1 (meaning, close to zero). That means that the monetary benefit of reducing greenhouse gas emissions is bound to be low – which means in turn that climate change regulations aren’t going to be producing a lot of benefits, and so will be tough to defend on cost-benefit grounds.

Trump’s regulators have produced these low numbers without offering much explanation. That suggests that politics, and not science or economics, is behind its decision.

Pointing to examples like these, some progressives emphasize that cost-benefit analysis can be manipulated. They’re right.

With this objection in mind, a future Democratic president might reduce the role of that form of analysis or even jettison it entirely. In 2019, some Democratic politicians, especially on the left, seem to be focusing more on making the right kinds of statements than on specifying the right kinds of policies, which cannot be developed without careful attention to trade-offs.

In the real world, trade-offs are inevitable.

Regulators should focus not only on the total amount of costs and benefits but also on who is enjoying the benefits and who is bearing the costs.

Cass R. Sunstein is a Bloomberg Opinion columnist. He is the author of “The Cost-Benefit Revolution” and a co-author of “Nudge: Improving Decisions About Health, Wealth and Happiness.”

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