II. Republican Politics and Cost-Benefit Analysis
A. A Tool of Deregulation
The standard reason given for conservative support for cost-benefit analysis is the method’s historical association with anti-regulatory politics. This story typically begins in the 1980s, with President Ronald Reagan using the White House to promote a staunchly deregulatory and anti-regulatory agenda. While his predecessors had pursued regulatory reform, “Reagan came into office explicitly committed to reducing” regulation. During his first week in office, he established a Task Force on Regulatory Relief, which recommended an executive order requiring White House approval of new regulations and mandating that agencies undertake cost-benefit analysis before issuing regulations.
The Reagan Administration’s embrace of cost-benefit analysis can only be understood in this broader context. Executive Order 12,291, issued in 1981, provided that “[r]egulatory action shall not be undertaken unless the potential benefits to society for the regulation outweigh the potential costs to society.” It further required that regulatory objectives and priorities be set in a way that maximized the aggregate net benefits to society. Though this language reads as technocratic in isolation from its context, contemporaneous observers on both sides of the debate over regulation recognized the deregulatory effects that mandating cost-benefit analysis would have. The Reagan Administration itself justified the need for cost-benefit analysis as a means of disciplining “government regulations [that] are imposing an enormous economic burden on our national economy and our people.”
The deregulatory goals of early requirements for regulatory cost-benefit analysis were clear from the fact that the Reagan Administration required cost-benefit analysis for rules that would impose regulatory mandates but not for those that would loosen or repeal such mandates. The Administration “applied its [cost-benefit] criteria selectively, requiring no analysis for proposals that eliminate regulation, and no cost analysis for those that relax existing standards.” The then-recently established OIRA was tasked with ensuring agency compliance with cost-benefit requirements. Even if cost-benefit analysis is formally neutral as between regulation and deregulation, in practice it was a tool of deregulation during the 1980s.
Interest groups and members of Congress understood the deregulatory valence of cost-benefit analysis during this time period. The business community viewed the advent of cost-benefit analysis as a way to “stem the tide of unnecessary and excessive regulations that they say have been a severe and growing burden to the nation’s economy,” while environmentalists and advocates for health and safety regulation viewed the cost-benefit requirement “as little more than a justification for deregulating business and industry.” In the ensuing decades, business groups would continue to be among the most important proponents of cost-benefit analysis, with organizations like the Chamber of Commerce and Business Roundtable vocally supporting the method. In summing up how interest groups viewed cost-benefit analysis in the 1980s, Thomas McGarity underscored that “regulatees express a keen preference for cost-benefit analysis and regulatory beneficiaries uniformly oppose it.”
It is not hard to see why business, then and now, would see promise in efforts to require cost-benefit analysis of federal regulations. Shifting focus toward cost-benefit analysis is a way of shifting focus away from agencies’ statutory mandates to protect workers, consumers, the environment, or the like. The process of developing a cost-benefit analysis also requires data on the costs of regulation, which are frequently provided by regulated industries that can present inflated costs in an effort to water down regulations or stymie them altogether. Further, cost-benefit requirements give regulated entities a hook for future litigation: once a rule is issued, a regulated entity can criticize some aspect of the underlying cost-benefit analysis and ask a court to vacate the rule on that basis. And, as I discuss in detail below, cost-benefit requirements slow down the pace of federal regulatory activity. These considerations have all given the business community good reason to support cost-benefit requirements.
On Capitol Hill, some Republicans sought to complement Reagan Administration Executive Branch reforms by proposing legislation that would have mandated cost-benefit analysis for new rules, required that cost-benefit analysis be retrospectively undertaken for existing rules, and allowed private parties to challenge agency cost-benefit analysis in court separate from review under the APA. Paul Verkuil described these efforts as having “seem[ed] designed as much to stymie as to refocus the rulemaking process.” Indeed, the very term “cost-benefit” analysis emphasizes regulatory costs, by naming costs before benefits. (Tellingly, while political discourse and legal scholarship typically use the term “cost-benefit analysis,” scholars in other fields are more likely to use the term “benefit-cost analysis.”)
Subsequent Republican administrations likewise viewed cost-benefit analysis as consistent with their deregulatory agendas. President George H.W. Bush, who had chaired President Reagan’s Task Force on Regulatory Relief, kept Executive Order 12,291 in place. President George W. Bush’s Executive Order on regulatory policy further expanded the scope of cost-benefit analysis. It required that cost-benefit analysis be undertaken not only for rulemakings but also for some guidance documents and mandated that agencies submit with their annual regulatory plan a discussion of the costs and benefits of all rules planned for the coming year (in addition to retaining cost-benefit analysis for individual rules). The business community hailed the second Bush Administration’s executive order, lauding it for ensuring that “regulations will be less onerous and more reasonable” and “[f]ederal officials will have to pay more attention to the costs imposed on business, state and local governments, and society.” These examples show that, in the late-twentieth and early twenty-first centuries, political actors widely understood there to be a strong relationship between deregulation and cost-benefit analysis.
B. Changing Political Valence
The power of the association between cost-benefit analysis and anti-regulatory politics has eroded over time. Even in the early days after the method came to predominate, it sometimes prompted agencies to adopt stricter rather than more lax regulations. A wedge between cost-benefit analysis and deregulation became especially evident, however, during the Trump Administration. That Administration pursued numerous deregulatory efforts that were in tension with cost-benefit analysis, often by seeking to repeal existing rules that were backed by plausible cost-benefit analyses. The cost-benefit analyses that it produced were often incomplete, inaccurate, or biased. Michael Livermore and Richard Revesz have documented in detail how the Trump Administration “treated cost-benefit analysis as a charade by “ignor[ing] the benefits of regulations,” “question[ing] those benefits at every opportunity,” and “invent[ing] sham benefits out of thin air to support a favored deregulatory action.”
Further, a number of Trump-era reforms to the regulatory process were in tension with the theory of cost-benefit analysis. For example, a White House mandate that agencies identify two existing regulations to be repealed for every new one that they proposed disregarded whether the regulations at issue (either the one being promulgated or the two being repealed) passed cost-benefit analysis. Similarly, the Trump Administration’s imposition of a “regulatory budget” that capped the total costs of new regulations, regardless of those regulations’ benefits, ran contrary to the view propounded by advocates of cost-benefit analysis that the relevant metric for evaluating a regulation is net benefits, not costs alone.
These examples complicate the relationship between Republican politics and cost-benefit analysis. Republican presidents have never formally departed from the Reagan-era support for the method, and congressional Republicans have repeatedly tried to expand the reach of cost-benefit analysis. But the Trump Administration’s retreat from cost-benefit orthodoxy shows a weak commitment to the method in practice, at least when Republicans hold the White House. I turn now to the reasons for this shift.
1. Changes in analytic methods. — A first reason for the Republican retreat from cost-benefit analysis is that, as economists have become more sophisticated in incorporating a broader range of values into cost-benefit analysis, the method has lost some of its deregulatory potential. A longstanding critique of cost-benefit analysis on the left is that the method can undercount regulatory benefits. For example, a proposed rule that would place a regulatory mandate on private business in order to improve physical access for persons with disabilities has costs that are easy to monetize (compliance costs) but at least some benefits that are hard to monetize (dignity- and equity-related benefits). The same goes in the environmental context: it is much easier to calculate the economic cost of limiting logging in an old-growth forest than it is to monetize the myriad benefits, many noneconomic, of regulation that would safeguard such a forest. This sort of asymmetry has at times given cost-benefit analysis a deregulatory bent: if cost-benefit analysis is likely to understate the benefits of regulatory mandates, that fact makes the method useful to opponents of regulation.
This asymmetry has shrunk over time, rendering cost-benefit analysis less biased against regulation than it once was. In recent decades, the science of cost-benefit analysis has become ever more sophisticated, allowing some traditionally hard-to-monetize regulatory impacts to be included in net-benefit calculations. The development of the field of “ecosystem services” and the increasing sophistication of environmental economics provide a prominent example. So, too, do more sophisticated means of accounting for uncertainty in cost-benefit analysis and proposals to incorporate dignity into cost-benefit analysis. Indeed, one theme of the Biden Administration’s revisions to Circular A-4, discussed at further length below, is that those revisions expand the scope of the considerations that should be relevant to regulatory analysis.
Particular methods associated with attempts to widen the ambit of cost-benefit analysis remain subject to significant academic criticism, typically from the left. However, the very existence of methods that monetize regulations’ effects on human dignity or the environment means that cost-benefit analysis can account for a broader range of regulatory benefits than in the past, which means that the method has less of an anti-regulatory bias than it once did. This, in turn, reduces the bias of cost-benefit analysis toward Republican agendas, as compared to in an earlier era.
2. Changing issues on the public agenda. — Relatedly, the most politically salient regulatory policy issues have changed in ways that give cost-benefit analysis less of an anti-regulatory valence than it once had. Earlier efforts at regulatory reform, including calls for regulatory cost-benefit analysis, arose in part as a backlash to a set of regulatory mandates much more wide-ranging than any that exist today. In the 1970s and 1980s, among the most prominent regulatory policy debates were over efforts to deregulate the airline, trucking, and railroad industries. Those industries were heavily regulated, including through price controls, in ways that arguably benefited small numbers of firms while having negative impacts on the public at large. Deregulatory efforts were “the product not of a small band of Reaganauts in the 1980s, but of a diverse coalition of regulators, legislators, judges, and Presidents of both parties and all ideological stripes in the 1970s.” This included the Carter Administration and even some consumer advocates, who criticized regulatory agencies as “arrogant and unresponsive.” In this environment, proponents of deregulation plausibly argued that their deregulatory efforts would have positive net benefits for society. Cost-benefit analysis, then, could facilitate deregulation.
A generation later, the most prominent regulatory policy issues are different, which in turn changes the political valence of cost-benefit analysis. When progressive regulations have high net benefits, it stands to reason that opponents of those regulations will be less enamored with cost-benefit analysis. Recent Democratic administrations have promulgated rules with high net benefits that simultaneously advance progressive policy priorities. In the climate domain, regulations seeking to reduce greenhouse gas emissions often have extremely high net benefits (and deregulatory efforts in the area often have large negative net benefits). High-profile regulations seeking to protect consumers from exploitation also have high net benefits. So do those that seek to safeguard workers’ health. And, while not a conventional regulatory policy issue, the same holds for some progressive immigration policies. When some of the most politically salient (and polarizing) regulatory efforts that Democratic presidents undertake have high net benefits, it follows logically that those who oppose those regulations may retreat from cost-benefit analysis. As Jonathan Masur and Eric Posner put it, “in a major irony from the standpoint of the Reagan era, cost-benefit analysis now seems to be a hindrance to deregulation,” describing this as a “startling shift . . . that runs directly counter to the caricatured notion of cost-benefit analysis as necessarily anti-regulatory.”
3. The Republican Party coalition. — Cost-benefit analysis is often associated with issues of business (de)regulation, but other parts of the Republican Party coalition matter as well. Given the importance of libertarian and socially conservative ideology to key parts of the Republican Party coalition, the relationship between those ideologies and cost-benefit analysis matters. Though cost-benefit analysis is a good fit with the longstanding conservative critique of regulatory mandates creating inefficiencies by tying the hands of business, the analysis differs for those conservatives focused on other values. For libertarians or social conservatives, cost-benefit analysis will typically be beside the point, and at times may set back their agendas.
Libertarians, for example, focus on how government coercion wrongfully inhibits individual liberty or property interests. Nearly any sort of regulatory mandate could be reframed by those with libertarian inclinations as wrongful infringement on those sorts of interests. For those who view at least some regulation as a per se objectionable infringement on individual liberty or property interests, opposition to regulation is unrelated to cost-benefit analysis. The fact that a regulation has positive net benefits is simply immaterial.
The tension between cost-benefit analysis and a certain brand of libertarianism is exemplified by the backlash to the Biden Administration’s efforts to impose a vaccine-or-test mandate on private businesses during the COVID-19 pandemic. The rule described in detail the mandate’s benefits and explained why compliance would be feasible for covered employers in spite of its costs. For many opponents of the mandate, this assessment of benefits and costs was beside the point. Instead, many on the right came to view vaccination mandates and other pandemic prevention–related mandates as wrongful infringements on personal liberty. Such violations of individual liberty, the reasoning goes, cannot be justified merely because they may increase aggregate social welfare.
Cost-benefit considerations are similarly marginal to social conservatives. Social conservatives are motivated by moral values, such as values about when life begins and issues of gender and sexuality, among many others. These values can eclipse cost-benefit considerations. Imagine if a Democratic administration issued a regulation meant to expand abortion access or the availability of gender-affirming medical care. Even if that regulation were backed by a cost-benefit analysis showing significant and positive net benefits, social conservatives would no doubt continue to oppose it on the grounds that it runs contrary to their values.
These examples suggest that cost-benefit analysis is either unimportant or counterproductive to the agendas of key parts of the Republican Party’s coalition. Libertarian conservatives and social conservatives are motivated by agendas that have little to do with the net-benefits of regulation, and in some instances, regulations with positive net benefits could be anathema to libertarians or social conservatives. To the extent that Republican presidential administrations are responsive to the interests of those groups, those administrations have reason to hedge in their support for cost-benefit analysis.
4. Alternative paths to deregulation, with a focus on judicial review. — Finally, the Republican Party has many ways of curbing the reach of federal regulation that are easier to implement than deregulatory rulemakings subject to cost-benefit analysis. Most straightforwardly, agencies can simply decline to issue new regulations, and decisions not to act are exempt from cost-benefit analysis requirements. Administrations can also create new barriers to regulatory action, such as requiring White House review of agency guidance documents, requiring that an agency identify two existing regulations to be repealed for every new one that it proposes, or imposing “regulatory budgeting” requirements. All of these techniques can inhibit the issuance of new rules.
Agencies can also limit the reach of rules on the books without formally repealing them. While repealing or modifying a rule often requires cost-benefit analysis, many other ways of blunting regulatory impact do not. Decisions to lightly enforce existing regulations are not subject to cost-benefit analysis, and recent Republican administrations have scaled back regulatory enforcement across many domains. Beyond simple nonenforcement, Jody Freeman and Sharon Jacobs have documented a rise in “structural deregulation” during Republican administrations, characterized by “target[ing] an agency’s core capacities” to accomplish its statutory tasks by “erod[ing] an agency’s staffing, leadership, resource base, expertise, and reputation.” None of these tactics are subject to cost-benefit analysis. An administration seeking to make significant progress in curbing agency capacity can do so without resorting to measures—namely, modifying or repealing existing rules—that must pass cost-benefit muster.
Narrow interpretations of agency statutory authority can also do the anti-regulatory work that perhaps once would have been done by cost-benefit analysis. A conservative judiciary that narrowly reads grants of statutory authority to agencies can prevent agencies from undertaking new regulatory actions, even when those actions would pass cost-benefit analysis.
The fate of the Obama Administration’s Clean Power Plan (CPP) powerfully illustrates the point. The CPP was an Environmental Protection Agency (EPA) regulation that sought to limit carbon emissions from the nation’s power plants, in part by shifting power sources away from fossil fuels and toward renewable sources of energy. The EPA’s cost-benefit analysis of the CPP found that the rule would have many billions of dollars of net benefits (more than $40 billion under some modeling assumptions). These extremely high net benefits figures were almost certainly an underestimate, given the other benefits of the rule that the EPA noted it could not monetize. However, opponents of the CPP did not focus their critique of the rule on its cost-benefit analysis. In repealing the rule, the Trump Administration instead contended that it was required to repeal the rule irrespective of benefits and costs. It reasoned that “[b]ecause the CPP significantly exceeded the Agency’s [statutory] authority, it must be repealed.” Multiyear litigation over the CPP’s legality focused on whether the Clean Air Act authorized the EPA to issue the regulation. That litigation culminated in a 6–3 majority of the Supreme Court holding that the statute did not give the EPA authority to devise emissions caps of the sort contained in the CPP. The Court’s opinion did not mention of the CPP’s favorable cost-benefit analysis, because that analysis was simply immaterial when the case was decided on statutory grounds.
Deferred action immigration programs present a similar case study. In 2012, the Obama Administration’s Department of Homeland Security (DHS) issued a memorandum creating the Deferred Action for Childhood Arrivals (DACA) program, which allowed undocumented immigrants who met specific criteria to apply both for relief from deportation and for employment authorization. The Trump Administration sought to repeal the program, but a 2020 Supreme Court decision reinstated it. In 2022, DHS issued a rule that sought to entrench the deferred action program, and for the first time the program was subject to cost-benefit analysis. DHS’s analysis revealed that the deferred action program had benefits that dramatically exceeded its costs. Relative to the baseline of the pre-DACA status quo, DHS estimated that the program would have annual monetized benefits of $20.7 billion to $21.9 billion (as compared to annual monetized costs of $480.8 million to $494.9 million), and monetized benefits over a twenty-year period of $403.2 to $455.0 billion (as compared to monetized costs of $9.4 billion to $10.1 billion). Put simply, the benefits of the deferred action rule overwhelmingly exceeded its costs.
As of this writing, the durability of the deferred action rulemaking remains to be seen, but consider the choices that a policy like the deferred action rule presents to its opponents. They could attempt to counter the existing cost-benefit analysis, arguing that in fact the rule has negative net benefits. But even under different modeling assumptions, such a conclusion is likely implausible, given the overwhelming extent to which benefits dwarfed costs in the Biden Administration’s economic analysis of the policy. Alternatively, opponents of deferred action programs could simply argue that such programs are unlawful on the grounds that DHS does not have the statutory authority to create such programs. This argument garnered three votes on the Supreme Court in the past, and it might command a majority in the future given the Court’s rightward turn. If opponents were to successfully challenge deferred action on legal grounds, they would be spared the need to engage at all with a cost-benefit analysis that decisively favored the program.
Deregulatory constitutional doctrine has likewise sometimes been a means of circumventing cost-benefit analyses that favor regulation. Litigation over graphic warnings on tobacco products shows how courts can use constitutional law to limit agency power even in the face of favorable cost-benefit analysis. In 2011, the Food and Drug Administration (FDA) issued a rule requiring that cigarette packaging contain graphic warnings (text accompanied by images) to emphasize the dangers of smoking. The FDA mandated graphic warnings based on “evidence in the scientific literature that larger, graphic health warnings promote greater understanding of the health risks of smoking and would help to reduce [tobacco] consumption.” The agency calculated that the graphic warnings requirement would have had annualized net benefits in the hundreds of millions of dollars. Cigarette companies sued to enjoin the rule, but their complaint focused almost entirely on a First Amendment claim—alleging that the labeling requirements amounted to unconstitutional compelled speech—and did not challenge or even mention the agency’s cost-benefit analysis. Taking its cues from the plaintiffs, the D.C. Circuit vacated the graphic warning requirement on First Amendment grounds.
The graphic warnings litigation demonstrates how constitutional law provides yet another way to pursue deregulation outside of a cost-benefit framework. Scholars have documented how First Amendment rights to free speech and free exercise of religion, along with the Fifth Amendment’s Takings Clause, all provide means of curbing regulation. A federal judiciary skeptical of government regulation—especially at the Supreme Court level—provides opponents of a given regulation the option of simply ignoring a cost-benefit analysis favorable to that regulation and instead arguing against the regulation on constitutional grounds.
A focus on legal restraints rather than economic analysis likely portends how courts will go about deregulatory efforts in the future. Just as the Supreme Court narrowly read the Clean Air Act in rejecting the CPP, it has likewise read regulatory statutes such as the Clean Water Act, the Occupational Safety and Health Act and Public Health Service Act in ways that constrain agency power. When the courts construe regulatory statutes narrowly, the fact that the regulations they foreclose would pass muster under cost-benefit analysis is simply immaterial. The same holds when the courts find that a regulation violates the Constitution. Opponents of regulation, in short, will at times be more successful in pursuing their goals through statutory or constitutional arguments rather than by challenging underlying cost-benefit analyses.
C. Slowing Down Regulation
All of this gives rise to a question: why, given the many reasons for Republicans to weaken their commitment to cost-benefit analysis, have Republicans not turned against the method en masse? If the foregoing discussion is correct that cost-benefit analysis is often unnecessary to achieving deregulatory agendas and, in some instances, even favors greater regulation, one might think that the Republican Party would abandon it. After all, during the same period when the right initially embraced cost-benefit analysis, it also embraced judicial deference to agency legal interpretations. But changing politics led conservatives to turn against such deference during the 2010s. Why has the same not happened for cost-benefit analysis?
One answer is that there is a single critical respect in which cost-benefit analysis still advances anti-regulatory agendas: the method imposes a significant resource tax on agencies seeking to issue rules. A requirement that agencies perform cost-benefit analysis consumes a tremendous amount of agency resources. Empirical studies have shown that completing a rigorous regulatory cost-benefit analysis can take years and require the agency to complete staff- and resource-intensive studies. This is especially true in domains that require high levels of technical expertise. The EPA, for example, has reported that developing a strong cost-benefit analysis for a major Clean Air Act rule “takes considerable Agency resources often spanning a year or more and frequently involves the development of policy-relevant emissions inventories, photochemical air quality modeling, engineering research assessments and analyses, engineering cost assessments, and benefits assessments for human health, climate, visibility, ecological and/or other categories of benefits.”
Even when cost-benefit analysis is strictly economic in character and does not implicate other sorts of scientific evidence, doing cost-benefit analysis well is sufficiently time- and labor-intensive that it can slow agency action. Consider the aftermath of Business Roundtable v. SEC, a D.C. Circuit decision that vacated a Securities and Exchange Commission (SEC) rule on the grounds of weakness in the Commission’s reporting of benefits and costs. After the decision came down, the Commission’s Chairperson told Congress that the SEC did not try to back the vacated rule with a stronger evidence base and reissue it, because “[w]e don’t have the capacity to take that on at this time.” The decision had a far-reaching impact: one corporate law scholar reported that in its aftermath, “the pace of SEC rulemaking has slowed by about half, largely due to the agency’s effort to analyze costs and benefits more comprehensively.” The decision may have also had an effect beyond rulemaking: in a world of finite resources, the sharp increase in resources that the SEC put toward economic analysis after Business Roundtable means that those resources were not available for enforcement or other activities.
Cost-benefit analysis should, therefore, be understood as a resource tax and a hurdle that agencies must clear before making rules. Nicholas Bagley has argued that “any legally mandated procedure raises the costs of agency action,” since “[i]nstead of devoting their limited resources to those tasks that they believe will best advance their legislatively assigned mission, agencies must attend to procedural obligations that they might otherwise have dispensed with.” Given rapidly changing economic, technological, and social conditions, a requirement that agencies conduct cost-benefit analysis risks having an anti-regulatory impact: making rulemakings more labor-intensive means that agencies can engage in fewer overall rulemakings to respond to changing conditions. The political utility of cost-benefit analysis on the right may be less a method of economic reasoning but rather a means of slowing down agency action.
This understanding of cost-benefit analysis as a hurdle to agency rulemaking helps explain conservative efforts to entrench the method. Beginning during the Obama Administration, congressional Republicans (together with small numbers of conservative Democrats) have repeatedly introduced and sought to pass legislation called the “Regulatory Accountability Act.” The proposed legislation would require that agencies engage in cost-benefit analysis. It would also impose other new mandates on agencies, including mandates that agencies hold public hearings before issuing certain rules, consider the costs and benefits not only of proposed rules but also of alternative possible rules, and provide for substantial evidence review of certain rules by federal courts. Viewing calls to require regulatory cost-benefit analysis alongside these other proposed mandates illustrates the function that the method plays for opponents of regulation—as sand in the gears of the regulatory state.
Republican members of Congress have rarely put their advocacy for cost-benefit analysis in precisely these terms, but they have suggested that their support for the method is designed to slow down regulation, especially by agencies that they dislike. One Republican member of Congress, for example, argued that the Consumer Financial Protection Bureau (CFPB) should be statutorily required to use cost-benefit analysis because doing so “will help stop regulatory overreach by the CFPB[] and provide regulatory relief to small businesses, community banks, and credit unions.” Democratic legislators have been more explicit about the link between conservative members’ efforts to impose cost-benefit mandates and those same members’ desire to slow down agency rulemakings. When the House was considering imposing cost-benefit requirements on the SEC, for instance, one senior Democratic legislator said that though the bill “comes in the guise of requiring the SEC to undertake a cost-benefit analysis of regulations . . . it is really a prescription for paralysis of the SEC’s ability to protect our investors and our markets.”
The resource tax imposed by cost-benefit requirements burdens the parties asymmetrically, based on the asymmetry of their regulatory agendas. Democratic presidential administrations have more ambitious regulatory agendas than their Republican counterparts, and the “gap is especially pronounced for the regulatory and social welfare agencies—such as the EPA and the Departments of Education, Energy, Health and Human Services, Labor, and Transportation—all of which have witnessed far more regulatory activity under Democrats than Republican administrations.” When this is the case, any requirements that slow down agency action (including cost-benefit requirements) will, in the aggregate, advantage Republican agendas more than Democratic ones. It therefore makes sense that legislation or judicial decisions that would impose greater cost-benefit requirements on agencies would come from the political right.
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Cost-benefit analysis has an evolving relationship with deregulatory agendas. While the method was once viewed as straightforwardly favoring deregulation, the relationship has become more complex. Cost-benefit analysis will sometimes favor stricter regulations. When this occurs, opponents of regulation can turn to other tools—in the Executive Branch or the courts—to thwart regulation. And cost-benefit analysis, even when its merits would support new regulation, still slows down the regulatory process. Republicans, in other words, have reason to retain cost-benefit analysis not primarily because it aids deregulatory efforts when they are in power, but rather because it hampers attempts to enact new regulations when Democrats control the White House. I turn next to the politics of cost-benefit analysis among Democrats.
III. Democratic Politics and Cost-Benefit Analysis
A. Making Cost-Benefit Analysis Bipartisan
The politics of cost-benefit analysis look very different for Democrats. The contemporary Democratic Party supports regulation to advance the public interest across a host of substantive areas, including protections for workers, consumers, and the environment. In the face of congressional inaction, Democratic administrations often use rulemakings that deploy old statutes to address contemporary policy challenges. As a result, recent Democratic administrations have had more ambitious regulatory agendas than their Republican counterparts. The question for Democrats, then, is whether cost-benefit analysis helps or hinders their regulatory agendas.
Democrats have long had a conflicted relationship with cost-benefit analysis. On the one hand, many of the roots of cost-benefit analysis lie in the Democratic Party, and three consecutive Democratic presidents have reaffirmed the centrality of cost-benefit analysis to regulatory policymaking. Yet many progressives have reservations about cost-benefit analysis, and Democrats outside of the Executive Branch—most notably progressive interest groups, but also Democrats in Congress—have been more critical of the method. This Part first traces each of these dynamics and then considers why, despite arguments made by progressive detractors, Democratic administrations have not abandoned cost-benefit analysis.
While many attribute the rise of modern cost-benefit analysis to the Reagan Administration’s Executive Order 12,291, its origins arguably lie as much with Democrats as with Republicans. Elizabeth Popp Berman has traced the rise of an “economic style” of reasoning in U.S. public policy that found plenty of proponents in the Democratic Party. The passage of new regulatory statutes in the 1960s and 1970s was quickly followed by economists associated with the Democratic Party calling for the use of cost-benefit analysis to evaluate new regulatory mandates, on the grounds that doing so promoted efficiency. Economic analysis of regulations had technocratic roots, with organizations like the Urban Institute—established during the administration of a Democrat, President Lyndon Johnson—playing a critical role in developing and disseminating the method.
Actions taken under the Carter Administration exemplify the Democratic Party’s support for economic analysis of regulations. The Carter Administration “oversaw the most significant expansion of economic reasoning in social regulation to date,” led by a White House chief economist who “was determined to create a new review process to regain control of social regulation—by rationalizing it through economic analysis.” Most notably, the Administration’s Executive Order 12,044, issued in 1978, required that agencies prepare regulatory analyses of major regulations. Though not precisely the same as cost-benefit analysis as it exists today, the Executive Order’s formulation foreshadowed mandates from later administrations: “an analysis of the economic consequences of each [regulatory] alternative[] and a detailed explanation of the reasons for choosing one alternative over the others.” In language that could have been written by a Republican White House, the Carter Executive Order repeatedly referred to the need to reduce regulatory burdens.
One might have imagined that the Reagan Administration’s use of cost-benefit analysis as a tool of deregulation would have soured future Democratic administrations on the method, but each of the next three Democratic administrations reaffirmed the method’s centrality to regulatory policymaking. The most important moment in the bipartisan ratification of cost-benefit analysis was the Clinton Administration’s issuance of Executive Order 12,866 in 1993. The order announced that “[i]n deciding whether and how to regulate, agencies should assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating” and provided general guidance about how agencies were to go about conducting cost-benefit analysis. Executive Order 12,866 “affirmed the essentials” of the Reagan Administration’s approach and had a “‘regulatory philosophy’ [that was] close to what Reagan had embraced.” The Clinton Administration also tasked proponents of cost-benefit analysis with leading OIRA. The Clinton Administration could have put an end to regulatory cost-benefit analysis—a change in party control of the White House would have provided a natural occasion to do so—but instead, it gave the method a bipartisan endorsement.
The Clinton Administration’s support for cost-benefit analysis can be understood in light of the politics of the time. The Administration was a product of a neoliberal age, and President Clinton himself sought to triangulate between the two parties’ traditional agendas—describing himself as “neither liberal nor conservative but both and different.” Senior Administration posts were staffed by veterans of the private sector, most notably Wall Street. The result is that while the Clinton Administration did propose new regulatory programs in some domains, like tobacco regulation, at the same time it rolled back regulation in others, like financial regulation. Its general attitude toward regulation focused on “lighten[ing] the load for regulated industries and mak[ing] government regulations that are needed more cost-effective,” a statement of regulatory philosophy that one commenter noted “could have been made by either Ronald Reagan or George Bush.” Given the Clinton Administration’s orientation toward business and regulation as a general matter, and given the corporate world’s support for cost-benefit analysis, it should be no surprise that the Clinton Administration endorsed the method.
While the Clinton Administration’s approach to cost-benefit analysis is much more a story of continuity than change, the Administration did seek to reduce some of the most overt anti-regulatory biases of cost-benefit analysis as practiced during the 1980s, framing its version of cost-benefit analysis as part of a quest for neutrality in policy analysis. Executive Order 12,866 described net benefits as “including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity” and expressly recognized that “some regulatory costs and benefits are difficult to quantify.” The result was a softening of some of the more deregulatory aspects of cost-benefit analysis, though with the method’s fundamental character remaining unchanged.
Later Democratic administrations followed much the same playbook. President Obama personally viewed cost-benefit analysis as an important part of regulatory policy, defending the method in his memoir on the grounds that “[s]ome regulations really did cost more than they were worth” and linking the method to government’s “obligation to pay attention to the real-world impact of our decisions.” Consequently, his executive order on regulatory review expressly endorsed cost-benefit analysis and reaffirmed Executive Order 12,866. It helped entrench what his former OIRA Administrator, Cass Sunstein, has called the “cost-benefit state.” The Biden Administration likewise reaffirmed Executive Order 12,866 and the basic architecture of cost-benefit analysis, even as it reformed how the method operates in practice. And both the Obama and Biden Administrations appointed prominent Democratic proponents of cost-benefit analysis to lead OIRA.
Many progressives have criticized Democratic administrations’ endorsements of cost-benefit analysis from the 1990s onward. Scholars have characterized the consensus in support of cost-benefit analysis as part of the broader move toward neoliberalism in the late twentieth and early twenty-first centuries. Many on the left have long expressed concerns that cost-benefit analysis would impede effective regulation to protect the environment and advance public health and safety. More recently, progressive critics have lamented that issues of economic inequality and racial inequality are missing from conventional cost-benefit analysis.
Concerns about the method’s potential conservative bias have led to greater polarization around the method in Congress than in the Executive Branch. The Reagan Administration’s use of OIRA for deregulatory ends prompted some congressional Democrats to seek to defund the office in the 1980s. “An unjustified over-reliance on cost-benefit analysis,” one Senate Democrat wrote in response to Reagan Administration efforts, “not only could add to the present cumbersome nature of the regulatory process but also could jeopardize essential public health and safety regulations.” Because OIRA was created by an act of Congress, the first reauthorization of the statute creating OIRA presented opponents of the office’s work a “golden opportunity” to neuter the office. Though some congressional Democrats sought to eliminate OIRA, they failed in those efforts, securing only minor concessions from the Reagan Administration in exchange for reauthorization. Despite this failure, the political contestation of the 1980s revealed the ideological valence of regulatory review with a cost-benefit lens: the practice was generally supported by conservatives and opposed by progressives.
In subsequent decades, proposals to statutorily mandate cost-benefit analysis have typically been offered by Republicans and opposed by nearly all congressional Democrats. Consider the Regulatory Accountability Act, which Congress considered on several occasions during the 2010s. The bill would have codified cost-benefit analysis, making it statutorily required for rulemakings across agencies. It split Congress along party lines, consistently garnering the universal support of Republicans and the opposition of nearly all Democrats. Similar politics prevailed for more targeted efforts to require cost-benefit analysis. The SEC Regulatory Accountability Act, for example, would have required that the benefits of SEC regulations justify their costs and mandated that the agency choose the regulatory approach that maximizes net benefits. The statute passed the House in 2017 over the nay votes of nearly the entire Democratic caucus. A similar partisan division existed for the Commodity End-User Relief Act, which would have required the Commodity Futures Trading Commission to conduct cost-benefit analysis of proposed rules.
These efforts show that congressional Democrats, though not categorically opposed to cost-benefit analysis, have long recognized the method’s deregulatory potential and have, therefore, opposed efforts to expand or mandate the practice. While congressional Democrats have not tried to excise cost-benefit analysis from the regulatory state entirely, they have at times tried to curb its reach in particular areas. During 2016 debates over possible amendments to the Toxic Substances Control Act (TSCA), “the removal of cost-benefit consideration under § 6 [of the statute] was one of the key changes sought by lead Democrat[ic] negotiators and major environmental groups, as well as EPA officials.” Those advocates viewed cost-benefit requirements as an impediment to effective regulation of toxic substances. One Democratic senator distinguished a regime under which “the EPA [must] consider the costs and benefits of regulation when studying the safety of chemicals,” from one under which “EPA will have to consider only the health and environmental impacts of a chemical” and “[i]f they demonstrate a risk, EPA will have to regulate.” This contrast between cost-benefit analysis and stringent regulation has led many progressive members of Congress to be skeptical of the method. Indeed, it is telling that prior to embracing cost-benefit analysis as President, then-Senator Joe Biden critiqued the method as elitist and inattentive to public values.
B. Democrats’ Political Incentives
Democratic presidential administrations have now supported cost-benefit analysis for decades. The simplest explanation as to why is that Democratic presidents and their senior staffs, including their OIRA administrators, have simply believed that cost-benefit analysis is an important tool for improving the quality of regulatory policymaking. This explanation has some truth to it, and key actors in the Democratic Party have indeed supported cost-benefit analysis out of genuine belief in the method’s merits. But other forces are at play as well, and even Democrats inclined toward principled skepticism of cost-benefit analysis are incentivized to hesitate before scrapping the method entirely.
1. The method’s progressive potential. — A first development is a realization among many Democrats, most notably Democratic presidential administrations, that many of the party’s policy commitments can be incorporated into cost-benefit analysis. Rather than arguing that the party’s values, most notably environmental protection and equity, are inconsistent with cost-benefit analysis, some Democrats have made a conscious choice to call for those values to be incorporated into cost-benefit analysis. Such efforts have yielded mixed results, but the possibility of incorporating progressive values into cost-benefit analysis provides one reason for the Democratic Party to stand by the method.
Before turning to more recent developments, a longstanding feature of cost-benefit analysis helps explain why many progressive regulations have positive net benefits. That feature is the value of a statistical life—the monetized amount on the benefit side of the cost-benefit ledger for each life saved by a regulation. The value of a statistical life is often maligned by progressives for putting a price on human life. But if that figure is high enough, it can justify lifesaving regulations favored by those same progressives. The most important impact of many regulations—most notably air pollution regulations and auto safety regulations—is that they save lives. Prior to the advent of the contemporary approach to the value of a statistical life, agencies sometimes valued lives saved only as the benefit of avoiding the “cost of death,” defined as the present value of medical costs and lost earnings that would result from fatalities. The shift from this approach to a contemporary approach, using revealed preferences data on the value of mortality risk reductions, at times increased the benefits of lifesaving regulations by as much as an order of magnitude. This does not, of course, mean that the current approach to the value of a statistical life is immune from criticism on either economic or philosophical grounds. It does mean, however, that the approach that agencies take to mortality risk reductions can often yield high net benefits figures for lifesaving regulations favored by progressives.
The changing relationship between environmentalism and cost-benefit analysis also provides a reason for progressives to support the method. Environmentalists have long argued that cost-benefit analysis is likely, at least as traditionally practiced, to give short shrift to ecological values. Those critics emphasized that “there is no natural or useful way to measure [environmental protection] in dollars” and that “incoherence is introduced when environmental judgments are turned into numbers.” Environmentalists often preferred “precautionary” approaches as opposed to cost-benefit analysis, arguing that “precautionary approaches can be defended as being particularly well suited to safeguarding life and the environment under conditions of uncertainty and ignorance, as opposed to the conditions of probabilistic sophistication that are presupposed by proponents of the economic approach.” For decades, these concerns led many environmentalists to be critics of cost-benefit analysis.
The relationship between environmentalism and cost-benefit analysis began to change during the Obama Administration. In the early 2010s, the federal government, for the first time, placed a price on carbon emissions for use across federal regulations. This price, devised by an interagency working group staffed by a team of experts, provided a way for carbon emissions to be systematically accounted for in cost-benefit analysis. The Administration’s figure—called the social cost of carbon—was calculated to range from five dollars to sixty-five dollars per metric ton of emissions (in 2007 dollars), depending on what modeling assumptions were used. Regulatory impact analyses could thereby monetize the benefits of any rule that reduced carbon emissions and the costs of any rule that increased emissions. Using these figures, the Administration found that rules designed to reduce carbon emissions would have extremely high net benefits. In the Clean Power Plan example discussed earlier, for example, the EPA relied on the social cost of carbon to estimate the rule’s benefits. More broadly, the social cost of carbon has been used in regulations that collectively generated more than $1 trillion of benefits for society.
Subsequent administrations have featured contestation over the proper means of calculating the social cost of carbon. Unsurprisingly, Republicans have sought to use a lower value, while Democrats have advocated for a higher value. But the very fact that the conflict has taken place within a cost-benefit framework rather than outside of it suggests that the Democratic Party accepts the legitimacy of cost-benefit analysis and believes the method can help advance its climate policy agenda.
This point generalizes beyond the social cost of carbon to other sorts of environmental regulation. “Proregulatory interest groups will often be pleased with the results of properly conducted cost-benefit analysis,” Richard Revesz and Michael Livermore have argued. “The benefits of saving lives, preserving nature for future generations, and avoiding environmental catastrophe, properly calculated, will often outweigh the short-term costs of regulation.” For regulations for which this holds true, cost-benefit analysis can buttress Democratic administrations’ efforts to enact stricter regulations that advance environmentalists’ goals of reducing air and water pollution and moving toward greener energy sources.
The Democratic Party has also sought to pursue equity within a cost-benefit framework, rather than outside of it, though progress on that score has been slower than in the environmental domain. Central to the contemporary Democratic Party’s agenda are efforts to reduce economic and racial inequality. Because traditional cost-benefit analysis does not consider how the benefits and burdens of a regulation fall based on race or class, some on the left have charged the method with perpetuating inequality. But rather than scrapping cost-benefit analysis for this reason, Democratic administrations have instead sought to incorporate equity issues into a cost-benefit framework.
Democrats have long emphasized the importance of equity in cost-benefit analysis. The Clinton Administration’s Executive Order 12,866 expressly provided that maximizing net benefits meant taking account of both “distributive impacts” and “equity.” The Obama Administration’s Executive Order 13,563 reaffirmed this directive and provided that agencies may consider in cost-benefit analysis “values that are difficult or impossible to quantify, including equity . . . fairness, and distributive impacts.” Those calls represented an important shift from the Reagan Administration’s Executive Order requiring cost-benefit analysis, which did not mention distribution or equity. Further, they are consistent with statements in Circular A-4, which provides that “removing distributional unfairness” is a possible reason for regulation. Relatedly, Circular A-4 also directs that regulatory analysis “should provide a separate description of distributional effects (i.e., how both benefits and costs are distributed among sub-populations of particular concern) so that decisionmakers can properly consider them along with the effects on economic efficiency.”
Despite these directives, most regulatory cost-benefit analyses do not account for distributional effects of regulation. Studies of major rulemakings have shown that “the presidential pronouncements did not move the needle on distributional analysis in any meaningful way,” and agency analysis of distributional impacts often remains perfunctory at best. The Biden Administration responded to these shortfalls by calling for the Office of Management and Budget to “propose procedures that take into account the distributional consequences of regulations, including as part of any quantitative or qualitative analysis of the costs and benefits of regulations, to ensure that regulatory initiatives appropriately benefit and do not inappropriately burden disadvantaged, vulnerable, or marginalized communities.” Part IV contains a more detailed discussion of the Biden Administration’s reforms, but for present purposes, the key point is that the Biden Administration, like its Democratic predecessors, responded to concerns about equity and cost-benefit analysis not by scrapping the method but instead by attempting to reform it to better incorporate progressive values.
2. Technocracy and “the party of science”. — To reject cost-benefit analysis would also be inconsistent with the Democratic Party’s support for technocratic approaches to governance and professed commitments to being the party of science- and evidence-based policymaking. Though the extent to which cost-benefit analysis is actually scientific is contested, the method’s technocratic flavor makes it consistent with how the Democratic Party tends to both govern and understand its own identity.
The relationship of the Democratic Party to technocracy is complex, but faith in governance by technical experts has been at least a part of the party’s governing philosophy for a century. Some of the New Deal’s architects justified new regulatory agencies by reference to the need for expert governance of the economy. As Anne Kornhauser has argued, the newly expanded administrative state “privileged the specialized expertise of unelected officials” and “generated a technocratic rationale to justify its existence.” Subsequent decades featured continued technocratic impulses among Democrats, coupled with the rise of a particular mode of economic reasoning that laid the foundations for cost-benefit analysis. More recently, Democratic presidents have expressly endorsed evidence-based policymaking as central to their agendas. The Obama Administration took evidence-based approaches across policy areas, issued several high-profile memoranda on scientific integrity, and created a bipartisan “Commission on Evidence-Based Policymaking” tasked with “examining all aspects of how to increase the availability and use of government data to build evidence and inform program design.” The Biden Administration likewise made evidence-based policymaking central to its agenda. Almost immediately after his inauguration, President Biden published the “Memorandum on Restoring Trust in Government Through Scientific Integrity and Evidence-Based Policymaking.” The document built on the Obama-era memoranda, opening by declaring that “it is the policy of my Administration to make evidence-based decisions guided by the best available science and data”—a not-so-subtle rebuke of the Trump Administration.
Outside of government, Democratic political identity has come to include a profession of faith in objective, scientific evidence. On issues ranging from the reality of climate change to the risks of Covid-19 during the pandemic, Democrats have self-identified as the party of science. Science has become more polarized, with survey data showing that Democrats’ trust in science is much higher than that of Republicans. Partisan gaps are especially wide in attitudes toward climate science. The centrality of science to many progressives’ identities is so strong that a common lawn sign listing progressive commitments includes the line “science is real.”
Scholars differ on how scientific cost-benefit analysis in fact is, and one of critics’ main charges against the method is that it is far less objective than is commonly thought. But cost-benefit analysis is at least widely perceived as scientific, making it a natural fit with certain aspects of the Democratic Party’s ideology. So long as this perception holds, rejection of cost-benefit analysis would stand in an awkward relationship with the centrality of economists to the Democratic Party’s professional class and the party’s identity as valuing evidence-based decisionmaking. For Democratic elected officials and policymakers, rejecting cost-benefit analysis would prompt the hard question of why they would reject one seemingly evidence-based approach to policymaking even as they trumpet others.
C. The Shadow of Judicial Review
The shadow of judicial review by a conservative judiciary can make Democrats feel like they have no choice but to retain cost-benefit analysis as a core feature of the regulatory state. A significant fear among Democratic administrations is that their rules risk being vacated by the courts. In this way, judicial review deters Democratic administrations from abandoning cost-benefit analysis entirely, even if those administrations might otherwise have reasons to consider such a reform. The fact that the White House and federal agencies make regulatory policy in the shadow of judicial review provides a central reason for Democratic administrations to retain cost-benefit requirements.
Under the APA, courts set aside regulations that are in excess of an agency’s statutory authority or that courts find to be arbitrary and capricious. The Supreme Court has interpreted the arbitrary and capricious standard as allowing courts to set aside agency action when the agency “offer[s] an explanation for its decision that runs counter to the evidence before the agency.” The Court has never articulated a standard for whether it would violate the APA for an agency either to decline to conduct a cost-benefit analysis altogether or to conduct one using modeling assumptions that depart from long-standing economic orthodoxy or the dictates of Circular A-4. But Democratic administrations, mindful of the conservative bent of the Supreme Court and many lower federal courts, have good reason to adhere as closely as possible to a traditional cost-benefit approach. Significant departures, the worry goes, could put their regulations at risk.
The concern that failure to conduct a traditional cost-benefit analysis might put rules at risk of judicial invalidation finds support from a range of precedents. Case law from across the federal judiciary shows courts’ willingness to scrutinize how agencies evaluate the benefits and costs of their regulatory actions. The D.C. Circuit has found that the SEC acted in an arbitrary and capricious manner when it “inconsistently and opportunistically framed the costs and benefits of [a] rule; failed to adequately quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; [and] contradicted itself” in the course of its analysis. The Fifth Circuit has found that the Consumer Product Safety Commission “erred by failing to take a hard look at the costs and benefits” of toy safety standards, in a rulemaking pursuant to the Consumer Product Safety Improvement Act. In a case with a different ideological valence but a similar judicial emphasis on benefits and costs, the Ninth Circuit has ruled that fuel economy standards were arbitrary and capricious for their “failure to monetize the value of carbon emissions.” District courts have likewise vacated regulations for what those courts perceived as failures of cost-benefit analysis, finding against agencies for justifying rules on the basis of “ancillary benefits” and failing to use the discount rates laid out in Circular A-4. These cases together constitute a warning to federal agencies: declining to conduct cost-benefit analysis, or even conducting analysis that departs from cost-benefit orthodoxy, puts rules at risk of being invalidated under the APA’s arbitrary and capricious standard.
In other cases, courts read cost-benefit requirements into agencies’ authorizing statutes. Consider, in this regard, the Fifth Circuit’s decision in Corrosion Proof Fittings v. EPA, one of the “most vilified cases in administrative law.” The court held that an EPA rulemaking regulating asbestos was inconsistent with the Toxic Substances Control Act (TSCA) and not supported by substantial evidence as required by the APA. The court closely scrutinized the EPA’s method for discounting benefits and costs and its invocation of unquantified benefits, “without even a nod to the extensive economic and philosophical literature” relevant to the analysis. The court concluded that under the TSCA, “the EPA must balance the costs of its regulations against their benefits” and argued that the statute “rejected the notion that the EPA should pursue the reduction of workplace risk at any cost.” At the Supreme Court level, the Court has sometimes read statutes to require agencies to weigh the benefits and costs of their actions, even when professing to not read statutes to require a full cost-benefit analysis.
Given this legal backdrop, consider the incentives of a federal agency during a Democratic administration seeking to enact a health and safety regulation, consumer protection regulation, environmental regulation, or other progressive measure. The agency could move forward with the regulation without analysis showing that monetized benefits exceed monetized costs. But this approach would expose the regulation to legal risk. A cautious agency general counsel reading decisions like those just discussed could reasonably think that the best way to safeguard a rulemaking from judicial invalidation is to hew as closely to traditional cost-benefit analysis as possible. If the proposed regulation can be plausibly justified on cost-benefit grounds, doing so substantially reduces legal risk. The only apparent downside of cost-benefit analysis in such a circumstance is time and resources. Conducting detailed regulatory impact analysis consumes a large amount of staff time, which limits agency capacity, which in turn (all else equal) means less regulatory activity overall. Democratic administrations have historically been inattentive to this point, viewing the risks of eschewing cost-benefit analysis as greater than the benefits of a more streamlined regulatory process. But even if Democrats were more focused on regulatory capacity issues, the concern that individual rules might be voided by the courts almost certainly incentivizes continued use of cost-benefit methods.
