The End of the Cost-Benefit State?

Trump is targeting regulations for elimination even if their benefits exceed their costs.

Some scholars have proclaimed a vision of the regulatory state centering on cost-benefit analysis (CBA). They mean that quantitive comparisons of costs and benefits is now the foundation of regulatory decisions, arguably blessed by the Supreme Court in one of Scalia’s last opinions. Environmentalists weren’t convinced this was a good idea.  Neither, as it turns out, is Donald Trump.  He doesn’t seem likely to abandon CBA, but his executive orders definitely put in the back seat.  They focus instead on other qualities of regulation that appear to (forgive the expression) trump cost-benefit analysis.  The effect is to put regulations on the chopping block even if their benefits outweigh their costs.

As background, it’s important to realize that since 1981 all discretionary regulations have had to pass CBA.  There are some non-discretionary regulations that are exempt — for instance, regular updates to air quality standards are mandated and don’t allow consideration of cost. But the great majority of current regs have passed CBA. Yet Trump says he wants to repeal great swathes of regulation.

Trump’s executive orders give short shrift to the benefit side of CBA. Trump’s initial executive order set up a regulatory budget and requires agencies to eliminate at least two regulations to balance the costs of a new regulation.  Notably, regulatory benefits aren’t considered, only the costs.

Trump’s latest executive order further illustrates this dismissive attitude toward the balance of costs and benefits.  The order issued on Friday establishes regulatory task forces in each agency and orders them to identify existing regs for elimination.  Cost-benefit analysis gets a passing mention in the middle of the list. But the main focus is elsewhere, cutting regulations that might have positive net benefits or at worst break even. The order targets six categories of regulations for elimination, those that:

i)    eliminate jobs, or inhibit job creation;

(ii)   are outdated, unnecessary, or ineffective;

(iii)  impose costs that exceed benefits; 

(iv)   create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies;

(v)    are inconsistent with the requirements of [the Data Quality Act]; or

(vi)   derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.

The key point is that only one of the six categories involves cost-benefit analysis, and it’s not even at the top of the list. If Trump cared about whether the benefits of regulations exceed their costs, that’s the only one he would need.  The others all target regulations regardless of whether they produce greater benefits than costs.  For instance, a regulation that costs jobs is targeted even if the public health benefits outweigh the economic impact.

The executive order also says agencies should prioritize elimination of outdated regulations, which isn’t necessarily the same thing as prioritizing regulations whose costs exceed their benefits.  (It’s interesting that eliminating obsolete rules takes higher priority than saving jobs — so much for populism.) Regulations that fail CBA may have tangible benefits that are dwarfed by costs. They may be new or old.  In contrast, outmoded rules may have only small costs to go with their small benefits. The key point is that Trump’s priority isn’t where CBA says it should be, which is in eliminating regulations that fail to produce net benefits for society as a whole. That seems to be a lower priority than tidying up the Code of Federal Regulations by cutting decrepit regulations.

In short, cost-benefit analysis doesn’t playing a starring role in Trump World and barely seems to be on stage at all. Economists can’t be happy about this.  Neither can legal scholars who advocate the cost-benefit state.  Environmentalists, of course, have their own reasons to bemoan about Trump’s continued blindness to regulatory benefits. Not that Trump cares much about the views of any of those groups.

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Reader Comments

3 Replies to “The End of the Cost-Benefit State?”

  1. Dear Dan,
    Regardless of cost-benefit analysis we all agree that we now have to live with a smaller EPA and that’s what really matters today.

    The combined testimony of the California Environmental Bar does not support the existence of any evidence whatsoever of actual measurement(s) of physical and chemical parameters that would verify the effectiveness of climate mitigation technologies on the global climate (these technologies are not-effective).

    Climate change is no longer the pervasive threat that it used to be.Therefore our only real choice is to adapt by embracing our human abilities and rejecting the false propaganda of climate mitigation (which thankfully is almost over and gone).

    For those of you who have not done so already, accept truth. Now is the time to adapt and move on with your life, which is a far better way to live one’s life both now and in the future (also we can live with a smaller EPA).

    1. bqrq, your comment barely, if at all, relates to Dan’s original post. Dan’s post mentions neither climate change generally nor climate mitigation specifically. In fact, it doesn’t even mention the EPA. You are a little off your game.

      1. Sean said;
        “…..You are a little off your game….”

        Dear Sean,
        Climate change was entertaining for a while but now its not fun any more, its barely alive. We have run out of new material and we repeat ourselves. Perhaps we all need to find another worthy cause for which to labor.
        We are blessed to live during interesting times.

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About Dan

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

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About Dan

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

READ more