The Illusion of Costs without Benefits

The core of the Trump administration’s regulatory agenda is to focus on the costs of regulations while ignoring, trivializing, and mischaracterizing their benefits. The administration has made significant regulatory efforts to delay or repeal important initiatives of the Obama administration designed to protect public health and the environment. In some of these proceedings, the Trump administration has altogether ignored the benefits of the rules it seeks to eliminate or suspend, instead focusing solely on cost savings to regulated industry. For example, Trump’s Executive Order 13,771 directs agencies to control costs and eliminate two regulations for every new one. This one-sided approach makes a mockery of cost-benefit analysis. Saving regulatory costs is attractive only if the benefits forgone as a result of these savings are lower than those costs. A rule that reduces compliance costs by giving up an even larger set of social benefits is hardly an attractive proposition.

Improving the Guardrails

Future administration can begin undoing the mistakes of the Trump administration by reinstating prior norms concerning cost-benefit analysis and meaningful regulatory review. Several reforms can go even further and improve the regulatory system. One reform involves rethinking the role of ex-post analysis of regulation, to focus resources on identifying and addressing cross-cutting areas of uncertainty in regulatory decision making. A second area where improvements can be made is improving the quantification of costs and benefits that are currently left unquantified. A third area for improvement involves developing general guidelines for examining and weighing the distributional effects of regulatory decisions.

Resurrecting Discredited Models

The Trump administration is pushing an argument that is at odds with the scientific consensus, claiming that prevalent air pollutants have thresholds below which they produce no adverse health effects. In doing so, the administration can hide an important portion of the health benefits of regulation. A major focus of this effort is particulate matter, which poses extraordinarily serious threats to public health. The administration is engaged in this effort with the support of industry advocates, who have discredited themselves repeatedly over more than half a century by attacking the scientific consensus behind government regulation of tobacco, acid rain, and other threats to health and the environment. In contrast, the administration’s efforts are opposed by the leadership of the scientific community and by the EPA’s own science advisors.

Staying in Bounds

The Obama administration was remarkably successful in mitigating intraparty conflict while moving forward with major rulemakings. When challenged in court, many of these rules were upheld, and have proven difficult to reverse, because they were supported by rigorous analysis. Over the course of its eight years, the administration pursued rulemakings on a large number of subjects. Political considerations and the demands of party constituencies no doubt influenced the direction of policy, but so too did evidence, analysis, and expertise, in keeping with the practices of prior administrations. President Obama and senior officials showed considerable respect for the system of governance that they inherited, with its established methods for incorporating analysis and evidence into regulatory decision making. Their personal policy preferences and perspectives were tempered by these long-standing practices, which ultimately led to better decision making.

Manipulating Transfers

In addition to obscuring the costs of its deregulatory agenda—by ignoring or minimizing the health harms associated with repealing or weakening environmental standards—the Trump administration has used methodological tricks to exaggerate the benefits of its actions. One way it has done this is by characterizing certain transfers between two parties as a benefit to one, contravening established techniques of cost-benefit analysis going back decades. Transfer payments are not included in cost-benefit analyses because the amount of money leaving the hands of one party is equal to the amount reaching the hands of the other party. By mangling established approaches to cost-benefit analysis, the Trump administration is treating one side of a transfer payment as an impact of regulation while ignoring the other side. And it does so inconsistently: sometimes negative impacts to the federal Treasury are treated as costs and at other times as benefits.

Trivializing Climate Change

The Trump administration has, at every turn, taken actions to reverse the climate progress achieved during the Obama administration, moving to repeal or significantly roll back three significant rules to reduce the emissions of greenhouse gases from existing power plants, passenger cars and light trucks, and oil and gas installations. To mask the true effects of its policies, the Trump administration has targeted the social cost of carbon, which quantifies the harm caused by a ton of carbon dioxide emissions. It has used two principal techniques, unsupported by economic theory, to reduce the estimate of the damages of greenhouse emissions by a factor of about 10.

Ignoring Indirect Benefits

Established and well-accepted practices for conducting cost-benefit analysis require the consideration not only of the direct consequences of rules but also of their indirect consequences. Such indirect effects must be considered whether they are negative (indirect costs) or positive (indirect benefits, also referred to as ancillary benefits or co-benefits). The Trump administration is now calling into question the longtime reliance on the indirect benefits of regulation while at the same time urging that the indirect costs of regulation must be taken into account and interpreted expansively. Arguing, as the administration does, that the indirect consequences of regulation must be taken into account if they are negative and must be ignored if they are positive is a hallmark of irrationality.

Erasing Public Health Science

The Trump administration has called into question the scientific studies supporting the most significant health benefits of regulations, principally from reductions in air pollution. By seeking to ignore validly conducted and well-respected peer-reviewed studies, the Trump administration is not just placing a light thumb on the scale against regulation—it is pressing down hard. This effort is part of an overarching strategy by the Trump administration to erase the significant benefits of regulation in general and of environmental regulation in particular. Some of the most serious risks posed by pollution could go unregulated if the administration has its way.

A Threatening Synthesis

Despite objections from certain constituencies, President Obama placed cost-benefit analysis at the very center of his administration’s governing philosophy. He also pursued an aggressive agenda of new regulatory protections for public health, consumers, and the environment. His time in office demonstrated in powerful terms that cost-benefit analysis need not be associated with an anti-regulatory agenda. The synthesis of cost-benefit analysis and a progressive regulatory agenda helped mitigate intraparty conflict among Democrats but also opened up fissures among prior supporters of cost-benefit analysis, who assumed that its use would generally lead to less regulation.

Politics and Regulation

One of the defining features of politics in the contemporary United States is the central role played by the actions, or inactions, of federal administrative agencies. The complex nature of many policy problems, coupled with the limited ability of Congress to act, has frequently led to statutes that delegate to specialists the task of translating broad policy mandates into fine-tuned regulations. To balance the need for democratic accountability with values such as expertise and impartiality, both political parties have constructed a system of guardrails that cabins political influence over agencies. Some of these guardrails are external and include judicial review under the Administrative Procedure Act. Other guardrails are internal to the executive branch. Among the most important of these internal constraints is the use of cost-benefit analysis to inform regulatory decision making.