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Let’s Politicize Cost-Benefit Analysis


Elizabeth Popp Berman (@epopppp) is Associate Professor of Organizational Studies at the University of Michigan and author of Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy.

This post is part of a symposium on the future of cost-benefit analysisRead the rest of the symposium here.

Critiques of cost-benefit analysis appropriately take place on wonkish terrain. As other contributors to this symposium have demonstrated, when we attend to the technical details of CBA—its heavy discounting of the future, its difficulty effectively quantifying many kinds of benefit, and its indifference as to who, exactly, wins and who loses—we often find a method that is inherently weighted against progressive goals.

But if we look at how CBA has been used, historically, an even bigger issue becomes clear: conservatives have used it much more strategically than liberals to advance underlying political goals. Rethinking CBA within a Law and Political Economy framework will require not only critique of its technical assumptions, but a willingness to be similarly strategic in thinking about its deployment.

The history of cost-benefit analysis is sometimes told as resulting from unrelenting advocacy by conservatives. This is partially true. As I recount in a forthcoming book, the idea of using CBA to evaluate regulatory decisions was first advocated by car manufacturers hoping to avoid safety regulations, and found its initial foothold as a way for the Nixon White House to rein in the Environmental Protection Agency. It is closely associated with Reagan’s Executive Order 12291, which required cost-benefit analysis of major rules as part of a broader effort to roll back the administrative state.

Conservatives were not alone, however, in embracing CBA. There was, during this time, a strain of center-left technocratic thought that was just as enthusiastic about introducing cost considerations into regulatory decisions, if for different reasons. Nixon’s cost-benefit enthusiasts liked its anti-regulatory tendencies, while Carter administration economists like Charles Schultze were strong advocates of measuring costs because they thought the regulatory state had become unmoored from efficiency considerations.

Responding to pressure from the public, Congress had, in the early 1970s, produced environmental laws that were intentionally written to exclude consideration of costs. But Carter’s economists had their own moral calculus and preferred a different approach to decision-making. They favored cost-effectiveness analysis, which did not require the costs of regulation to outweigh its benefits, but merely sought the least costly way to reach a specified goal. These economists were aware that industry hoped to manipulate cost-benefit calculations to its own advantage, while environmental groups saw the use of such calculations as antithetical to legislative intent. But economists’ own position as “partisan efficiency advocates,” in Schultze’s phrase, made the appeal of cost-effectiveness analysis easy to see, and its limitations easy to discount.

Thus, it was the Carter White House that advanced economic analysis of regulation to the point that Reagan’s order was even feasible. And from that point on, Democrats have largely confined their debate over cost-benefit analysis to questions of how best to tweak it. Both the Clinton and Obama White Houses remained solidly committed to the CBA framework, despite its incompatibility with many of their values and the fact that it often put them at a political disadvantage.

Among conservatives, though, things looked quite different. Republicans’ goal was never regulatory decisions that maximized net benefits; it was less regulation, consistent with their broader political vision. They favored cost-benefit analysis because it appeared likely to align with that underlying goal.

Occasionally, that backfired. Reagan’s Task Force on Regulatory Reform decided to revisit the standard on lead content in gasoline, hoping that cost-benefit analysis would allow them to relax it. Instead, the analysis showed that further limiting lead would pay off tenfold by lowering its developmental impacts on children. As it became clear that cost-benefit analysis could not be relied upon to consistently produce deregulatory results, Republicans turned against it. As Antonin Scalia, then an editor of Regulation magazine, wrote in 1981, “The Game Has Changed.” Discussing proposed legislation that would require CBA across the board, he argued that regulatory reformers who fail to recognize that such requirements can impede the dissolution of regulation, “and who continue to support the unmodified proposals of the past as though the fundamental game had not been altered, will be scoring points for the other team.”

This gap between conservative and liberal approaches to regulatory CBA has persisted for decades. While one side saw it as a tool for making better decisions, the other saw it as a means to achieve more fundamental political ends. Over time, this asymmetry has caused its implementation to drift in an unmistakably conservative direction.

The real goals of Republican CBA reform became even clearer during the Trump administration, which tried tricks like not counting benefits at all, among other regulatory shenanigans. Today, under a Biden presidency, a fresh conversation is taking place about CBA—one that does indeed consider whether it can address distributional concerns, adequately count benefits, and take a sufficiently long-term lens.

There’s a lot to be done on the technical side. But it is critical to remember that cost-benefit analysis is a convenient fiction that exists to coordinate action and facilitate decision-making. Our methods for estimating, say, the Value of a Statistical Life are arbitrary. They put a patina of rationality on what is essentially a moral choice. We accept them because they give us a consistent way to produce a number that roughly accords with our sense of what is reasonable—but a dozen other numbers could be similarly justified. Our actual estimates of costs and benefits are often lucky to be correct within an order of magnitude. And minor changes in assumptions—for example, about the appropriate discount rate—can lead to dramatically different assessments of the benefits of a project or decision.

This is not to suggest that we don’t need a procedure for comparing costs and benefits, or that technical changes are without value. But improving the technical process should not be the primary goal. Instead, people who are interested in using administrative law to achieve progressive ends need to take a page from the conservative playbook. The primary goal of CBA reform should not be to produce the best, most morally defensible analysis. It should be to introduce technical changes that tilt the playing field toward outcomes we think are good. And in areas where CBA seems likely to be irredeemably biased against action, our aim should be to push for alternative forms of evaluation.

Some might argue that it is a mistake to respond to conservative weaponization of CBA in similar fashion, and that the correct response is to make CBA work “better,” in some neutral technocratic sense. But we must not lose sight of the fact that CBA is merely a tool, rather than an end in itself. And if, in some cases, cost-benefit analysis is the barrier to deeply needed change—if it is preventing us from addressing climate change or if missing data means benefits are going uncounted—then we may need to abandon it entirely.