Obama’s New Regulatory Regime

Eric Posner, writing in The New Republic (“Obama’s Cost-Benefit Revolution“), comments on Obama’s new executive order about cost-benefit analysis and regulation. Posner offers some background:

Long ago, cost-benefit analysis was a rallying cry for conservatives. It was brought to government by none other than Ronald Reagan, in Executive Order 12291 of 1981. Reagan was riding the wave of the deregulatory movement, which held that regulation of industry was excessive and stunted economic growth. His order stipulated that agencies should issue regulations only after finding that the benefits exceeded the costs.

Outraged liberals charged that cost-benefit analysis was a pretext to stifle regulation, and that it was arbitrary because of the difficulty of attaching dollar values to lives, environmental goods, and other regulatory benefits. Conservatives replied that cost-benefit analysis blocks bad regulations: Why would one support a regulation that produces higher costs than benefits? At the time, the alternative was regulation that seemed to reflect no more than the instincts of bureaucrats (or the agendas of interest groups), accompanied by impenetrable bureaucratese. The debate continued in this vein for decades, but over time, positions shifted. Some liberals came to see cost-benefit analysis as a good-government tool that promotes transparency and accountability, while some conservatives began to wonder whether it confers legitimacy on the New Deal state.

Cost-benefit analysis — even when it is done well — is a sham. But Obama’s approach (an extension of Clinton’s) reveals it as a scam:

Now, the press has reported that Obama’s executive order, which explicitly renews Clinton’s, signals victory for business. But the executive order also provides plenty of wiggle room that can be exploited by pro-regulatory forces, as indeed did Clinton’s before it. Unlike Reagan’s original order, which simply asked agencies to perform cost-benefit analysis, Clinton’s allowed agencies also to take account of “equity.” Obama’s adds that agencies should take account of “human dignity” and “fairness,” values, it helpfully notes, that are “difficult or impossible to quantify.” This is problematic because quantification is the point of cost-benefit analysis. Cost-benefit analysis works in the first place only because it imposes mathematical discipline on agencies. They must supply evidence that a proposed regulation has certain benefits and costs, monetize those benefits and costs, and report a number. If the number is greater than zero, then the agency may regulate. If agencies can instead point to unquantifiable benefits such as the promotion of human dignity, they can do whatever they want, and the main selling point of cost-benefit analysis—government transparency—is eliminated.

The sham to which I refer above is this:

One person’s benefit cannot be compared with another person’s cost. Suppose, for example, the City of Los Angeles were to conduct a cost-benefit analysis that “proved” the wisdom of constructing yet another freeway through the city in order to reduce the commuting time of workers who drive into the city from the suburbs. In order to construct the freeway, the city must exercise its power of eminent domain and take residential and commercial property, paying “just compensation,” of course. But “just compensation” for a forced taking cannot be “just” — not when property is being wrenched from often-unwilling “sellers” at prices they would not accept voluntarily. Not when those “sellers” (or their lessees) must face the additional financial and psychic costs of relocating their homes and businesses, of losing (in some cases) decades-old connections with friends, neighbors, customers, and suppliers. (This is from “Greed, Cosmic Justice, and Social Welfare“; see also “Modern Utilitarianism.”)

Throwing “equity,” “human dignity,” and “fairness” into the equation takes us from sham to scam. As Posner says,  “[t]hese wiggle words … might be licenses to agencies to regulate however they want to.” There’s no “might” about it.

Well, there is a kind of “might” about it. The might of government regulators to force their preferences on us.