Obama’s Cost-Benefit Revolution

by Eric A. Posner

New Republic
January 22, 2011

Tuesday, the president issued a new executive order on cost-benefit analysis and regulation. Already, the right has denounced it as a paean to collectivism and the left has declared that Obama has sold out to business groups. In fact, both sides are incorrect. The surprising reality is that cost-benefit analysis, as it will likely be practiced under the Obama administration, is not nearly as threatening as its detractors suggest. Then again, neither is it as revolutionary as its supporters like to imagine.

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.

In that vein, President Clinton renewed Reagan’s executive order in 1993, albeit in slightly modified form. And for the last two years, observers have been wondering whether Obama would follow Clinton’s path: The president appointed some defenders of cost-benefit analysis to high administrative posts, such as Cass Sunstein, the head of the Office of Information and Regulatory Affairs, which oversees regulation. But he also hired critics of cost-benefit analysis and installed them in the EPA and other posts.

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