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Richard Revesz, as nominee to be administrator of the Office of Information and Regulatory Affairs, testifies before the Senate Homeland Security and Governmental Affairs Committee, September 29, 2022, on Capitol Hill.
Our April issue includes a package of articles on the duplicity of economic modeling that misinforms policy debates and decisions. Seemingly neutral models often conceal ideological biases and use methods that tilt the scales in favor of supposedly efficient markets and against collective social choices.
An emblematic feature of this economic style of thinking is the use of cost-benefit analysis. The standard version is systematically biased to overstate the costs and understate the benefits of regulation, government planning, social provision, and redistributive taxation. This brand of cost-benefit scrutiny also uses market measures of the value of human life, which has the effect of valuing the life of a rich person more than a poor person.
It’s bad enough that mainstream economics disseminates this nonsense as if it were science. Even worse, since 1992, the conceits of cost-benefit analysis have been insinuated into the processes of government decision-making, through a little-known agency, the Office of Information and Regulatory Affairs (OIRA), part of the Office of Management and Budget. An even lesser-known regulation known as Circular A-4 requires all government agencies to use the orthodox brand of cost-benefit analysis in deciding what and how to regulate. Enforcement of this circular by OIRA has functioned as a kind of anti-regulatory neutron bomb, under Republican and Democratic administrations alike.
Now, however, the Biden administration is in the process of reversing the government-wide role of OIRA, to make that agency a champion of regulation, rather than a filter. Last October, I wrote about this revolution as a work in progress, as part of the Prospect’s Day One Agenda series.
Last Thursday, the other shoe dropped. Under its new administrator, Richard Revesz, OIRA issued draft regulations drastically revising Circular A-4 for the first time in 30 years, and substituting more realistic methods for weighing benefits against costs. Revesz, a law professor and onetime dean at NYU, is the perfect person for the job, having long been one of the leading scholarly critics of the misuse of cost-benefit analysis.
At his confirmation hearing last September, Revesz told members of the Senate Committee on Homeland Security and Governmental Affairs, “Circular A-4 should be updated to account for advances in scientific and economic understanding in how the costs and benefits of regulation affect the American people and are distributed across populations.”
To its great credit, the Biden administration laid the groundwork for this transformation in one of its first-day directives issued in January 2021, requesting OMB and OIRA to use the regulatory review process to “promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations.”
The new draft guidelines invite public comment and must still be finalized. The details are a little wonky, but here is precisely where government either serves a broad public interest or gets captured to serve economic elites.
You can read them for yourself, but here are a few key points. In place of what orthodox economics and the existing Bush-era regulations call “benefit-cost analysis,” the new rule proposes a better rubric, of “cost-effectiveness analysis,” which takes into account the entire range of benefits of government action.
The new draft guidelines point out that some benefits simply cannot be monetized, except by using models based on bogus assumptions. And they flatly state:
“Subject to statutory constraints, programs may be justified on efficiency grounds where they address market failures, such as monopoly, public goods, externalities, and asymmetric information … Programs may also be justified where they improve the efficiency of the Government’s internal operations, such as cost-saving investments. More broadly, they may be justified where they have desirable distributional effects or promote important social values.”
In other words, there are some values beyond price, and some things should not be for sale.
This is in sharp contrast to the existing rules, which begin with a deep bias in favor of markets and against regulation. They state, as a directive to all government agencies:
“Even where a market failure clearly exists, you should consider other means of dealing with the failure before turning to Federal regulation.” The first alternative mentioned, in exquisite hypocrisy, is antitrust enforcement, which was gutted by the same presidencies that used OIRA to gut other forms of health, safety, environmental, consumer, and labor regulation.
Revesz will be out and about over the next few weeks, making the case for these modernized rules. Tomorrow, Brookings will be hosting one of the first events, which you can view online. [Update: The event has been postponed and will happen at a later date.]
This reversal has been incubating for several years. Others who get credit are Sharon Block, who served as OIRA acting administrator during Biden’s first year; Sabeel Rahman, who did much of the initial work on these revisions as OIRA deputy director and then as acting administrator until Revesz was confirmed; and a team at the Roosevelt Institute that proposed a blueprint for turning OIRA into its opposite. The Prospect published a roundtable on this idea in April 2020.
This story illustrates the point that activist government may be a prime instrument of progressive reform, but it is not self-executing. It is constantly vulnerable to being turned to illiberal purposes.
Keeping government on track to serve public purposes requires both outside pressure and people willing to go into government to do highly technical work with profound political ramifications. If our side doesn’t do this work, the corporate side has legions of lawyers, lobbyists, and willing economists.
