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The Biden administration has overhauled how the federal government assesses the costs and benefits of regulations and some government spending programs, paving the way for more aggressive efforts to combat climate change and help the poor.
Officials from the White House Office of Information and Regulatory Affairs, a division of the Office of Management and Budget, finalized a new and complicated set of rules on Thursday. They would change the way federal agencies interact with each other and weigh the potential value and harm of new regulations on climate change, taxes, disaster aid distribution and more.
The federal government has long used so-called benefit-cost analyzes when setting regulations affecting business activities, environmental pollution and much more. The rules underlying these regulations were last changed during the George W. Bush administration, leading many economists to complain that officials were not taking into account updated economic data and cutting-edge research when issuing regulations that both could have major consequences immediately and in the future.
The newly issued changes to the guidelines will require regulators to pay more attention to economic inequality, the changing economics of a warming planet and other data sources that progressive economists have long complained are missing from government cost-benefit analyses.
But the simplest way to summarize their effects is generational: They would allow the government to impose more expensive regulations on today’s Americans in the hope of saving money and lives in the future.
Administration officials and many economists who specialize in the field say the proposals correct years of government bad math on regulation by adjusting for rising prices and relatively low interest rates over the past thirty years. year.
“A review that provides greater clarity and detail, that incorporates more recent theoretical, methodological, and empirical insights, and that better reflects fundamental valuation principles is long overdue,” a dozen MIT economists wrote in a public commentary earlier this year the proposed measure. revision. “The potential for improving the quality of regulatory decision-making and thereby increasing social welfare cannot be overstated.”
Critics say the changes will make it easier for federal officials to impose restrictions on Americans’ lives and economic activities, creating new costs for business owners.
“Changing the way cost-benefit analysis is conducted in a way that makes it easier to issue heavy-handed and costly regulations is unwise at any time, especially if Americans continue to suffer punishingly high inflation,” Senator wrote James Lankford, Republican of Oklahoma. in a comment on the proposed rule.
The final rule stems from an executive order Mr. Biden issued shortly after taking office and reflects a sustained push from OIRA Administrator Richard Revesz, who has used his position to strengthen a host of environmental rules. He said in a statement that the updated guidelines “mean lower costs for consumers; cleaner food, air and water; less fraud and exploitation; increased workplace safety; more innovation; and a stronger economy.”
The final rule updates a set of government guidelines intended to guide federal agencies in assessing the benefits and costs of new regulations, which many economists called outdated.
This criticism has partly focused on the way in which the government makes the trade-off between current costs and future benefits. For example, would it make sense to impose a $1 million tax this year to reduce pollution and create $10 million in benefits over the next ten years? from now?
Economists calculate these trade-offs using something called a discount rate. The higher that percentage is, the more difficult it becomes for policymakers to justify imposing costs to gain future benefits. The tariff is especially important for issues such as climate change, which weighs the current costs of reducing fossil fuel emissions against the future benefits of limiting temperature rise.
Mr. Biden’s rules lower the discount rate to 2 percent; Previously this was 3 percent in some cases and 7 percent in others. The new interest rate is linked to an updated estimate of the long-term return on government debt, after adjustment for inflation. It has the effect of justifying more aggressive climate regulations by giving greater weight to the benefits of reducing economic damage from global warming in the future.
The new rules also allow federal agencies to better consider economic inequality in their decisions. That applies to issues like how federal grants, such as natural disaster relief funds, are distributed. Often, relief dollars end up flowing to places with the most expensive damage—that is, the highest property values—as regulations seek to maximize the efficiency of every dollar spent.
The guidelines allow officials to change that calculation. They could target more aid to people with lower incomes, even though their homes are worth less than those of high-income people.
“If you conduct policy analyzes well, it is not just about efficiency. You also have to think about equity,” said Jeffrey Liebman, an economist at the Harvard Kennedy School of Government who served in the Obama administration and has long championed updates to government cost-benefit analyses.
Democrats have long considered changes to the regulatory guidelines but have so far failed to implement them. Shortly after joining the Obama administration in 2009, Mr. Liebman and then-budget office director Cass Sunstein, both of whom supported changing the guidelines, debated whether to make that effort a top priority. at a time when the government expected waves of new environmental and health regulations.
After doing their own kind of cost-benefit analysis, they decided that the overhaul wasn’t the best use of their time.
