Federal regulations cost the economy trillions of dollars annually in lost output. Now President Joe Biden’s administration has made behind-the-scenes changes that will saddle businesses with billions more in compliance costs, forcing them to cut back on hiring and investment. Energy prices will rise, and everyday people will see their choices limited and living standards lowered as a result.
The trouble started when the Biden administration overhauled regulatory analysis guidelines in 2023, rewriting the rules for evaluating the costs and benefits of new regulations.
For years, regulations have been evaluated with cost-benefit analysis, which is sometimes touted as an objective, scientific tool for assessing the impact of proposed regulations. In reality, it has long been plagued by disagreements among economists.
For example, economists haven’t settled important questions such as what a cost-benefit analysis should measure. The sensible approach would be focusing solely on objective, measurable economic criteria, calculating a dollar value for all costs and benefits. But liberals want cost-benefit analysis to measure “social welfare,” a subjective standard that requires adding up changes in unobservable phenomena, such as the “well-being” of people.
The lack of consensus about these very different theoretical foundations for cost-benefit analysis has left the tool vulnerable to manipulation by administrations seeking to advance their own agendas.
The Biden administration took advantage of this uncertainty to lean into the “well-being” approach. It made sweeping revisions last year to “Circular A-4,” the key document setting standards for regulatory analysis from federal agencies. The administration effectively rigged the process in favor of its preferred outcomes. By tweaking obscure parameters in analysis such as shadow prices, discount rates, and weighting factors, the administration made it so that even the most costly, burdensome regulations appear justified on paper.
But make no mistake: These changes have nothing to do with sound economics or the public interest.
The administration views regulation as a tool to achieve its political and policy goals and wants free rein to carry on unimpeded, regardless of the real-world consequences. This politicized approach to cost-benefit analysis will grease the wheels for everything from job-killing climate policies and costly electric vehicle mandates to energy efficiency rules that ransack consumers.
Meanwhile, the benefits from these regulations are mostly a fiction conjured up by analysts at federal agencies. That’s why the administration has to manipulate the analytical process to demonstrate any benefits while downplaying costs.
Fortunately, there is growing pushback against this erosion of regulatory integrity. House appropriators recently attempted to include language in a government funding bill to block implementation of the administration’s controversial Circular A-4 revisions. Congress can use funding restrictions like this, along with oversight hearings, to ensure that agencies don’t abuse cost-benefit analysis to justify partisan, ideologically motivated rules. A new administration could also repeal the new guidelines with the stroke of a pen.
Regulations should be based on evidence, not ideology. To restore sanity to the rulemaking process, this ideological power grab must be stopped.
James Broughel is a senior fellow with the Competitive Enterprise Institute.
