Editorial on Circular A-4 Updates Misses the Mark

Editor’s Note: The authors submitted this letter to the Wall Street journal in response to an editorial that appeared in the paper on August 14. The Journal declined to publish the letter.

This paper’s recent editorial argues that the White House missteps in updating its approach to regulatory cost-benefit analysis. Many experts disagree.

Since President Reagan, every administration has used cost-benefit analysis in setting regulatory standards. But while economics has evolved, federal cost-benefit analysis has largely been stuck in time because the central guidance hasn’t been updated in decades.

Some updates the editorial criticizes simply focus on catching up. For instance, to keep pace with inflation, the White House adjusted the monetary threshold for requiring cost-benefit analysis that was set 30 years ago. Under the new threshold, most rules remain subject to economic review.

Likewise, the editorial criticizes the administration for placing more weight on effects occurring further out in time. But this proposed change to the discount rate largely updates the existing, George W. Bush-era guidance with current data, using the same methodology. It also drops an outdated alternative method that assigns virtually no weight to impacts on future generations. Leading experts on discounting announced their support for these updates in the prominent academic journal Science.

The editorial also takes aim at the draft’s focus on equity and impacts outside U.S. borders. But neither move is unprecedented or extreme. The Bush-era guidance also instructs agencies to consider equity and permits consideration of key international effects.

The editorial repeatedly emphasizes the costs of regulation. But what about regulatory benefits, like improvements in health or welfare? The editorial suggests that such benefits cannot be worth large societal investments. Under that logic, people should never buy anything costly regardless of its benefits.

In contrast, the Biden administration’s evidence-based approach to cost-benefit analysis recognizes that both benefits and costs merit evenhanded consideration. It’s a welcome update.

By Max Sarinsky and Andrew Stawasz