WHITHER RATIONALITY?

• Author: Hsu, Shi-Ling
• Position: Annual Book Review Issue

REVIVING RATIONALITY: SAVING COST-BENEFIT ANALYSIS FOR THE SAKE OF THE ENVIRONMENT AND OUR HEALTH. By Michael A. Livermore and Richard L. Revesz. New York: Oxford University Press. 2020. Pp. ix, 293. $34.95.

INTRODUCTION

While the Trump administration accomplished little of substance, it did make progress on one objective: casting public doubt on the legitimacy of federal agencies. Both as candidate and as president, Donald Trump railed against the federal administrative bureaucracy--what he called the "deep state." (1) The resulting erosion of trust is deeply troubling, as not only do federal agencies make decisions with profound substantive consequences, but the process by which they make them is critical in maintaining confidence in American government. The Trump administration tainted federal agencies by using them as purely political levers and adopted shoddy, outcome-directed decisionmaking processes, often invoking bizarre reasoning. (2) In this perverse way, even while bumbling Trump officials failed to advance their substantive agenda, they furthered the objective of undermining federal agencies by making them into the cartoons that Donald Trump always said they were.

The Trump administration was particularly capricious in its use of cost-benefit analysis in agency decisionmaking. Cost-benefit analysis (CBA) is never completely objective, but the Trump administration's distorted analyses, (3) violations of basic economic principles, (4) and defiance of common sense (5) reflected an intent to destroy government credibility. Done properly and carefully, CBA remains an important decisionmaking input, providing an economic perspective that is especially important when federal action triggers large-scale changes. Done poorly, it becomes just another example of economics being misused to further political objectives. Exploiting CBA as a partisan tool damages its credibility as an administrative tool and sets administrative practice back decades, which appears to have been the whole point.

The Trump presidency was only the most recent chapter in a continuing campaign by Republicans to reject any economic, scientific, or analytical data that runs counter to their political objectives. (6) In the Republican Party, credible analysis has been largely displaced by the advancement of values--beliefs about social or economic ordering that might be affected by federal policy. Moral certainty has displaced analytically backed welfarism. (7) Cost-benefit analyses that conflict with the stated values of the Republican Party are attacked as instruments of overbearing government. (8)

But it is not just Republicans that have sought to minimize the role of CBA. Progressive Democrats have long harbored deep reservations about CBA, believing that the process is controlled by regulated industries and systematically produces results pointing toward less regulation. (9) Like Republicans, progressives tout the advancement of their particular values in administrative decisionmaking. (10) These values--including environmental protection and public health--are elevated above others, such as liberty and economic prosperity, that are touted by Republicans. To be sure, progressives, who often couch their complaints about CBA in terms of consistency with federal statutes, have never been as nihilist as current Republicans. (11) But progressive skepticism about CBA broadly rejects economic quantification and, like Republican skepticism, falls back on a values-based discourse in lieu of an analytical one.

Michael Livermore (12) and Richard Revesz (13) are familiar and leading voices in this increasingly urgent debate. Their recent book, Reviving Rationality: Saving Cost-Benefit Analysis for the Sake of the Environment and Health, is a historical account of CBA in federal policymaking (with a focus on environmental policy) and a call for its revival. It follows their first book on the subject, Retaking Rationality, (14) in which they sought to convince skeptical readers of the need for a more fruitful way forward in policy disputes affecting the environment. In their recent book, Livermore and Revesz renew their case for CBA, updating their argument with experiences under the Obama and Trump administrations, aiming to strike a chord with progressives and the diminishing segment of Republicans still interested in policy analytics.

This Review of Reviving Rationality summarizes and evaluates Livermore and Revesz's arguments and proffers applications and extensions of their work in the hopes of building upon them. Part I of this Review situates the book in the historical context of CBA, including some of the arguments that have been made for and against CBA, many of which were developed by Livermore and Revesz. Part II grapples with past and present challenges to CBA and suggests that doubling down on CBA--Livermore and Revesz's prescription for modern disinformation--is part of an appropriate response. Toward that end, it offers an example of how CBA might help reconcile deeply divisive policy disputes, such as those over COVID-19 policy. Finally, Part III extends Livermore and Revesz's argument to a broader notion of rationality. If Livermore and Revesz's defense of CBA can preserve the role of economic analysis in federal lawmaking, it can also strengthen the case for the application of analytical sciences other than economics.

1. THE CASE FOR COST-BENEFIT ANALYSIS

   Reviving Rationality is written against the backdrop of a controversial history of CBA. An important contribution of the book is its rich historical treatment of CBA, tracing its development from a federal mandate under President Reagan's Executive Order 12, 291, (15) to its deployment by President Obama in support of progressive initiatives, (16) and finally to its spiteful misuse by the Trump administration. (17) This historical context makes it possible to gain a more sophisticated and nuanced understanding of the role of CBA in federal agency decisionmaking.

   Despite controversy, CBA has been remarkably resilient through Republican and Democratic presidencies. In a presentation at a conference of the Society for Benefit-Cost Analysis over a decade ago (at which I was present), then-Dean Revesz contrasted CBA with the disappointing progress made in matters of environmental justice. Both CBA and environmental justice were matters taken up in earnest by executive order in the Clinton administration. (18) But while CBA has continued to grow in importance, environmental-justice awareness in the federal government has been, by all accounts, weak. (19) Revesz noted that one explanation of this difference is having the Office of Information and Regulatory Affairs (OIRA) as an institutional champion situated in the White House, while the Office of Environmental Justice sits in the Environmental Protection Agency (EPA), layers down from the president.

   This previously secure place for CBA in federal decisionmaking is now under threat, as CBA is in the crosshairs of the Republican Party. (20) President Trump downgraded the prestige of OIRA by nominating inexperienced political ideologues with little training in economics (pp. 101-02). At the same time, the Trump administration's mishandling of CBA has spawned new calls to do away with CBA, (21) as if CBA was the problem rather than Trump. In this fraught context, and in a time of political upheaval and division, Livermore and Revesz make their case for CBA in federal lawmaking. Good governance and pragmatic considerations call for doubling down on CBA to ensure rational policymaking.

   1. The Governance Justification

      Livermore and Revesz's case for CBA is rooted in notions of governance. They view CBA as striking a balance between "the demands of democratic accountability with the sometimes countervailing desire to facilitate sound decision making" (p. 5). As evidence for the value of this good-governance approach, Livermore and Revesz cite examples from the Obama and Trump administrations. A core theme of Reviving Rationality is how the Obama administration used CBA to support its environmental and public health initiatives. Even while the Republican Party cast off any governing principles and set as its sole purpose the obstruction of the Obama administration, (22) significant advances were made with the support of rigorous CBAs. (23) These included the Mercury Air Toxics Rule, (24) the Cross-State Air Pollution Rule, (25) rules tightening National Ambient Air Quality Standards under the Clean Air Act, (26) increases in vehicle fuel efficiency standards, (27) and a rule to limit the amount of methane leaking from oil and gas operations. (28)

      But just as important as the potential for CBA to support progressive regulation is its role in curbing reckless deregulation. The Trump administration's effectiveness in implementing its ideological, deregulatory agenda was abysmal, with even friendly judges tossing aside most of the administration's flails (p. 97). In no small part, the Trump administration's failures were attributable to its casual relationship with CBA (p. 98). Because the Obama administration had done rigorous analysis in support of its regulations, the Trump administration's attempts to undo them needed to be rigorously supported as well, (29) a challenge for which Trump officials were hopelessly overmatched.

      Reviving Rationality spends a great deal of time on the Trump administration because it highlights a key Livermore-Revesz argument: the practice of CBA can help prevent environmental backsliding. (30) More generally, CBA provides "guardrails" against bad policy. "Bad," in Livermore and Revesz's vernacular, is policy that swerves too far from a notion of "rationality," which is largely, but not exclusively, determined by resort to CBA. Rationality is thus some sense of how worthwhile an action is, with monetary quantification as a key metric, bearing in mind that monetary quantification is sometimes...