One of the most important political issues you’ve almost certainly never heard of

In a recent memorandum the President Joe Biden directed:

“…Director of OMB, in consultation with representatives of executive departments and agencies (agencies), as appropriate and as soon as practicable, to begin a process with the goal of producing a set of recommendations for improving and modernizing regulatory review.”

It is my hope that this review will be used as an opportunity to right a strange wrong in United States government. Few people are aware of this wrong, because it is very technical. I am only aware of it because my PhD research happens to overlap with it. However , its effects, over four decades, have been incalculably harmful. It is contradictory to the ideals of democracy, fairness and improving the common good.

Since Regan, the regulatory review process involves cost-benefit analysis, a process by which the benefits and costs of a regulatory proposal are turned into monetary benefits and costs by looking at how much everyone affected would pay to make them happen, or pay to prevent them. This can be done in a number of ways (e.g. looking at changes in real estate prices), but for the sake of ease of explanation, we will stick with the simplest- asking people how much they would be willing to pay for something.

To see the problem with this approach- at least in its simplest form-, let’s suppose the government is considering building a bridge. Now Poorville is a town of 100 low income people, all of whom would prefer that the bridge be built nearer to them to shave an hour off their commute, Richville on the other hand has only one resident, a billionaire who would quite like the bridge built nearer to him so that he can shave an hour off his travel to his favourite golf course. Now each resident of poorville would be willing to pay 5000 dollars to have the bridge built nearer to them, but Mr Richie Rich would be willing to pay one million dollars to have the bridge built near him. Thus, according to cost-benefit analysis, the bridge should be built near Mr Richie Rich.

(This example is relatively benign- we might have just as easily used differences of preferences around water cleanliness regulations, for example)

In treating a “a dollar as a dollar” no matter how well-off its source, this procedure has two flaws. Firstly it doesn’t capture the human costs and benefits of proposals, because the same amount of money can mean very different things depending on how wealthy the source is. Secondly it is anti-democratic/plutocratic. It is implicitly a voting procedure in which the desires of the rich matter more- sometimes very many times more- than the desires of the poor.

Discriminating against the poor is awful, but it doesn’t stop there. Any procedure which values the interests of the rich more than the poor is necessarily racist and sexist in America. It will discriminate in favour of men, and it will discriminate against many ethnic groups including Black Americans, Native Americans, Latino Americans and almost all groups of non-white Americans- because on average these groups are poorer.

Although it is unlikely to prevail before the current supreme court, I believe that, in structurally favouring the interests of the rich over the poor, of men over women and of white people over those of other races, there is an argument to be made that unweighted cost-benefit analysis violates the fourteenth amendment to the United States constitution, the equal protection clause.

There are many options for a different approach to cost-benefit analysis. The United Kingdom, for example, uses a form of weighted cost-benefit analysis where appropriate, recognising that a dollar’s worth means different things depending on the income of the person the dollar is coming from..

Perhaps you are cynical and you think to yourself “but this isn’t how decisions really get made, changing this bit of won’t really effect anything”. Here’s the thing though- this is a bit of machinery that interacts with absolutely all decision making about federal regulation in the United States- tens of thousands of concrete decisions. It ticks away in the background, and at the moment it is subtly weighting the scales in favour of inequality.

I am therefore using this miniscule platform that I have here to urge the Office of Budget and Management to adopt weighted cost-benefit analysis in some form. I’m not sure how to make a big deal out of something so technical, but if you have any ideas on getting the word out there, please go for it.

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2 thoughts on “One of the most important political issues you’ve almost certainly never heard of

  1. If the poor guys all value the bridge at $5000 and the rich guy values the bridge at $1m and he offered to pay everyone $7500 to have it built near him, *everyone wins* vs building near the poor guys.

    Genuinely don’t get why you prefer him keeping his money?


    1. Hi Joe

      Obviously it would be better for everyone if this exchange went ahead. That’s not the issue though. The issue is whether the mere fact that the rich guy *could compensate the losers* is reason to go ahead, *even if he does not, in fact, compensate the losers*. This is what the Kaldor-Hicks approach requires.


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