OMB controls the administration’s purse strings, which makes it critical for internal struggles over administration priorities. If the Senate remains in Republican hands on Jan. 20, limiting the ability of Democrats to get legislation passed, OMB will become even more important. In particular, look out for one OMB office with an outsized impact: OIRA, the Office of Information and Regulatory Affairs.
OIRA is the most important office you’ve never heard of
Why is OIRA so important? It’s the office charged with reviewing, revising, and potentially blocking the rules proposed by executive agencies. Bland and technocratic, OIRA relies on cost-benefit analysis of proposed regulations to justify its decisions, and has traditionally been seen as neutral and apolitical. Yet empirical evidence suggests that OIRA’s overall effect has been to limit regulations proposed by more liberal agencies during both the Bush and the Obama administrations. Under Trump, OIRA’s deregulatory tendencies became much more pronounced, and OIRA rubber-stamped agency proposals that departed from widely accepted analytic standards.
Much of how the Trump administration affected policy happened through regulatory channels. It limited wildlife protections around oil and gas projects; rolled back requirements that tips actually go to waitstaff, rather than restaurant owners; and loosened rules about carbon emissions from power plants. Much of the early Biden administration agenda will involve reversing these changes, which means that OIRA will play a very important role.
OIRA will be even more important if the Senate remains Republican-controlled, forcing the administration to rely on regulatory policy rather than legislation to accomplish its goals. Even before the election, the Biden campaign was planning for this possibility, with a list of 277 policies it might pursue purely through executive action, such as mandating government purchase of clean energy; retrospective review of mergers and acquisitions that the Trump administration approved; and canceling debt for at least a subset of student borrowers.
Not all these executive actions would require OIRA approval. But many would. And here’s where OIRA leadership will make a big difference in just how ambitious the Biden administration can actually be.
Cost-benefit analysis is more political than it looks
When an executive agency like the Environmental Protection Agency proposes a regulatory change, it adds up the expected costs of that change and compares them to the expected benefits. OIRA’s job is to review that cost-benefit analysis and decide whether to approve the regulatory proposal. But behind that technical-sounding task are some surprisingly political decisions. The assumptions analysts make can lead to very different judgments about whether a regulation is justified.
Under the Trump administration, OIRA played a limited role, mostly allowing agency appointees to deregulate without requiring them to adhere to typical cost-benefit practices. Biden appointees, of whatever political persuasion, are much less likely to allow OIRA to abandon analytic conventions altogether. Still, OIRA will have considerable discretion over what cost-benefit conventions it uses.
Consider the discount rate, for example, which puts a number on how much we’re willing to pay now for a benefit that will only be realized in the future. A benefit today is worth more than a benefit tomorrow — but how much more? Obama’s OIRA considered a 3 percent discount rate, under which it’s worth it to spend 75 cents today to gain a dollar’s benefit in 10 years. Under the 7 percent discount rate Trump’s administration has used, gaining a dollar’s benefit in 10 years is only worth spending 50 cents today. Economists concerned with climate change have advocated an even lower 1.4 percent discount rate in climate policy — which would make that dollar of benefits in a decade worth paying 87 cents for today.
Or consider the question of who pays the costs or receives the benefits. Under many approaches to cost benefit analysis, it doesn’t matter: a dollar of benefits for Jeff Bezos is as valuable as a dollar of benefits for someone living below the poverty line. Under others, benefits to people living on lower incomes are weighted more heavily. These technical choices play a dramatic role in shaping whether the benefits of a regulation seem to outweigh the costs.
Biden might return to Obama’s approach — or he might strike out on his own
Under the Obama administration, OIRA was led by Cass Sunstein, a Harvard Law School professor who founded and directs its Program on Behavioral Economics and Public Policy. Sunstein’s OIRA made choices that tended to limit the potential for regulatory action, making the party’s left unhappy. A similarly minded Biden OIRA administrator, uninterested in an expansive executive branch agenda, could become a chokepoint for all the other agencies — no matter how progressive their leadership. In contrast, if Biden listens to more liberal think tanks like the Roosevelt Institute, OIRA might rely on different assumptions that would allow a much more ambitious regulatory approach.
This explains why some progressives are sounding the alarm about Biden’s OMB review team, even as they praise the inclusion of progressives on teams overseeing the Treasury and Federal Reserve. It’s probably not by accident that the OMB team looks different from the rest — and that difference may provide a clue to future political conflicts within the Biden administration.
Elizabeth Popp Berman is associate professor of organizational studies at the University of Michigan. Her book, “Thinking Like an Economist: How Economics Became the Language of U.S. Public Policy,” is under contract with Princeton University Press.
Elizabeth Popp Berman
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