The APA was enacted in the wake of dramatic expansion of federal power to shape the economy and American society during the 1930s and World War II. The aim was to establish procedural constraints on a federal bureaucracy that was seen as difficult for the average citizen to comprehend. Citizens needed to know how to navigate Washington’s bureaucracy to address their needs or obtain redress of grievances. Congress enacted the APA to correct this problem, but it stopped short of requiring that agency decisions align with explicit objective principles as a uniform standard. The APA requires agencies to solicit and respond to public comments, but it does not treat those comments as binding votes or measures of public will. Agencies are free to override public commenters if the agency concludes that doing so is reasonable.

The omission of an explicit decision standard in the APA and its reliance on a vague “reasonableness” standard reflects an intellectual pedigree rooted in the 19th century Progressive Movement and its leading proponent, Woodrow Wilson. Wilson was skeptical of democratic government based on universal suffrage. In his 1887 Political Science Quarterly article “The Study of Administration,” he envisioned government as a science managed by trained experts insulated from popular passions and legislative bargaining. His ideal was, in effect, a government ruled by a beneficent elite. Today, the 21st century populist critique of the administrative state perceives a bureaucratic state that governs through regulations reflecting the elite’s self-interests and values and does not represent the interests and values of the people whom they govern.

This contemporary critique of the modern American administrative state is an implicit benefit–cost analysis that mirrors the one that Thomas Jefferson expressed in the Declaration of Independence: “The costs of colonial loyalty to the established British governing order exceed the benefits.”

After the APA’s passage, economists and policy analysts recognized the need for a transparent and uniform standard to guide regulatory decisions. They advocated for a more rational, quantitative approach to regulation based on maximizing net benefits to society by applying the tools of benefit–cost analysis. Ronald Reagan’s Executive Order 12291 mandated that agencies conduct benefit–cost analyses and adopt the most efficient regulatory alternative. Bill Clinton’s EO 12866 preserved the approach that regulations must provide benefits that justify their costs and proceed from a clear statement of public need. The Office of Information and Regulatory Affairs established under Reagan continues to exist, but its ability to constrain needless or inefficient agency rules depends on political will within the Executive Branch and is often thwarted.

Executive orders requiring economic benefit–cost analysis lack legal force, and citizens whose liberty has been constrained or who suffer economic damage do not have legal remedy if their harm is the result of flawed agency analysis. Courts do not consider benefit–cost issues, even if an agency conducted such an analysis under EO 12866. Requiring benefit–cost analysis as a legal standard in the APA would allow courts to review rules that fail to achieve positive net benefits or that are based on wrongly calculated costs or benefits.

While benefit–cost analysis is not perfect, it does offer a consistent framework for comparing regulatory alternatives and estimating effects on social welfare. It can reveal tradeoffs otherwise hidden and align regulatory outcomes more closely with the choices that democratic legislatures or well-functioning competitive markets would make. Requiring benefit–cost analysis by statute will force agencies to justify regulatory decisions in terms that the public can understand: What will it cost, who will it affect, and do the benefits outweigh the costs? Citizens adversely affected would have judicial standing to challenge incorrect data, methods, and calculations.

Incorporating benefit–cost analysis into the APA would require more than simply instructing agencies to do it. Statutory language should address critical issues of how to properly conduct these analyses. An example is the issue of “standing”: Whose costs and whose benefits shall be counted in cost and benefit calculations? This is one of several technical issues that should be addressed within the statute to facilitate judicial review.

The “standing” issue was revealed when federal agencies introduced into EO 12866 benefit–cost analyses the concept of the social cost of carbon (SCC). It is the value of a reduction in climate change damages (e.g., sea level rise, etc.) resulting from an annual elimination of one ton of carbon dioxide (CO₂) emissions by US citizens. (See p. 36.) Multiplying this number by the tons of CO₂ that regulators estimate would be eliminated under a proposed regulation calculates the benefits of the regulation. However, analysts can use two different SCCs: “Global SCC” estimates the value worldwide from each ton of CO₂ eliminated by regulations whose costs are borne only by US citizens. “Domestic SCC” estimates the value to US citizens exclusively of such eliminations. The global SCC is about seven times greater than the domestic SCC, which means that applying the global SCC value will justify a regulation seven times more costly to US citizens than if the domestic SCC benefit measure were applied. The agencies proposing the regulations adopted the global SCC measure, effectively awarding benefits to foreigners who contributed nothing to the costs being paid only by US citizens. This choice justified more expansive regulation than would have been justified by the alternative. The question of whose costs and whose benefits should have standing in an APA mandated benefit–cost analysis will need to be addressed in the statute itself to make it enforceable by judicial review.

Reform of the APA to include a benefit–cost decision mandate would require careful congressional construction, and it would face opposition from those who view regulation as a vehicle for moral goals that transcend contemporary social and economic values. Those broader moral goals may be worthwhile, but they should be pursued openly through legislation, not hidden under administrative rule-making decisions.