EA - U.S. Regulatory Updates to Benefit-Cost Analysis: Highlights and Encouragement to Submit Public Comments by DannyBressler

Link to original articleWelcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: U.S. Regulatory Updates to Benefit-Cost Analysis: Highlights and Encouragement to Submit Public Comments, published by DannyBressler on May 18, 2023 on The Effective Altruism Forum.On April 6, 2023, the U.S. Office of Management and Budget released a draft of the first update to the Federal benefit-cost analysis (BCA) guidelines in 20 years. I saw a nice article in Vox Future Perfect and a nice EA forum post that covered this. These posts cover some of the key points, but I think there are other important updates that might be overlooked. I will highlight some of those below.The key new documents stipulating the new draft BCA guidelines are:Circular A-4The Circular A-4 PreambleCircular A-94Why is the update important? Since 1993, U.S. agencies have been required to conduct a regulatory analysis of all significant regulatory actions (the definition of which was just revised from a rule with an annual impact of more than $100 million to $200 million), which includes an assessment of the costs and benefits of the action. Essentially, all major regulatory actions in the U.S. are subject to BCA, guided by Circular A-4.However, these updated guidance documents are still drafts. They are subject to public comment and peer review and may be changed significantly in light of the feedback received in this process.If you think that some of these highlights or other parts of the new A-4 and A-94 are a good idea (or if you don’t) I’d highly recommend submitting a public comment via the Regulations.gov system (A-4 link and A-94 link). The deadline for public comments is June 6th.Positive comments that support the approach taken in the document are equally and often more useful/impactful than critical comments. If everyone who dislikes something criticizes it, and everyone who supports something doesn’t bother mentioning their support, it looks like everyone who had an opinion opposed it! So, if you like the approach taken (or don’t), please write a comment! Also, note that comments supported with the analytical reasons why the approach is (or is not) justified are generally more useful and taken more seriously.Now on to the highlights:Short-Term Discount RateAs the Vox article mentioned, the new update to Circular A-4 significantly lowers the discount rate to a 1.7% near-term discount rate. This of course is a large change from the previous 3% rate, but this comes from just using a similar method to the previous 2003 A-4 method with more recent Treasury yield data. The preamble has a deeper dive into this calculation and asks the public a number of questions about whether there is a better approach, for those who are interested.The draft Circular A-4 continues to take a “descriptive” approach to discounting in which market data is used to determine the observed tradeoffs people make between money now and money in the future. The discount rate is now lower simply because yields have been steadily declining for the last 20 years.There are good reasons to believe that rates will continue to be low, but it’s also important to emphasize that if rates are not low in the future, then this near-term discount rate will go up again. This is why from the perspective of placing more weight on the future, the next bullets may be more important.Long-Term Declining Discount RateA related important change (and more robust to future interest rate fluctuations) is that A-4 and A-94 endorse the general concept of declining discount rates, and the A-4 preamble proposed and asked for comment on a specific declining discount rate schedule, which discounts the future at progressively lower rates to account for future interest rate uncertainty. This is in line with the approach recommended in the literature based on the best available economics, and also ends up placing larger weight on t...