Somebody Always Pays

As I reflected on a number of decisions (Obamacare upheld; marriage equality for same-sex couples vindicated) by the Supreme Court this week, I was jolted by the news that the Court, by a 5-4 decision, struck down the Obama Administration’s plan for controlling mercury emissions from power-company smokestacks. The stated rationale was that EPA failed to take costs into consideration when it made an initial decision to regulate these emissions under the Clean Air Act. (The agency did so later when it actually set the emissions standards, but that did not satisfy Justice Scalia and his allies).

Without delving into the precise language at issue in the EPA decision, I note that this ruling underscores how the issue of regulatory costs remains hotly debated throughout the federal government. Over the years, president after president has issued executive orders directing regulatory agencies to undertake increasingly elaborate cost-benefit analyses in order to avoid burdening businesses (and consumers) with unnecessary costs.

Although I have no dispute with the notion that regulations should be demonstrably cost-effective before they are promulgated, I wish to raise a note of caution about cost-benefit analyses before policymakers get too carried away with their calculations. As with any managerial tool, cost-benefit analyses can be abused. Critics often point out, for example, that cost-benefit analyses place values on things not easily or comfortably quantified, such as human lives or pain and suffering. Moreover, such analyses tend to elevate easily calculated short-term costs above less easily calculated long-term benefits. And, cost-benefit analyses almost never acknowledge that costs typically drop substantially once rules become effective, thereby ignoring real-life experience.

Paralysis by Analysis

For the moment, I’ll set aside these familiar objections because I have two additional gripes about what I regard as misguided cost-benefit dogma. First, I note that since 1981 the Consumer Product Safety Commission has labored under what is, by many accounts, the most burdensome and detailed set of cost-benefit procedures in the federal government. Included in these procedures are requirements for elaborate preliminary regulatory analyses followed by even more elaborate final analyses, with cost-benefit findings even required for those regulatory alternatives not chosen. This has led to what many observers call “paralysis by analysis.”

Consider the following statistics: in the eight year period from 1973 to 1981 – before Congress imposed these procedures on the CPSC – the agency drafted 24 safety rules, or roughly 3 rules per year. In sharp contrast, in the thirty-four years since 1981, the agency has managed to eke out only ten rules – or roughly one rule every 3 1/2 years. To say the least, rulemaking at CPSC currently proceeds at the pace of a stampede of turtles through a vat of peanut butter. And, I challenge anyone to demonstrate that these cumbersome procedures produce better rules. Slower, yes. Better, no.

New Societal Costs: Really?

On a broader front, I object to the conventional wisdom that regulation inevitably imposes new societal costs. A moment’s reflection reveals why this is not necessarily so. According to CPSC staff, roughly 37,000 people die every year from consumer product-related incidents and 38 million people suffer product-related injuries, at an annual cost to the nation of at least $1 trillion. These are real societal costs. They include medical expenses, lost wages, pain and suffering – and sometimes funerals. Moreover, too often, these costs are off-loaded on innocent consumers who bear them silently and unfairly – and on the public in the form of higher health care premiums or higher taxes to pay for the uninsured.

In other words, those who profit from producing dangerous products too often avoid the consequences of their actions by externalizing costs that in a rational world should be internalized. The costs in the form of deaths and injuries are already there – often as much, if not more, of a drag on our economy as any safety rule. So, the real issue is who should bear the costs.  And, I would argue that those who receive the benefits of added safety should also be the cost-bearers – and I include consumers in this picture as well as manufacturers. I would further argue that thoughtful safety rules do just that. They don’t necessarily add new costs; they simply reallocate those existing costs into a more rational framework.

All in all, the bottom line to me is clear: when it comes to safety, someone always pays.



Posted in Policy.