Published in Providence Business News (April 3, 1995)
How much cost should our Government impose on society to save a life? $100,000? $1 Million? $10 Million?
How about $72 billion per expected statistical life saved? That’s the estimated cost of OSHA’s formaldehyde standard.
That may be an extreme example of environmental overregulation, but even less costly regulations demonstrate the inefficiency and irrationality of many federal regulations governing health, safety and the environment.
For example, the 1986 OSHA asbestos standard costs Americans $89 million per statistical life saved, and the 1989 EPA asbestos standard cost $104 million per life saved.
One economist has calculated that the cost effectiveness
of federal regulations per life saved ranges from $100,000 to $119 billion, with a median value of approximately $9 million. However, environmental regulations are more costly than safety regulations.
This is particularly bad news, since environmental regulations are the fastest growing segment of federal regulations by costs imposed.
In 1990, the General Accounting Office calculated that environmental regulation costs $115 billion, approximately 2.1 % of the Gross Domestic Product. By 1994 the cost was $140 billion.
Economists have also found that these expenditures generally are not recovered by increased efficiencies, and actually decease productivity in the industries affected.
One economist predicted that when the Clean Air Act is fully implemented, it will reduce economic productivity by $15 billion annually, even after accounting for health benefits.
It is considerations such as this which led the U.S. House of Representatives to pass legislation requiring a cost benefit analysis to justify new regulations; the benefits of a regulation must outweigh its costs.
The issue is not a minor one. Regulatory compliance costs Americans $580 billion annually, or almost $6,000 per household. Society pays the price for such regulations in lower wages, higher consumer prices, increased taxes, reduced job opportunities, and lower economic growth.
If testimony before the Senate Committee on Government Affairs is any indication, environmentalists oppose cost benefit analysis on several grounds:
- You can’t place a dollar value on intangible benefits, such as a clean environment.
- It is neither possible nor moral to put a cost on human life.
- There is insufficient scientific support for the risk assessments necessary to make the cost benefit analysis.
- The public overwhelmingly supports environmental regulation.
These arguments fall short for several reasons.
First, while some intangible benefits cannot be reduced to a dollar value, this does not mean that a cost benefit analysis is impossible. An EPA former general counsel correctly argues that intangible benefits can be considered by simply requiring that the cost must not be disproportionate to the benefits.
Additionally, the government now recovers damages for injury to natural resources, such as for despoiling ocean water with an oil spill and harming fish and wildlife. If such damages can be calculated, intangible benefits can be accommodated in a cost benefit analysis.
As for valuing human life, while it may be distasteful, society does this every day when courts award damages for loss of life. Moreover, the free market places a value on human life. Economists have calculated that riskier jobs require a premium in compensation of $3 7 million per expected statistical mortality.
The argument that risk assessments are not a scientificly sound basis to support cost benefit analysis is ironic, because today the EPA requires millions of dollars of hazardous waste remediation based upon risk assessments.
Finally, environmentalist argue that public polls demonstrate overwhelming support for environmental regulation. That’s because polls ask the wrong questions.
Americans should be asked if they would pay $48,000 more for each new automobile in order to make it 5% safer. The answer would be a resounding no. Yet, as Stephen Breyer pointed out before his appointment to the U.S. Supreme Court, Americans would approve of spending this money if they fully supported asbestos regulation in schools, because that’s the translation per life saved.
If Americans were aware of the actual cost of environmental regulation, the polls would be far more meaningful.
Such awareness may be in the wings, however, because the costs are becoming too large to hide and some regulatory efforts are falling by their own inane dead weight. As has been noted, it makes no sense to clean a site to drinking water standards when it is a railyard, or to require soil to be so free of contaminates that a person could eat dirt for 245 days a year when the site is a swamp.
Even if cost benefit analysis is an imperfect tool, it would still impose much needed rationality on a regulatory bureaucracy which is out of control.