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A History of Opposition to Federal Regulation: The Perpetual Asymmetry of Cost-Benefit Analysis

At the beginning of this month, the EPA set a new national standard for ozone, nudging the maximum allowable concentration down from 75 to 70 parts per billion (ppb). The new standard has been called overly burdensome and costly by industry lobbyists, despite the fact that it is at the weakest end of the range recommended by EPA’s science advisory board. Synapse found that one flawed critique of EPA’s standard, a report conducted by NERA Economic Consulting for the National Association of Manufacturers, overestimated the costs of meeting a 65 ppb standard by 700%. (Ozone is regulated under the National Ambient Air Quality Standards of the Clean Air Act and therefore its regulation cannot legally be evaluated on the basis of costs.)

Industry backlash to the ozone standard continues a long tradition of opposing regulation on the grounds that it is too expensive, despite almost 20 years of rebuttal that shows that estimated costs of federal regulations are overblown. In 1996, Lisa Heinzerling’s classic article, Regulatory Costs of Mythic Proportions, debunked the famous list of “excessive” regulatory costs per life saved that has been circulating since the 1980s. The list, often held up as evidence of the irrationally high cost of federal regulation, included regulations that EPA had already rejected on the grounds of cost-ineffectiveness as well as regulations designed to achieve other objectives. For instance, formaldehyde causes few deaths but many painful, nonfatal illnesses. So a cost-benefit analysis that focuses only on the cost per life saved finds formaldehyde regulation to be very expensive—but only because it ignores the real reasons for regulating formaldehyde.

Regulation is fundamentally designed to protect the health and welfare of the public, yet the benefits of health and environmental regulations are frequently underestimated and the terrible alternatives ignored. The first accurate descriptions of the harm asbestos does to your lungs appeared before 1900; insurance companies were starting to refuse to insure asbestos workers by World War I. The big wave of exposure to asbestos occurred during World War II, leading to the latter-day liability that ended up bankrupting major asbestos companies. Yet in 1991 a federal court overturned EPA’s ban on asbestos, arguing that the agency had failed to demonstrate that the benefits of the ban exceeded the costs.

We also still allow the continued use of atrazine, a hazardous pesticide that exposes farmers to a potential carcinogen and proven endocrine disruptor in order to gain trivial increases in corn yields. My research at Synapse and elsewhere has shown that thanks to the price-inelastic demand for crops, farmers as a whole would be economically better off if atrazine were banned and everyone’s yield went down a tiny amount. I discuss the exaggerated attention to trivial costs and underestimation of benefits in my book Poisoned for Pennies, a collection of essays on this theme concentrating on toxics. To be valid, a cost-benefit analysis would have to provide comparably complete pictures of the costs and the benefits. Yet all too often, the costs are described in intricate detail, while the benefits of health and environmental protection are undervalued or ignored.

I further discuss the false rhetoric on costs of regulation in the articles “The Unbearable Lightness of Regulatory Costs” and “The $1.75 Trillion Lie.” In the latter, Lisa Heinzerling and I dissect a notorious example of the wild exaggeration of regulatory costs, akin to NERA’s swipe at the ozone rule. A casual guess about how to infer the future costs of compliance, based on scraps of data and a belief that the most expensive option will always be selected, is all that it takes. Conservative think tanks now churn out similar studies alleging that regulatory costs have reached the trillions of dollars, and must be rolled back at once to avoid economic calamity. NERA’s economic model, which “proves” that ozone regulation is hopelessly expensive, has reached the same conclusion about other regulations, time after time after time. The predicted economic calamities never materialize.

The next time you hear that cost-benefit analysis is needed for good regulatory decisions, just remember: Health and environmental regulations exist to protect people and ecosystems. The costs of regulation have repeatedly been exaggerated, and often turn out to be lower than expected. The benefits—which might include someone you love not dying of cancer—are priceless.