The Marketization of Health, Safety and the Environment

A memorable Dilbert cartoon strip features Dogbert as a “creativity consultant” who is directed by his boss to come up with some hard quantitative data.  The boss barks:  “The only way to make decisions is to pull numbers of the air, call them ‘assumptions,’ and calculate the net present value.”  The punchline:  “Of course, you have to use the right discount rate, otherwise it’s meaningless.”

That encapsulates the faux-rigor of regulatory decisions for protecting health, safety and the environment.  Ascertaining the dollar value of human life using the most rigorous science possible is a politically useful charade. 

As the New York Times recently reported, the scientifically determined value of a life at the Environmental Protection Agency has gone up from $6.8 million in the Bush II years to $9.1 million at present.  Across town, the FDA decides whether to ban an unsafe drug based on a valuation of $7.9 million per life.  In deciding whether automakers will install new safety features, the Transportation Department figures $6 million.

When asked about the subjectivity of such valuations, a spokesperson for the Office of Management and Budget sniffs, “This administration utilizes the best available science in assessing the benefits and costs of any potential regulations, drawing on widely accepted methodologies.” 

Oh, well if “science” has reached these conclusions, then it must be okay.  In truth, it all comes down to the Dilbert principle:  Pull the numbers out of the air, call them “assumptions” and calculate the net present value – but make sure you use the right discount rate!  It’s all a load of crap designed to dress up the actual reasons for politically motivated regulations with a suit of "hard" science.  This has the extra benefit of casting citizens -- the beneficiaries of regulation -- as non-experts who have no credibility in participating in regulatory decisions.

A favorite technique used by regulators is to ask people how much they would spend to avoid a certain kind of hazard.  This then becomes the “market price” for a human life.  The “willingness to pay” criteria is skewed against the interests of the working poor, of course, because low-income people are more "willing” to assume the risks of working in coal mines than rich people.  But who are you to argue with the verdict of science? 

The cynicism behind cost-benefit analysis becomes clear when one probes why the dollar value of life varies from one agency to another, and why it has not been standardized.  Political insiders concede that setting a single standard would provoke a political firestorm from both sides; business would say that the valuation is too high and consumers and unions would say that the valuation is too low.  Why invite a messy confrontation?

Moreover, regulatory agencies find it highly convenient to cook the numbers to suit the particular political circumstances.  The FDA valued life at $5 million when issuing a rule requiring warning labels on bottles of acetaminophen and other drugs – but then used a $7 million valuation on another decision before reverting back to the $5 million valuation for a rule to protect against salmonella poisoning. 

Theoretically, the results of cost-benefit analysis are only supposed to “guide” regulators in "setting priorities," and blah-blah-blah.  But in practice, the “hard numbers” tend to be dispositive in determining whether a given rule should go forward.

Regulation of health, safety and environmental hazards was originally seen as a matter of social policy and ethics.  It was about the humane use of government to prevent needless suffering.  No more.  The introduction of cost-benefit analysis in the late 1970s and its mandatory use by all regulators under Ronald Reagan effectively redefined the very purpose of regulation.  It is not to prevent death and injury; it is to provide a scientifically defensible rationale for minimal regulation.  This task depends critically upon monetizing the value of human life and well-being.  All the world's a market -- and there is a price tag out there somewhere for the "costs" of preventing global warming. 

If that means pulling numbers out of the air while rigorously calculating the discount rate, there are plenty of economists willing to do that dirty work.  It's only “statistical lives,” in any case, not real lives, the economists are quick to note.  How convenient:  no one is really to blame for preventable cancers and maimed workers except the numbers. That’s how debased health and safety regulation has become.

Comments

but these valuations are made all the time, just not explicitly

I agree that cost-benefit analysis is overused, easily manipulated, and often based on some arbitrarily-determined values, but there really is an analytical problem here that Mr. Bollier's post doesn't address. It's easy to argue that one should never put a dollar value on someone's life, but how should policymakers weigh their options when, say, the "cost" of saving one more life becomes extremely high?

Suppose there was solid evidence that a community could reduce the murder rate by 50% every time it doubled the number of cops on the street? Putting an infinite value on human life leads to the conclusion that you should just keep on doubling the size of the police force, even when it gets to the point that only a single murder occurs once every 20 years.

Eventually a point is reached at which the tradeoff required to save an additional life no longer seems worth the benefit. The point is that, implicitly or explicitly (as in the government agencies you criticize) these determinations about the value of a life are made all the time. As long as resources are finite there's simply no way to avoid them.

Why regulatory "tradeoffs" are a fantasy

The fallacy of your argument begins with the sentence, “Suppose there was solid evidence that….”  In most cases, especially in preventing involving chronic diseases like cancer, scientific evidence is often still evolving, the causality of a hazard may be unclear and there may be multiple risk factors.  The kind of “solid evidence” that you presume rarely exists.  And in any case, the purpose of regulation is to prevent harm before it occurs, not step in only after a tragedy has already occurred and costs are high enough to persuade industry to abate it.

The problem with the “tradeoff” argument is that it implies that costs and benefits can be reliably confirmed and quantified in a single scale of commensurate value (i.e., cash sums).  They can't, ethically or practicaly.  Evidence is not just lying around; it needs to be paid for and produced....and we know how the very "political economy" for generating evidence of harm is skewed to favor industry.  Regulatory agencies should obviously assess the general magnitude of harms and the likely costs of regulations.  Indeed, they do this.  But to suggest that one can reliably quantify costs and benefits and make ethical decisions that take account of actual complexities and social values through rankings and "tradeoffs" is an economist's fantasy. 

The “tradeoff” scenario rarely exists because generally a regulatory problem tends to have multiple, complex sets of variables and many ambiguities and complications.  In real life, industry has privileged control over information about actual risks, and the costs of abating an existing harm are more easily quantified than the future benefits, which may be intangible, social, ecological and conjectural.  This means that industry generally has the upper hand in manipulating the numbers (economic costs) in its favor.  Purely as a methodological issue and leaving aside the ethics of monetizing human life, clean “tradeoffs” cannot be made because there rarely is simple, incontrovertible “solid evidence” that can be placed on a unitary scale of valuation.

Talk about “tradeoffs” implies that if we don’t regulate Risk X (because the costs exceed the benefits), then we will use those finite resources to abate Risk Y, for which the benefits of regulating do exceed the costs.  Unfortunately, this scenario is also fiction.  It implies that the “savings” gained by not regulating in one place will in fact be more applied elsewhere to abate more serious risks.  In the real world of Washington politics, this never happens.  There is no “tradeoff” of finite resources, in other words.  The hazard-producing industry simply saves money.  It gets to avoid bearing the full ethical, social and environmental costs that it has displaced onto others. 

Which leads to my final point:  talk about “tradeoffs” ignores the social equity issues.  “Tradeoffs” imply that the same party is paying for the costs and benefits out of the same pot of finite resources.  But in fact, it is the public that suffers the costs and risks of no regulation (in human injury and illness) while industry reaps the gains (in cost savings).  Talk of tradeoffs ignores issues of fairness and overrides common law principle that the “polluter pays.”  A cost-benefit-driven “tradeoff” sanctions a shift in social entitlements (to favor the economic interests of industry).  For example, by regulating on the basis of “willingness to pay” to abate a hazard, the poor and elderly suffer greater health risks than wealthy people – a denial of equal protection under the law.  Money-based “tradeoffs” don’t capture such types of social inequity. 

I commend two books to edawg:  Sophisticated Sabotage:  The Intellectual Games used to Subvert Responsible Regulation (Environmental Law Institute, 2004), by Thomas O. McGarity, Sidney Shapiro and me; and Priceless:  On Knowing the Price of Everything and the Value of Nothing (New Press, 2004), by Frank Ackerman and Liza Heinzerling.

if not tradeoffs, then what?

First of all thank you for your response. I'll definitely take a look at the books you suggest.

Two questions come to mind based on what you wrote.

1. What is your opinion of the great number of well intentioned researchers out there who are devising increasingly ingeneous methods to derive a more accurate monetary valuation of the commons? I'm thinking particularly of people such as ecological economists developing models to account for the value of ecosystem services, biodiversity, etc. Your response above would seem to indicate that such work is a fool's errand, that it's misguided from the very moment it buys into the notion that we can ever reach an adequate accounting of the value of these resources.

2. If we reject the "tradeoff" paradigm, then what practical advice would you give to a regulator about how to make specific decisions about things like emissions or safety standards for food and drugs. Suppose you were the benvolent dictator placed in charge of a new agency that was responsible for choosing the level at which CO2 emmissions should be capped. What would your approach be? How would you decide where to set the acceptable emissions level?

Nature's services & better ways to regulate

In response to edawg, I am not an expert in the field of “nature’s services” – the quantifying a dollar value of specific ecosystem functions – but I am inclined to believe that it shares the same conceptual problems as cost-benefit analysis.  As a theoretical exercise, assigning a dollar value to the value of bee pollination, wetlands purification of water or forests’ absorption of CO2 may help show a rough order of magnitude of value (which often dwarves the output of a given industry).  But like cost-benefit analysis, monetizing nature is fraught with all sorts of methodological abuses.  It also invites abuse by regulators and politicians seeking to avoid politically unpopular applications of the law.  At bottom, the practice is pernicious because it presumes that everything can be expressed on a single scale of commensurate (cash) value, which does violence to the way that ecosystems actually function. 

There may be economic implications to a wetlands or bee pollination, but they are not “market resources.”  Yet putting a price tag on them essentially says that elements of nature are commensurate and substitutable.  They’re not.  Many elements of nature are unique systems nested in a much larger, more complex ecosystem, which itself is not fully understood.  Imposing a market logic on the non-market dynamics of natural systems is not likely to be a responsible way to safeguard nature because it doesn’t recognize the actual dynamics of nature.

As for alternatives to the “tradeoff” mentality of regulation, I commend the work of the Center for Progressive Regulation at the University of Maryland.  See, especially, its “Next Generation Environmental Initiative” at http://www.progressivereform.org/nextGeneration.cfm

You may also want to consult Chapter 8, “Better Ways to Regulate,” of Sophisticated Sabotage, the book I mentioned in my previous comment.  That chapter stresses the value of the precautionary principle (it’s cheaper and more humane to err on the side of safety in advance); the “polluter pays” principle (regulators shouldn't indirectly foster risk-creating behaviors, as cost-benefit analysis does); the importance of focusing on the *source* of risk or hazard, not the individual victim (because that will tend to be more cost-effective and fair in preventing harm); and technology-forcing initiatives (of the sort that forced Detroit to radically reduce vehicle emissions, which it would not have done otherwise).  Obviously, costs should be an important consideration in any regulatory decision, but they should not be controlling or obsessive concerns, especially when self-serving industries and their hireling legislators have so much motivation and interest in cooking the numbers as a way to thwart social and ecological accountability.