cost benefit analysis, regulatory policy, pragmatic impact analysis
Health and safety regulations have a more powerful impact on the quality of life in America than any other affirmative decision the government makes, except perhaps decisions to go to war or pull in the social safety net. To a great extent, the purity of the food we eat and all the medicines we take, the quality of the air we breathe and the water we drink, the safety of industrial workplaces, and the preservation of the myriad natural systems that support life as we know it are dependent on how effectively government polices the side effects of manufacturing. Yet the process used to write those regulations is a mystery to the vast majority of Americans. Because common industrial practices caused widespread harm and the statutes gave the agencies authority to require expensive changes to prevent those injuries, a backlash developed among American business, which in turn contributed (among many other factors) to the election of President Ronald Reagan. Among President Reagan’s lasting policy reforms was the creation of an additional layer of regulatory impact analysis-cost-benefit analysis (CBA), driven not by collaboration among policy experts of different fields, but rather by agency economists, who are in turn overseen by the White House Office of Management and Budget (OMB). Never approved by Congress, this new stage in the regulatory gauntlet in effect puts the economists at the White House in a position where they can demand changes in those health and safety rules that they dislike. The objective of imposing CBA over top of the agency’s existing, statute-driven methods of regulatory impact analysis was to subject the agencies to greater control by the White House, and to make economic efficiency the highest value in the regulatory process. If preventing deaths from unsafe products cost industry too much, or if preventing unsafe chemicals from polluting the air and water cost a dollar more than the expected return on the “investment,” then industry would simply be relieved of the burden. CBA’s flaws are profound. The methodology reduces all the factors considered by the agencies-from the incidence of cancer caused by exposure to a toxic substance to the importance of clean air and water-to dollar terms, a practice known as “monetizing” in the economists’ lexicon. These calculations typically underestimate the “benefits” that a strong regulation will provide the public. At the same time, CBA systematically overestimates industry compliance costs. This paper proposes the liberation of pragmatic decision making from the constraints of cost-benefit analysis. Because the relevant literature is preoccupied with CBA and, conversely, commentators have paid so little attention to the process the health and safety agencies use to make decisions apart from CBA, we have developed a new name for our alternative-“pragmatic regulatory impact analysis” or “PRIA.” We intend for PRIA to replace CBA. Because PRIA is based on the agencies’ “authorizing” statutes-the laws that create the regulatory programs they administer-and because it maintains the agencies’ multi-disciplinary, “weight-of-the-evidence” approach to decisionmaking, it is far superior to the erratic and deeply flawed application of CBA. The hallmarks of PRIA are: An analytical process focused on the law that an agency must implement and the • factors that Congress told the agency to consider when it makes decisions whether to control industrial activities that threaten health, safety, and the environment; •A broad inquiry into the nature of the threat and the remedial options conducted among an interdisciplinary group of experts and administrators; • The assembly of the best available scientific research and other information regarding these issues; •Evaluation of the weight of this evidence, considering both the strengths and weaknesses of the individual studies that were assembled; •Proposal of a remedy for the problem identified; •Public comment from a full range of stakeholders about the costs and benefits of that proposal; •Arrival at a judgment-or series of judgments-about what kind of limits or controls to impose in order to protect health, safety, and the environment.
Center for Progressive Reform. White Paper no. 909, 2009.