Regulation: Risky Business


Government agencies that write health and safety regulations are a little like those that build dams, argues Duke University economist W. Kip Viscusi. In the early years, they tackle the obvious, high-payback jobs for which they were created. But as those tasks are completed, the bureaucracies refuse to die. Instead, they invent ever more ingenious excuses to stay in business, whether by building dams in ever more dubious places or by regulating ever more trivial hazards.

For dams, at least, everyone agrees on the merits of weighing economic costs and benefits, even if pork-barrel politics all too often make calculations of feasibility irrelevant. But in the case of health and safety regulations, the very thought of benefit-cost analysis strikes environmental and labor activists—not to mention Congress—as a crass attempt to reduce human lives to dollars. Indeed, many laws explicitly bar federal agencies from considering cost issues when setting health standards.

That state of affairs suits proregulatory activists just fine. They can use moral appeals to demand more government controls on industry and commerce, avoiding intellectual challenges from economists and risk analysts.

All of which explains the furor that has greeted a dramatically new line of attack from the White House on regulatory excess: so-called risk-risk, or life-life, analysis. Championed by a small contingent of regulatory overseers at the Office of Management and Budget, risk-risk analysis posits startlingly that some regulations intended to save lives may actually put the public in danger. If so, the moral high ground shifts to those who question onerous new controls on industry.

OMB first delivered this bombshell on March 10 in a letter to the Occupational Safety and Health Administration, asking it to reconsider a proposed regulation extending air-contaminant standards to the agricultural, maritime, and construction industries. OMB's argument, which took OSHA by surprise, was that such costly regulations could threaten public health indirectly by reducing the public's wealth and income, ultimately killing more people than they would save.

Leaked to the media, this novel argument did not fare well. "They got really beaten up on the Hill, and got a well-deserved black eye in the press," observes David Vladeck, an attorney with Public Citizen in Washington, D.C. A congressional staffer speaks scathingly of the "little pointy-headed guys" in OMB who dreamed up this "cockeyed" analysis. Twelve Democratic senators, led by Howard Metzenbaum and Edward Kennedy, wrote President Bush on March 19 to protest this "dangerous" and "cruelly insensitive" OMB action.

Yet for all the bluster, OMB's theory—though needing further research and refinement—rests on highly plausible foundations.

There are, after all, numerous ways in which health and safety regulations can, quite unintentionally, backfire against the public. An overcautious Food and Drug Administration has killed people by delaying the introduction of new pharmaceuticals. Pesticide bans may drive up the cost of fruits and vegetables, worsening diets and thus health for the poor. Expensive airline-safety programs may inflate ticket prices, prompting people to take to the road, where risks are much greater.

The mechanism suggested by OMB is more subtle, based on the observation that, as the University of California's Aaron Wildavsky puts it, "wealthier is healthier" and "poorer is riskier."

Even casual examination establishes the fact that affluent people tend to live longer than poor ones. After scientifically demonstrating this correlation years ago in a study published in the American Economic Review, Irma Adelman noted, "It stands to reason that such factors as better nutrition, improved housing, healthier and more humane working conditions, and a somewhat more secure and less careworn mode of life, all of which accompany economic growth, must contribute to improvements in life expectancy."

With more money, people can see their doctor more often, buy safer cars, afford home-safety investments, move to a safer location, get a better education, and improve their physical and mental health in a host of other ways. Putting these general observations to work, Ralph Keeney, a professor of systems science at the University of Southern California, has tried to quantify the relationship between regulatory costs, which reduce personal wealth and income, and mortality. Using mortality and socioeconomic data gathered by other researchers, Keeney calculated that every $7.25 million in regulatory costs could plausibly cost one life.

That death is "statistical"—no one can ever single out who dies prematurely from income or wealth losses any more than anyone can ever identify for sure who dies from carcinogens in the environment. But the lives lost are real nonetheless.

Keeney's work wins theoretical support from a new, as yet unpublished, study by John Graham, head of the Center for Risk Analysis at Harvard, and two colleagues. They find a strong statistical link between long-term income trends and health. Graham notes that many regulatory costs, and therefore health effects, fall most heavily on the poor.

"We should be particularly concerned about whether the low-income and minority population ends up bearing a disproportionate share of the risk," he says. "If they do, it is very likely that we are killing more people than we are saving."

If Keeney's threshhold number—which he stresses was based on several assumptions and is therefore "for illustrative purposes only"—is anywhere close to the mark, regulations are indeed killing a lot of people. The Environmental Protection Agency estimates that the United States spent about $115 billion in 1990 on pollution controls, a number that is expected to rise to $185 billion (in 1990 dollars) by the turn of the century.

These are not trivial sums; indeed, they are more than the gross domestic product of many nations. No doubt such spending buys significant public-health and other benefits. Yet as the EPA admitted in 1990, "there has been little correlation between the relative resources dedicated to different environmental problems and the relative risks posed by those problems." In other words, the American people are not getting as much bang for the buck as they could.

Are they at least getting enough bang to save more lives than the regulations may cost? In many cases, almost certainly. But as OMB's John Morrall III noted in a 1986 journal article, federal agencies have proposed regulations which, by their own calculations, would cost as much as $72 billion per life saved. His representative list of regulations included no fewer than 9 final rules costing more than $25 million per life saved. Even if Keeney's model is off by a factor of three, these regulations are deadly indeed.

Proponents of specific regulations—including the OSHA standards that OMB questioned in March—argue that industry often inflates cost estimates of new mandates and underestimates the benefits. That may well be; even some skeptical risk analysts say that OSHA regulations on cotton dust and vinyl chloride cost less than expected and produced productivity gains along with health improvements.

But the point of risk-risk analysis is not to defeat all regulation. Rather it is to force regulators to acknowledge explicitly the trade-offs inherent in their rules. Risk-risk analysis sets a new standard for empirical investigation of the merits of ever more expensive government intrusions into the market.

The concept is winning cautious endorsement from some of the nation's top regulatory experts. While calling for further research on the exact relationship between cost and illness, Paul Portney, acting head of the Center for Risk Analysis at Resources for the Future, says, "OMB is right to begin to make regulatory agencies appreciate the fact that unnecessary or unnecessarily expensive regulation is not just costly to business, but takes a human toll."

Jonathan Marshall is economics editor of the San Francisco Chronicle.