Safety Regulators Don’t Add Costs.
They Decide Who Pays Them.
ROBERT S. ADLER
THERE’S a lot of talk in Washington these days about the importance of cost-benefit analysis. The House of Representatives recently approved a bill to create an independent committee to conduct cost-benefit analyses of some highly controversial regulations proposed by the Environmental Protection Agency, ignoring the fact that the agency already does its own analyses. So, for that matter, do all executive agencies, under a directive issued by President Obama last January reaffirming the administration’s commitment to that approach.
I support the president’s initiative, but not all voices raised on this issue have been as thoughtful as his. To the contrary, we at the Consumer Product Safety Commission and our sister health and safety agencies have faced a barrage of calls from some politicians and business interests to cut back “oppressive” and “job killing” regulations in order to “jump-start” the nation’s stalled economy. And the way to do this, we are told, is to subject everything we do to elaborate cost-benefit analysis.
What many of our critics really want to do is to stop government from regulating, period. They are invoking cost-benefit analysis as their weapon of choice — and to impose “paralysis by analysis.”
Unfortunately, they ignore a vital point: health and safety agencies rarely impose new costs on society when we issue safety regulations. We simply re-allocate who pays the costs.
Think about it: when we write a safety rule, we do so to eliminate or reduce deaths and injuries that consumers suffer daily in product-related accidents. The commission estimates that roughly 31,000 people die and 34 million people suffer product-related injuries every year. These deaths and injuries impose significant costs on consumers — roughly $200 billion annually. They do so first as household tragedies and then as higher premiums for health insurance (or higher taxes to pay for the uninsured). Moreover, product-related tragedies almost always result in lost economic productivity.
Anyone who insists that regulations necessarily impose new costs on society shouldn’t be taken seriously. The costs are already there, in the form of deaths and injuries — and are often as much of a drag on our economy as any safety rule. So the real issue is who should bear the costs.
For example, we recently required manufacturers to make sturdier cribs to eliminate the predictable deaths from suffocation caused when infants slip between flimsy slats and crib mattresses. In doing so, we may well have increased the costs of making cribs for companies that had not previously taken adequate safety measures. And, yes, our safety rule might increase the price of some cribs to consumers. But these are not new societal costs; they are simply costs that those manufacturers had previously offloaded on innocent, vulnerable children. Our rule makes manufacturers price their products in a fairer, more accurate way.
More than 40 years ago, Guido Calabresi, a giant in the field of law and economics, argued that a truly rational approach to injury reduction would move selected accident costs into manufacturers’ production budgets rather than impose them on the public at large. This makes particular sense where even careful consumers cannot easily avoid the accidents. One of his suggested solutions was to use the tort system to impose those costs, but regulation certainly is another method.
I don’t claim that Judge Calabresi, a former dean of Yale Law School who is now a senior judge on the United States Court of Appeals for the Second Circuit, would endorse every safety rule that we have written, or believe that making manufacturers internalize every accident cost that they impose on society always optimizes injury reduction. But his advice is as wise today as it was decades ago. And applying his wisdom, one sees pure fantasy in the idea that eliminating vital safety regulations would miraculously eradicate societal costs.
Not all regulation is bad, nor is it always more costly. And one of the ways to ensure that our safety rules are cost-effective is to use thoughtful cost-benefit analysis. So, I don’t quarrel with the president’s cost-benefit executive order, especially because it explicitly permits agencies to consider values that are difficult or impossible to quantify, including “equity, human dignity, fairness, and distributive impacts” in their cost-benefit calculations.
My objection is that many of those who insist on cost-benefit analysis have no interest whatsoever in making regulation more focused and rational. In their world, costs to business are the only measure; benefits to consumers somehow never make it to the table. Unfortunately, that’s misleading and unfair. Someone always pays.
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