I HAVE THIS recurring nightmare. Jonas Salk has just announced his cure for polio. A bill is introduced in Congress to require mandatory inoculation of school children under HEW direction. Opposition then appears. Ronald Reagan urges "free choice by parents rather than compulsion by government." Mobil runs advertisements with the headline, "From gas tanks to bloodstreams. Where will government go next?" An associate professor of economics does a study for the American Enterprise Institute demonstrating that more lives may be lost by car accidents en route to doctors' offices than will be saved by the Salk vaccine. Abbott Labs argues that its product, "Polioaide," has been effective since thousands of doctors have been prescribing it for two decades. The bill then fails in the House Commerce Committee by one vote -- after the wheelchair industry, citing job losses, gives $200,000 in campaign gifts to committee members.
Farfetched? Perhaps. But as one reads the flood of advertisements, speeches, articles and rhetoric denouncing "big government" and the "costs of regulation," reality and caricature seem to merge. Mobil decries a "national orgy of regulation." The Wall Street Journal attributes the decline of American industry to "berserk proceduralism." Time editorializes against "straitjacket rules imposed by a bulging bureaucracy [that] lift unemployment, slow technical progress, reduce U.S. competitiveness, hamper exports..."
To be sure, any government that has acted like a cartel in fixing trucking and airline rates or that mandates the height off the floor for fire extinguishers needs critics who can distinguish between rules that save lives and those that save face. Unfortunately, today's debate over health and safety regulation lacks this sense of discrimination. Instead, it burns incense to supposedly neutral "cost-benefit analysis" and manages to neglect the actual benefits of consumer and environmental regulation.
Given the current state of economic art, mathematical cost-benefit analyses are about as neutral as voter literacy tests in the Old South. They are often ideological documents designed to prove preconceived notions. Or, as a Library of Congress review has said of them, "they tend to support the vested interest of the sponsor of the estimate or to fit the hypothesis of the individual making the estimate."
A Checken Little Syndrome
CONSIDER environmental regulation. Who controls information about its costs? The regulated industry, of course. The result, not surprisingly, is that we end up with regulatory-cost estimates based on what might be called the Chicken Little School of Economic Analysis.
In the early 1970s, for example, chemical manufacturers announced that a proposed federal standard on vinyl chloride, a proven cause of cancer, could cost 2 million jobs and $65 billion to $90 billion. "The standard is simply beyond the compliance capability of the industry," their trade association declared. The standard was adopted and the industry has flourished -- without any job losses and at a cost that is one-twentieth of the original industry estimate.
Similarly, in one of a growing number of regulatory battles within the Carter administration, Energy Secretary James Schesinger recently suggested that Labor Secretary Ray Marshall block a proposed worker exposure standard for beryllium, another known carcinogen, because of its supposed $150 million cost. Energy officials later conceded that their estimate was derived from "a gross estimate based on rule of thumb" -- provided by ther than beryllium manufacturers.
For one more of numerous examples, the Securities and Exchange Commission has a curious case pending against U.S. Steel: The company allegedly has established two estimates for the cost of meeting certain pollution standards -- a higher estimate issued publicly and a lower one sent to the SEC.
To believe that business-dominated cost-benefit studies should control regulatory decisions is about as sophisticated as a lawsuit should also be the judge.
Inflated cost-benefit studies and the intensity of business propaganda against consumer and environmental regulation might lead a celestial visitor to wonder why we tolerate such stupidity. We seem to have suffered a kind of collective amnesia about exactly why we have these regulatory agencies.
A few years ago the Cuyahoga River in Ohio caught fire. One thousand Americans a day die of cancer, much of it environmentally caused. Auto crashes took 47,000 lives and caused over 3 million injuries in 1977. One out of every 11 workers in the private economy had a job-related injury or illness in 1976. Women around the Love Canal in upstate New York, one of 638 known sites of hazardous wastes, have experienced unusually high miscarriage and birth defect rates.
So, although the debate over regulation has somehow focused on how OSHA dictates the shape of toilet seats, there are clearly more fundamental issues at stake.
While the competitive marketplace can be an engine of efficiency, it was not designed to tell consumers which car might have a steering defect, which drug has dangerous side effects, what product unduly pollutes. In addition, what each of us buys affects others. My car pollutes your bedroom. The plane I travel in envelops you in jet noise. I am a voluntary consumer; without federal standards, in these instances, you would be an involuntary consumer.
Federal regulation can be viewed as a contract between consumers and business -- with the government as mediator -- in which consumers agree to a market economy if business avoids unnecessary injury and death. It establishes minimum conditions for humane capitalism.So, while the public may moan about regulation in general, as it moans about paying insurance premiums, both are viewed as necessary protection against possible harm.
Indeed, California voters approved $375 million for pollution controls on the same ballot that contained Proposition 13. Polls by even the business-oriented Opinion Research Corp. have indicated public support for regulation to protect worker health and safety (by 4 to 1), product safety (3 to 1) and the environment (2 to 1).
This popularity is well rooted in the measurable benefits of health and safety regulation. In many cases, regulation has stimulated innovation in often rigid, unimaginative industries.
Before the Food and Drug Administration banned spray cans using fluorocarbons, the industry said there was no alternative. The day after the ban went into effect, the country had a new pump spray that didn't use fluorocarbons and that was cheaper than aerosol cans. After Washington imposed strict safety standards for car bumpers, auto engineers developed bumpers developed bumpers that are far stronger and lighter -- and that save consumers an average $100 in repair costs over the life of their car.
A 1975 study of five industries in five countries by MIT's Center for Policy Alternatives concluded that, in the area of health and safety regulation, "forcing firms to implement product or process changes oftentimes incidentally shocks them out of a rather inflexible production system and thereby provides the catalyst which is necessary for innovation to occur."
Regulation has also produced jobs. Although the Environmental Protection Agency estimates that 20,000 jobs have been lost in plants that could not meet environmental standards, the number of direct jobs created by pollution control expenditures is 600,000. The interior minister of West Germany, one of the world's most productive countries, told a U.S. audience this year: "The expenditures for pollution control contribute decisively to the growth of our economy and create or maintain hundreds of thousands of jobs each year."
Due to product safety standards, there has been a 40 percent drop in infant deaths from crib strangulation and swallowed poisons. An estimated 200,000 Americans alive today would be dead if Washington hadn't been regulating car and highway safety since the late 1960s. By 1985, federal fuel economy standards for cars will be saving 15 billion gallons of gasoline annually, or $640 per car over the life of the vehicle.
Although industrialists almost invariably oppose new government regulations, at times they also grudgingly concede that rules they once denounced make a profound difference. Fletcher Byrom, chairman of the Koppers Co., for example, recently told a business audience that "you and I know that the market system would not give us environmental protection, worker safety and health. These are not economic things... they add value, not wealth; the only way to improve the quality of life is through intevention."
THIS IS to say nothing about the benefits of regulation that involve immeasurable or moral considerations. What is the price tag for lives saved by avoiding future diseases, since absestos and other substances in our lives today cause cancer in 30 years? How much will you pay for a 6-year-old who is not disfigured from flammable sleepwear? How do we calculate the exact benefits of being able to see across the Grand Canyon, of avoiding needless destruction of recreational areas?
Some social scientists are indeed attempting to put a price on human life. One of their prominent techniques, for instance, tries to peg the value of a life merely by what a person would have earned in the future.
Even when one looks to mathematical pricers of human life, what one finds are wildly varying numbers. The National Highway Traffic Safety Administration prices a life at $270,000, a University of Rochester analysis at $350,000, a Cornell study at $1.5 million and an American Enterprise Institute report at $2.5 million.
Even if these numbers were more precise, regulation often involves non-economic goals. Society might desire regulation where the calculable costs exceed the calculable benefits because of the standards' redistributive effect: say the costs are shifted from hardpressed workers to relatively well-off stockholders.
Moreover, if the cost of, say, saving a worker's arm approximates the economic "benefit" to him, would any sane person doubt that the arm should be saved? Many, if not most, aspects of life can never be, and should never be, decided by the economists' yardstick. The abolition of slavery or child-labor laws certainly would never have passed a cost-benefit test.
The Jaundiced Eye
NOR DO problems with cost-benefit studies stop with benefits that are ignored or that cannot be measured with numbers. Several prominent studies that try to document the wastefulness of federal regulation inadvertently demonstrate the adage that all looks yellow to the jaundiced eye.
An analysis by Chase Econometrics, for example, asserts that environmental regulation will account for an average 0.3 to 0.4 points of the annual increase in consumer prices in the 1970-1983 period. Unfortunately, the study is based on gross cost, not net costs. As Sen. Gary Hart (D-Colo.) complained of the Chase study, it is "irresponsible to discuss costs of pollution control without comparing them to benefits."
In other words, sulphur oxide and particle emission standards from stationary sources may cost $9.5 billion this year, as Lester Lave and Eugene Seskin estimate in a recent book. But the standards will also save an estimated $16.1 billion just in health outlays, which have been playing a large role in fueling inflation. By their calculations, the anti-pollution standards are deflationary, not inflationary.
Even taking Chase's numbers at face value, a significant 20 percent reduction in regulatory costs would only lower the annual rate of increase in the cost of living index by one-tenth of a percentage point. Any reduction in inflation is not to be disparaged, but the contribution of regulation to the problem is relatively modest -- probably less than the contribution of pricefixing, trade barriers, natural gas deregulation, the depreciation of the dollar or the latest OPEC price increase.
In another well-known study, Sam Peltzman, an economist at the University of Chicago, has declared that the 1962 drug safety amendments cost consumers $250 million to $350 million due to depressed innovation and delays in getting useful drugs on the market. "It sounds shocking to say that the net effect of having some thalidomides is a gain," Peltzman told a congressional hearing, "but that's unfortunately the way the world works."
Peltzman's case rests on his determination that new drug applications fell 60 percent after the 1962 act, a drop he attributes to the law.But new drug applications are hardly a measure of good drug therapy. Companies seek approval of new drugs that are minor variations of existing drugs in order to extend an old patent under a new name. Dr. Henry Simmons, director of the FDA's Bureau of Drugs, concluded in 1973 that "the rate of development and marketing of truly important, significant and unique therapeutic entities in this country has remained relatively stable over the last 22 years, numbering five to seven drugs per year."
Undaunted, Peltzman assumes that doctors kept informed of the value or danger of drugs before 1962 via what could be called "learning by experience." Perhaps he has in mind the 107 deaths in 1937 caused by the inadequately tested drug elixir sulfanidamide, after which alert doctors probably stopped prescribing the drug. "By your judgment, a drug is important because it is widely used and misused?" Sen. Gaylord Nelson asked in congressional hearings. Peltzman replied, "Senator, I think you've pointed out some of the problems with this sort of methodology." Indeed.
For these and other reasons, the General Accounting Office, the Council on Environmental Quality, the Congressional Research Service, the Senate Governmental Affairs Committee and the House Oversight and Investigations subcommittee have all disparaged the value of mathematical cost-benefit tests.
In the words of the House subcommittee, "the limitations on the usefulness of benefit-cost analysis in the context of health, safety and environmental regulatory decision are so severe that they militate against its use altogether." In a recent report the Senate committee concluded that "while agencies should be required to project and consider costs, benefits and alternatives, that analysis must not be considered a final determinant of whether an action should be taken. The difficulty of quantifying costs and benefits and the appropriateness of applying economic statistical analysis to health and safety areas must be recognized."
A Critical Choice
DESPITE the obvious benefits of health and safety regulation and the problems of mathematical costbenefit studies, the business war against regulation is beginning to have a public policy impact.
"People like Strauss, Blumenthal and Kreps go around the country to business groups who well at them about regulation," said one White House aide. "Then they come back to meetings here and relate their selective experiences. It shapes all the discussions." A leading Carter regulator recently commented that "it's one thing to spend my time fighting with business or public interest groups, but now I also spend a lot of time fighting this administration."
The "fight" is a periodic one pitting the administration's regulators against such powers as chief economic adviser Charles Schultze, Treasury Secretary Michael Blumenthal, Commerce Secretary Juanita Kreps, trade negotiator Robert Strauss and wage-price watcher Barry Bosworth. The arena keeps shifting -- from cotton dust standards, to strip-mining regulations, to carcinogen standards at OSHA -- but the fundamental issue is the same: Should health and safety regulation be sacrificed to the anti-inflation campaign, based on the false specificity of existing cost-benefit analysis?
Obviously, before implementing any proposed legislation, officials should attempt to estimate or at least specify the desired benefits, to minimize the costs of compliance and to consider alternative routes to the same goal. This general "impact review" is the basis of a "regulatory reform" bill about to be introduced by the chairman and ranking Republican of the Senate Governmental Affairs Committee, Abraham Ribicoff and Charles Percy.
The legislation would require agencies to conduct and publish such a review when introducing and implementing any rule; it would speed up agency decision-making by reforming the Administrative Procedure Act; it would increase public participation as agencies make regulatory decisions; it would strengthen the subpoena power of regulators to understand better the community they are regulating. This approach emphasizes that health and safety regulation should be improved, not abolished.
The Carter administration too is now formulating its own regulatory reform bill. As the Office of Management and Budget drafts this version, it has two possible models in mind. It could be stampeded by the kind of business propaganda that is trying to make citizens hate their government, that objects not when regulation fails but when it works too well. Or it could heed the words of Jimmy Carter who, early in his presidency, announced that "the test of any government is not how popular it is with the powerful, but how honestly and fairly it deals with those who must depend on it."
The choice is between the president as a cost-benefit econometrician or as a tribune for the victims of marketplace abuse. And the next Salk vaccine may depend on the outcome.