National Security Spending Doesn't Have to Clear Cost-Benefit Test, Obama Administration Confirms. But Health Regulations?

by James Goodwin

Issues of national security have always enjoyed a free pass when it comes to the use of cost-benefit analysis (CBA) as the primary form of making decisions.  For example, no military official or politician interested in keeping his job would ever dare publicly question whether the additional money spent on extra armor for tanks to keep soldiers safer could be put to better use somewhere else.

There are plenty of reasons why we are willing to accord national security decisions this special treatment.  For one thing, as Ezra Klein noted recently, “we're uncomfortable subjecting military demands to traditional economic analysis.”  Using CBA for military decisions necessarily puts us in a difficult ethical position:  It seeks to prioritize the goal of “efficiency” over values that many Americans hold truly sacred, such as the duty of protecting the lives of our soldiers.  These values often represent moral absolutes on which we aren't willing to compromise—particularly for the sake of efficiency.  Thus, I don't think many people are willing to accept that there is an economically “optimal” amount of soldiers’ deaths.  If a soldier’s life is priceless, every reasonable measure should be taken to protect these lives.

But there are practical reasons for opposing the use of CBA in national security decision-making, as well.  Every year, the White House Office of Management and Budget (OMB) produces its annual Report to Congress on the Benefits and Costs of Regulations, which, among other things, seeks to provide an “estimate of the total benefits and costs of regulations reviewed by OMB,” both for the past fiscal year and for the past ten-year period.  Every year, however, these reports exclude from consideration virtually all regulations adopted by the Department of Homeland Security.  As the reports explain, this exclusion is necessary because “The benefits of homeland security regulation are a function of the likelihood and severity of a hypothetical future terrorist attack; on both issues, judgments are conjectural. For this reason, such benefits are very difficult to forecast, quantify, and monetize.”

This year’s report—released in draft on Monday and the first of the Obama Administration—is no different.  It fails to monetize the benefits for two of the three Department of Homeland Security regulations from the previous fiscal year, and thus foregoes any effort to determine whether the costs of these regulations outweigh their benefits.

But these reasons for rejecting the use of CBA for national security decision-making apply with equal force to decisions regarding health, safety, and environmental regulations.  These regulations implicate cherished values, such as protecting human lives in the face of involuntary hazards and preserving the natural environment for future generations to enjoy.  These regulations also seek to produce benefits that are no less impossible “to forecast, quantify, and monetize.”  Indeed, the various IPCC reports are replete with analyses attempting to predict the “likelihood and severity” of global climate change and its effects on people and the environment.  If CBA is inappropriate for national security decisions, then it must be inappropriate in the context of environmental, health, and safety regulation as well—there really is no principled way to distinguish between the two.

For too long, CBA's defenders have attempted to portray it as a one-size-fits-all approach to resolving any problem that comes before a governmental decision-maker.  As the issues of national security and of environmental, health, and safety risks demonstrate, CBA is inadequate to the task when it comes to situations involving multidimensional decisions.  Unfortunately, these are exactly the kinds of decisions that people expect government to make all the time.  One wonders why the overreliance on this flawed approach to regulatory decision is permitted to persist.



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