The Unpopularity of Cost-Benefit Analysis

If cost-benefit analysis (CBA) is really part of the furniture, you wouldn’t think recently departed OIRA Administrator Cass Sunstein would need to dedicate a column to convincing us it’s so. But there it is, and though Sunstein is now but a private citizen like the rest of us, the claims merit a response.

We’re told “cost-benefit analysis has become part of the informal constitution of the U.S. regulatory state,” but that’s some odd constitution – not approved by any legislative body (and often, in fact, at odds with the dictates of the U.S. Congress), followed very selectively, and adjusted quickly at the whims of pressure from powerful industries. Billed as a non-ideological analytical tool, CBA today is in fact the opposite: questionable value judgments masked as technical calculations, all used as window-dressing to block rules that benefit the public but upset powerful industries.

Big industries and conservative think tanks spent years pushing CBA. It never made sense for the public. Cost-benefit says, for example, that a polluter can’t foul a waterway and kill a couple people along the way, unless it makes a whole lot of money doing it. It pretended that the costs and benefits are being put on the same one actor (society). In reality, one party (the polluter) had already put costs on the other (the public). Regulations seek to address that, but CBA starts with the premise that the polluters have the right to inflict the costs – a convenient starting point for a bargain.

Regulatory victories today aren’t due to CBA; they’re in spite of it. The Obama Administration’s new fuel economy standards are a great public policy advance, for example. And the administration points out that the benefits far outweigh the costs (and that’s while barely counting benefits from reducing greenhouse gas pollution). But the rule isn’t happening because of CBA; the administration rolled out the basic plans for the rules last year after negotiations with the auto industry, and the CBA was tacked on later. A CBA conducted before the political announcement, and recognizing a more realistic social cost of carbon, might have dictated a more stringent rule, if net benefits were to be maximized. Or, in other words, CBA is window dressing, not decision-making—in many contexts, providing full employment to economists but no advantage for the public

In truth, CBA is used selectively as a tool to block regulations that raise costs for industries, in a process that is the opposite of transparency. It is almost never used to strengthen public protections. On the occasions that it finds out what’s going on, the public is generally unimpressed; even the Bush Administration backed down when its agencies were found valuing the lives of seniors less than the lives of younger people. That practice has fallen out of favor because the public rejected it – against the recommendations of the CBA true-believers. Cost-benefit is not a science if you can just pull back on some part of the dirty math that the public finds out about, and continue with using numbers you previously said didn’t make sense.

Because CBA is so unpopular, it remains off-limits in broad swaths of public policy. After the September 11^th attacks, no major politician was saying, “3000 lives times $8 million per life – so let’s spend no more than $24 billion in preventing another attack.” Similarly, the idea of applying CBA to end-of-life medical care decisions was so politically unpopular (“death panels”) that almost no politician supports it; this administration spent months repeating its non-interest in such a CBA policy (which of course it had never called for in the first place).

Even many of CBA’s fiercest advocates, willing to jettison public health benefits if they might add cost for companies, maintain a selective public embrace of the policy. And few, if any, have called for having OIRA’s work itself subject to CBA. Who wants a CBA if you’re not certain you can make it affirm the political case you are trying to make?