Lisa Heinzerling responds to Richard Revesz on cost-benefit analysis
The efficient wasteland
In his essay, Richard Revesz argues in favor of a “cost-benefit environmentalism” that embraces economic analysis and “uses both reason and compassion to justify strong environmental rules.” It is wonderful to have such a prominent fan of cost-benefit analysis explicitly embrace environmental values; this doesn’t happen every day. The trouble is, however, that cost-benefit analysis is at odds with fundamental premises of environmentalism, and it’s not particularly good at either reason or compassion.
Environmentalism has many subtleties and variations, but I think most environmentalists share certain core beliefs. They are convinced that the future matters — that we should protect the earth and its inhabitants into the indefinite future. They worry about other people and other living creatures and about their own complicity in causing others’ suffering through environmental degradation. They prefer concreteness over abstraction: They don’t just want to read about nature; they want to experience it. They understand the reasons that reason cannot know: the small shiver of joy upon seeing spring’s first warbler, the glimpse of the infinite in a summer storm.
These values are foreign to the cost-benefit mindset. Cost-benefit analysts insist — through use of an arcane technique called discounting — on treating the future as less important than the present. Sometimes, in fact, they effectively dismiss the future altogether. Cost-benefit analysts dismiss the altruist, explaining either that she does not exist or that she cannot know what is best for other people (even if that means saving them from dying). Cost-benefit analysts also speak in nothing but abstractions: Human lives are not human lives, but “statistical lives” [PDF] — a handy construct that allows economists to pretend that life itself is not at stake in debates over environmental policy. And shivers of joy and glimpses of the infinite do not appear in cost-benefit tables.
Cost-benefit analysis also produces results that are kin to neither reason nor compassion. Scientists around the world now urge us to act quickly to prevent catastrophic effects from climate change. Many economists soberly advise us to do nothing, or very little, because their calculations demonstrate that the future is worth very little, that people prefer warm weather to cold, and that humans in poor countries are not worth as much as humans in rich ones. These calculations are not the work of the radical fringe in economics; they come from highly regarded cost-benefit practitioners. But they are unreasonable and uncompassionate all the same.
Are environmentalists to blame?
Who is to blame for cost-benefit’s failings? One might first suspect industry, which has for decades promoted cost-benefit analysis to further its deregulatory program. One might also suspect the federal government, which has used cost-benefit as a veneer to cover a pro-business, anti-regulatory agenda.
But no, says Revesz, it’s actually the environmentalists who are to blame for the biases in cost-benefit analysis. Why? Because they haven’t shown up to argue for better cost-benefit analysis.
This is not true. Environmentalists have tried to make cost-benefit analysis less biased against the environment. I should know — I am one of them. For over a decade, much of my scholarship has been devoted both to making the case against cost-benefit analysis and to pointing out the ways in which the analysis could be improved. There are many others like me. We have written books, articles [PDF], comments to OMB on its cost-benefit approach [PDF], and comments to agencies [PDF] on the same subject. We have said that the federal government places too low a value on human life; that it devalues the future through discounting [PDF]; that it fixates on the costs and dismisses the benefits [PDF] of environmental protection; that it slights the worth of effects that cannot be counted [PDF]. It is no wonder that OMB hasn’t listened to us; its anti-regulatory bias is evident in everything from its failure to apply cost-benefit analysis to deregulatory measures to its assiduous efforts to lower the monetary value of a human life.
But Revesz and other cost-benefit proponents apparently haven’t heard us, either. Is it possible that environmentalists speak in a strange frequency that cost-benefit proponents cannot hear?
If we build it, will they come?
Revesz wants environmentalists to become more involved in cost-benefit analysis so they can root out the anti-regulatory biases that have crept into it over the years. He is too optimistic, in two ways.
First, Revesz appears to believe that cost-benefit analysis was, at one point, a neutral decision-making tool, but that over time it has been transformed into an anti-regulatory technique. But cost-benefit was never unbiased. Low values for human life, monstrously high discount rates, the shunting aside of effects that cannot be counted, a free pass for deregulatory activities — all of these have been with us since the beginning. Change is possible, of course, but in this case history suggests it will come exceedingly hard, if at all.
In addition, Revesz seems to think that the economic analysts at OMB and the agencies are unaware of cost-benefit’s biases and that they will scurry to correct them once environmentalists point them out. But the biases in cost-benefit analysis are not an oversight. They are the manifestations of an ingrained philosophy that is deeply hostile to environmentalists’ arguments.
That philosophy shuns regulation and embraces deregulation. OMB deploys cost-benefit analysis to defeat regulatory interventions, yet it dispenses with it entirely when agencies are deregulating. Thus cost-benefit analysis in regulatory policy today is a technique that works in one direction: against regulation. It is a device used to give a “scientific” veneer to a fundamentally political enterprise. It is a symptom of, not a solution to, the failed politics that Revesz decries.
Without a fundamental political change, it is unrealistic to hope that tinkering with the cost-benefit machinery — through, say, lower discount rates or higher values for human life — will meaningfully alter the anti-regulatory results cost-benefit analysis today always manages to obtain.
Less is more
Nevertheless, Revesz urges environmentalists to get on board the cost-benefit train. Cost-benefit “is not going away,” he says, because “it is simply necessary to anticipate the likely economic effects of large regulatory programs.”
On the contrary. Cost-benefit analysis of environmental programs is a way of losing information about their likely effects, not a way of gaining it. Consider the following facts, as found by EPA:
- The Clean Air Interstate Rule, which requires large reductions in sulfur dioxide and nitrogen oxide emissions, will save over 13,000 lives in the year 2010 alone.
- CAIR will also prevent 180,000 school days lost due to exacerbation of asthma.
Now consider those same facts, stated in cost-benefit terms:
- CAIR will produce almost $57 billion per year in life-saving benefits in the year 2010.
- CAIR will produce almost $8 million in educational benefits in 2010.
Doesn’t the second list give less information than the first? If you only had the second list, wouldn’t you want to know what the $57 billion in life-saving benefits represents? Wouldn’t you be interested to know that EPA has managed, in the last several years, to decrease the value of a life? Wouldn’t you also be curious to learn that most lost school days are valued at $0, and why? (Answer: It’s because the children’s mothers don’t work outside the home, so the cost of their children missing school is set at zero.) These are just some of the ways the cost-benefit process — despite its apparent abundance of information — actually loses information.
Cost-benefit analysis is a deeply flawed device that has never been the environmentalist’s friend. It impedes rather than aids understanding of the concrete consequences of regulations. It would behoove the next president — and all who value environmental protection — to do more than fiddle around the margins of old debates, and to question whether a decision-making framework that can stare environmental catastrophe in the face and declare it “efficient” is really the best we can do.