In the new issue of Regulation I review Retaking Rationality: How Cost Benefit Analysis Can Better Protect the Environment and Our Health by NYU’s Richard Revesz and Michael Livermore, a progressive defense of cost-benefit analysis, albeit reformed to make it more regulation-friendly. My review is available here (beginning on the third page of the PDF). Here is how I conclude:
Revesz and Livermore claim their reformswould yield “an administrative state that is more efficient and fair, and deliversmore environmental, health, and safety protection for less cost.” Who could be against that? They argue that “the most appropriate and natural role for cost-benefit analysis is to help find the regulatory sweet spot, the optimal point that is between not enough and too much.” Yet at other places, it is unclear whether their aimismore “neutral” regulatory analysis or simply more regulation. While they often stress the importance of “neutral” analysis, they also presume such analysis will produce particular results, and trumpet this claim to their presumably progressive audience.
They are correct to highlight the need to consider the distributional implications of regulatory decisions. But they ignore the broader ethical questions about when government intervention in private economic decisions is appropriate. Cost-benefit analysis can inform regulatory policy, but it is
insufficient to determine when regulation is itself desirable. It is a powerful tool that can enhance the understanding of a regulation’s likely effects, but it is also prone to misuse. It can provide a veneer of technical precisionto regulatory judgments and augment the political case for action.As the authors show, pro-regulatory interests could have much to gain by deploying a regulation-friendly cost-benefit analysis. Yet this will not make it any more “neutral,” nor will it ensure that better regulatory policies result.
bobc says:
As I always understood it, any cost-benefit analysis that includes an ethical question isn’t real cost-benefit analysis. For example, if someone steals your TV, that is a neutral transfer. The costs are the broken glass and the time he wasted breaking it.
January 12, 2010, 10:02 pmnewrouter says:
oh my lawyers arguing about types of regulation rather than working on eliminating or reducing regulation.
January 12, 2010, 10:31 pmAmerican Psikhushka says:
Lipstick on a pig.(No offense against actual pigs or lipstick manufacturers.)
From Bastiat’s “Seen and Unseen” essay we know that money taken in taxation weakens the private economy. Something tells me they aren’t going to start all “cost/benefit analyses” with:
“OK, we already weakened the private economy by taking people’s hard-earned wages and business profits to spend on our project, so it has to overcome that huge hurdle, which it likely won’t. And we won’t know what would have happened to the taxpayer money we took, perhaps someone might have started the next Microsoft, Apple, or Google with it.(At least they would have spent their money on goods and services that they actually wanted, supporting the companies that make the preferred goods and services at a given price.) Maybe we ought to just return it to who we took it from and call it a day.”
January 12, 2010, 10:49 pmfrankcross says:
bobc, that’s not quite right. It may be that CBA will or will not consider ethical violations. But ethical violations such as you posit will fail a CBA that does not. In addition to the broken glass and time, their is the reduced incentive to acquire TVs or the additional costs of security that result. Not much doubt that CBA would find this inefficient. Most moral issues have consequentialist rationale.
January 12, 2010, 10:55 pmBill says:
What would taking all this money be called…:
If you want the government to take your money….here is what is next.
The congress is looking at FORCING you to give up your 401k to them…they will then give you an annuity or treasury bills.
Now isn’t that sweet. They see that 11 TRILLION laying there in OUR accounts, and they want it.
Here are the articles on it.
http://market-ticker.denninger.net/archives/1830-401kIRA-Screw-Job-Coming.html
http://www.businessweek.com/news/2010-01-08/americans-oppose-initiatives-limiting-401-k-choices-ici-says.html
This leaves you almost breathless: These people are actually dangerous.
The country is already headed for somewhere between Argentina and Brazil status economically with these clowns.
That 11 Trillion dollars sitting there is too much of a temptation.
January 13, 2010, 1:11 amlgm says:
A conservative knows the cost of everything and the benefit of nothing.
January 13, 2010, 12:11 pm