Retaking Rationality: How Cost Benefit Analysis Can Better Protect the Environment and Our Health.

AuthorDeMuth, Christopher C.
PositionBook review

RETAKING RATIONALITY: HOW COST-BENEFIT ANALYSIS CAN BETTER PROTECT THE ENVIRONMENT AND OUR HEALTH. By Richard L. Revesz & Michael A. Livermore. New York: Oxford University Press. 2008. Pp. viii, 254. $34.95

INTRODUCTION

Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health, by Richard L. Revesz and Michael A. Livermore, aims to convince those who favor more government regulation--in particular environmental groups--that they should embrace cost-benefit analysis and turn it to their purposes. Coauthored by a prominent law school dean and a recent student with a background in environmental advocacy,' the book is a jarring combination of roundhouse political polemics and careful academic argument. Sweeping pronouncements are followed by qualifications that leave the sweep of the pronouncements in doubt--rather like the give-and-take of the law school classroom where the work may have originated. The result cannot be judged a success either as polemic or scholarship, but the effort is highly instructive--often unintentionally--regarding the uses, limitations, and politics of cost-benefit analysis in regulatory policymaking. (2)

The argument of Retaking Rationality is that cost-benefit analysis is a valuable tool for calibrating health, safety, and environmental regulation and making bureaucratic decisionmaking more transparent and accountable, but has been perverted into a tool for weakening regulation, thereby degrading the environment and endangering public health and safety. (3) In the book's account, Republican administrations--those of Ronald Reagan, George H.W. Bush, and George W. Bush--are "conservative" and "antiregulation" and use cost-benefit analysis to block regulatory protections at the behest of corporate interests, while Democratic administrations--those of Bill Clinton and, the authors adumbrate, Barack Obama--are "progressive" and "proregulation" and use cost-benefit analysis in a "neutral" fashion to improve the substance of policy. (4) The problem is that the conservatives and business interests have been so adept at twisting cost-benefit analysis into an antiregulation weapon that environmental, consumer, and labor organizations have come to oppose the very idea of assessing regulatory benefits and costs. As a result, when progressives are in office and in a position to set things straight, proregulation groups continue to sit out the cost-benefit debates. Their boycott is shortsighted for two reasons. First, cost-benefit analysis is here to stay, entrenched in many statutes and judicial precedents. Second, when purged of the analytical "fallacies" introduced by conservatives, cost-benefit analysis is a powerful tool for more aggressive regulation--properly understood, it is proregulation not antiregulation. "Retaking rationality" means ending the boycott and restoring the neutral, beneficial principles that have been hijacked:

This is the responsibility of proregulatory interests groups [sic], as well as citizens and voters participating in democratic politics. By holding our leaders to a restored vision of cost-benefit analysis, we can make up for the damage that has been done to the technique, and allow it to serve a useful role in improving regulatory decisionmaking--and therefore our environment, our public health, and our economic prosperity. (p. 51) Within this stark narrative structure, the intellectual heart of the book is a debunking of "Eight Fallacies of Cost-Benefit Analysis" perpetrated by antiregulation conservatives and a demonstration of how correct analysis will lead to stricter government controls. A final section criticizes the procedure conservatives have used to block worthwhile regulations with their fallacious theories--central review of agency rulemaking by the Office of Information and Regulatory Affairs ("OIRA") within the Office of Management and Budget ("OMB")--and suggests how OIRA review could be made more regulation friendly.

This Review follows the structure of Retaking Rationality. In Part I we criticize the book's narrative (summarized above) as cartoonish and unhistorical--we think it is confusing rather than helpful to understanding recent developments and controversies in cost-benefit analysis and the organization of regulatory decisionmaking within the executive branch. In Part II we consider the book's "Eight Fallacies of Cost-Benefit Analysis." We find that these discussions are generally well informed and interesting but suffer from the effort to squeeze cost-benefit issues into the antiregulation-versus-proregulation narrative; moreover the discussions are often excessively abstract and ambitious concerning the function of cost-benefit analysis, and they entirely fail to support the thesis that cost-benefit fallacies have been used to defeat beneficial regulations. Finally, in Part III we discuss the authors' arguments about the need for and practice of OMB/OIRA oversight of agency rulemaking. Here we criticize as naive the book's argument that there is no need for an institutional counterweight to agency parochialism and that OIRA's role should be recast as one of coordination, calibration, and promotion of a proregulatory agenda against the forces of agency sloth. A concluding Part sums up our arguments.

  1. THE NARRATIVE

    There are two serious problems with the Retaking Rationality narrative. The first is that it portrays regulatory policymaking as much more partisan than it is. Although government regulation is sometimes the subject of partisan contention during election seasons, (5) in practice it is largely the domain of interest-group politics and interbranch rivalry between the president and Congress rather than of deep partisan or philosophical divides.

    Among academics, there is much less disagreement between liberals and conservatives over regulatory policy than over taxation, entitlement, and health-care and insurance policy. Across the spectrum, academic students of regulation tend to favor deregulation when it comes to price and entry controls in competitive markets (the sorts of things the Civil Aeronautics Board used to do before its abolition at the hands of Edward Kennedy, Stephen Breyer, and Alfred Kahn), and "regulatory reform" when it comes to environmental, health, and safety regulation. (6) "Regulatory reform" means, inter alia, preferring market-incentive over command-and-control techniques, regulating outputs rather than inputs, and using cost-benefit analysis to set regulatory standards and priorities; many distinguished academic liberals as well as conservatives have contributed to this literature, as Revesz and Livermore acknowledge at various points. (7) The purpose of these reforms is to make regulation more effective and productive--to counter the influence of narrow interest groups in bending rules to their selfish advantage, to avoid policies that are wasteful or counterproductive, and to get more environmental bang for the policy buck. There are important differences among academics concerning health and safety standards in competitive markets--such as pharmaceutical, automobile safety, and workplace health and safety controls--where conservatives tend to see redundancy with market incentives and harmful "unintended consequences" and liberals tend to see needed adjustments and backstops to the marketplace. (8) But the primary focus of Retaking Rationality is environmental regulation, where the government is providing public goods for which there is little effective market demand and where there is little academic disagreement about the need for regulation. (9)

    Among practicing politicians, Republicans are no doubt more attentive to business interests, more sympathetic to private markets, and more skeptical about the need for regulation, while Democrats are more attentive to labor interests, more skeptical about private markets, and more sympathetic to regulation. But in environmental and health regulation, the record across administrations is much more one of continuity than of the lurches that characterize tax and health-care policy; and disagreements between the White House (not only OMB/OIRA but also the Council of Economic Advisors ("CEA")) and the regulatory agencies have been a bipartisan phenomenon. Revesz and Livermore emphasize what they regard as Republican misdeeds and Democratic good deeds, but they could have told a different story. Richard Nixon created the Environmental Protection Agency ("EPA") by Executive Order, banned DDT, and proposed a national tax on sulfur dioxide emissions ignored by a Democratic Congress. (10) Jimmy Carter launched the Regulatory Analysis Review Group ("RARG")--the White House precursor to OIRA--which tangled with the EPA, the Occupational Safety and Health Administration ("OSHA"), and other agencies over new regulations, and signed the legislation creating OIRA (the Paperwork Reduction Act of 1980 (11)--brainchild of Democratic Senators Lawton Chiles and Lloyd Bentsen) over the vehement opposition of his cabinet officers. (12) Ronald Reagan was the most "antiregulation" of recent presidents--and his EPA (during the tenures of William Ruckelshaus and Lee Thomas, following the Anne Gorsuch Superfund scandal) tightened the gasoline lead-phasedown and many other EPA rules and was notably aggressive in environmental enforcement. (13) George H.W. Bush championed and won many improvements to the Clean Air Act, including the sulfur dioxide cap-and-trade program that Revesz and Livermore heartily approve. (14) Bill Clinton was the most "proregulation" of recent presidents--and his OIRA and CEA inveighed forcefully (although with only modest effect) against many EPA actions, notably the Agency's National Ambient Air Quality Standards for ozone and particulates, which they regarded as excessively strict and costly, and the EPA's official reports on the benefits and costs of air pollution rules. (15) George W. Bush championed and...

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