How Much Do New Policies Really Cost Us?

-- By EliKeene - 13 Mar 2015

The Case Before the Court

On November 25, 2014, the Supreme Court granted cert to hear a challenge to the EPA’s new standards for regulating mercury emissions from power plants (the MATS Standards). In particular, the Court will ask whether the agency’s determination that the regulations were “appropriate and necessary” – as required by the Clean Air Act – should impliedly require the agency to consider costs to industry.

While cost-weighing is a daily personal finance task for most of us, at least four Justices appear poised to insist that balancing costs is essential to all government action. This stance is tremendously problematic for law and policy and results in two false conclusions. First, it advances an assumption that we can reduce every policy option into a dollar amount. And second, it leads us to believe that the value of money is entirely objective.

An Obsession with Costs

What is unusual about the MATS case is not the Court’s consideration of costs, but the fact that the EPA has stuck to and even prevailed on its position that “cost-effective” and “appropriate” mean two different things. Today, when national debt is soaring, the idea that no policy is worth undertaking unless it saves more money than it costs is stubbornly entrenched in American consciousness.

The debate over the Affordable Care Act provides a stark example. From liberals’ assertions that the ACA is fueling the American economic recovery, to conservatives’ claims that Obamacare will cost $1.5 trillion and kill 2.5 million jobs – the ACA’s economic implications have completely displaced its social impacts in public discourse.

The natural development of our cost-obsessiveness has been repeated attempts by government agencies and academic institutions to monetize human life. Recent studies have placed this value at $9.1 million, $3.6 million, and the more flexible figure of $129,000 per year (1). These figures are plugged into algorithms, producing fantastical estimates of how we monetize policy (such as the estimate provided by the EPA, without prejudice to its stance on the Clean Air Act, that the MATS Standards will produce between $37 and $90 billion a year in benefits). Armed with the mathematical certainty that only a $53 billion cost-range can provide, legislators and courts know which policies are “worth it” and which ones get cut.

The Trouble with Monetization

Imagine yourself in a hospital room. You have just watched your child lose a protracted battle with leukemia. Enter God from the heavens with a proposition. “I can bring your child back,” he tells you, “or I can pay you $3.6 million.”

The hypothetical is as meaningless as it is hackneyed, and that’s the point. There is no monetary value to life, because God is not going to descend from the heavens to give you the choice. Moreover, if he did, few among us would take the money (or, at the very least, admit to it).

This issue does not simply disappear when we put on our policy glasses. A government estimate that implementing Policy X will save us $100 billion at a cost of $10 billion tells us nothing about the actual impact of the policy. The truth of the matter is that our most advanced algorithms have no idea what they’re measuring. Projected lifetime earnings do not reflect the cost of watching your child die. Our most advanced computers cannot accurately model the long-term effects of current environmental stressors. And no one can put a dollar amount on what it means for a generation to grow up understanding that cheap power production was more important to us than forever tainting our drinking water and local food sources.

The Value of Money is Subjective

Even if we accept that we can assign a numerical dollar value to everything on earth, we must address a second problem – namely, that the value of money is not objective.

In its simplest form, we can understand this proposition as follows: the beggar who is given a $20 bill may ward off hunger for several days; the lawyer who is given a $20 bill likely exhibits no change whatsoever. Dollars give diminishing returns, and the more money we have, the less each dollar affects us.

The MATS case illustrates why this concept makes cost-weighing a disaster when applied to law and policy. Coal-fired power plants are concentrated not in the backyards of the multimillionaires who own them, but in poor communities populated largely by people of color. The mercury emitted by these plants falls locally, contaminating local water sources and animal life. In this situation there are two different types of costs – the costs to industry of implementing new standards, and the costs to the communities of not implementing them. But it is also clear that there is no scale that can weigh these costs, as they are not on the same plane of existence. What a dollar means to an industry bears no resemblance to what a dollar means to the impoverished family already struggling to make ends meet.

Asking the Right Questions

The compulsion to weigh costs is not going to go Modern society inculcates this idea into all of us, and our judges and politicians are no exception.

However, if we are forced to live in a world where every cost must be weighed, we should at least be asking the right questions.

First, instead of asking how much something costs versus how much benefit it produces, we have to start asking whether something can be accurately monetized. This forces us to grapple with a new level of complexity – examining social, moral, and personal aspects of every action

Second, when we do make a cost comparison, the question must be what the costs are as subjectively measured by the group that bears them. This is essential to understanding that an economic burden is not always accurately portrayed by a dollar amount.

It is these questions, better questions, that will allow us to move beyond thinking of costs-benefits in the context of numbers on a spreadsheet and toward an understanding of how policy-based change actually affects society.

I think the best way to improve the essay is to step back from its structure a bit.

You are using Michigan v. Environmental Protection Agency only as a convenient hook to hang a general argument on. You could save time and space by omitting it, unless it becomes the point of the next draft, rather than an occasion.

Your real effort is to argue against cost-benefit analysis in regulatory decision-making, not to discuss whether it should be required at all stages of a regulatory proceeding, which is the "issue" at stake in Michigan v. EPA. Your reasons are well-enough known, don't constitute a surprising set of criticisms, but also don't seem to have taken account of the usual responses. So the next draft should go up that next level, by dealing with the explanations predictably given when the arguments you are raising are raised. Obviously no one supposes that there is "a" value of a human life, whether in quantitative or qualitative terms. But how does abandoning the effort to force entities to internalize the social costs of their behavior by giving up on assigning values to intangible social harms provide us with better policy outcomes? Why is an indeterminate value superior to one assigned for the purpose of requiring entities in society to manage, individually as well as collectively, socially significant risks?

How does requiring certain forms of policy analysis to be made by government agencies prevent either agencies or the legislature from supplementing their view with analyses derived by other means and other parties? In a complex mass democracy, one should expect diversities thought-modes to follow from the diversity of participation. This by no means implies that the resources allocated by the public for development of policy internal to government should or could reflect all the thought-modes of participants in the public debate. Showing that cost-benefit analysis is incomplete seems to me only a partial response to the question you claim to be answering.