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A welcome twist to government regulation

By Murray Weidenbaum / September 21, 2000



ST. LOUIS

On May 30, the United States Supreme Court took a technical action that is a very hopeful sign to those who are fans of using benefit-cost analysis in decisionmaking on government regulation. The court expanded its review of the Clean Air Act to include deciding whether the law requires the government to look beyond the public-health benefits of reducing air pollution and to consider the economic costs, too.

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The Supreme Court originally agreed to hear the Clinton administration's appeal of a ruling by a federal appeals court that the Clean Air Act, as interpreted by the Environmental Protection Agency (EPA), gave the agency excessively broad authority of a legislative nature. The lower court held that the broad authority assumed by the EPA amounted to an unconstitutional delegation by Congress of its lawmaking power.

Subsequently, the American Trucking Association asked the justices to look at the Clean Air Act in a different way, and the Supreme Court granted the requested appeal in May. This alternative approach - interpreting the EPA's rulemaking authority to include a requirement to do benefit-cost analysis - could bypass the entire question of excessive delegation of congressional power. Requiring the EPA to analyze the benefits and costs of regulation preserves the constitutionality of the Clean Air Act by limiting the agency's discretion in issuing regulations. The Justice Department unsuccessfully opposed the business appeal.

The basic issue involved in the Supreme Court review of the Clean Air Act is the standards issued by the EPA in 1997 for ozone and small airborne particles. The scientific basis for issuing the newer and tougher standards was criticized as very weak. The old standards were effective: The air was getting cleaner. Many analysts concluded that the additional benefits in terms of improving human health would be very modest compared with the large costs that would be imposed by the new standards.

The courts, however, didn't rule directly on the scientific basis for the standards. But if the EPA is required to analyze the benefits and the costs of the standards, there is a good chance that less burdensome standards would result. In any event, the basis for environmental regulation would broaden to include the question: Is the government doing more harm than good?

The debate over benefit-cost analysis is not just an issue of statistics or accounting. Should the business appeal prevail, more basic questions could be raised in the regulatory process: Is there a better way of achieving Congress's goals? What are the side effects of the proposed regulation? How will the new (or expanded) regulation relate to the existing and very substantial body of regulation? These issues are now going before the Supreme Court because, in 1980, a federal appeals court ruled that the EPA cannot consider any factor other than public health in carrying out the Clean Air Act.

A benefit-cost test, of course, is no panacea. The responsibility will still be on Congress to enact more realistic regulatory legislation in the first place. In numerous instances, the regulatory agency has too little, rather than too much, discretion and thus cannot select the most cost-effective way of achieving the objective. Yet the Supreme Court's willingness to take up the subject of benefit-cost analysis is a positive sign. The emotional attacks on this form of economic analysis ("How dare you put a dollar sign on a human life!") may not yet be behind us. Nevertheless, It would be a big advance in governmental decisionmaking if the critics would in turn be forced to wrestle with the more fundamental question: Are the regulators doing more harm than good?

The courts - and other decisionmakers - need to understand the limits of benefit-cost analysis. It is not a cost-minimization strategy. Frequently, a larger investment will show a higher benefit-to-cost ratio because it can generate more net benefit to the society than a smaller expenditure. The main value is to show how to make objective evaluations of essentially subjective actions, and thus narrow the area in which subjective forces dominate. The result would be that, if economically inefficient programs are adopted, government decisionmakers will know the price being paid for those actions.

Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University.

(c) Copyright 2000. The Christian Science Publishing Society