The Price of Everything - Eduardo Porter [21]
In 2006 the Consumer Product Safety Commission approved a new flammability standard for mattresses on the basis that it would save 1.08 lives and prevent 5.23 injuries per million mattresses. Valuing each life at $5 million and each injury at $150,000, it concluded that the benefits would amount to $51.25 per mattress. The cost to industry from the change would amount to only $15.07, so it was worth the expense. By contrast, nearly two decades earlier a panel of the National Academy of Sciences contracted by the Department of Transportation recommended against a federal mandate to require seat belts in all school buses on the grounds that this would save one life a year, at a cost of $40 million apiece.
Measuring up costs against benefits is indispensable in a world where limited funds must be allocated between competing priorities. Still, it inevitably challenges people’s beliefs of what’s reasonable or fair. Cost-benefit analysis has come under withering criticism from consumer safety advocates and environmental activists who tend to believe that we should protect the world’s natural bounty at any cost. In the United States, the Clean Air Act of 1970 explicitly forbade the Environmental Protection Agency from taking into account the costs of compliance when setting air quality standards.
A 1958 amendment to the Federal Food, Drug, and Cosmetic Act sponsored by New York congressman James Delaney required that food have no trace of any additive known to induce cancer in humans or animals, regardless of the cost of removing it or of the magnitude of the risk of contracting cancer by ingesting it. Until the Food Quality Protection Act of 1996 loosened the restrictions, the Delaney Clause implicitly accepted that protecting a consumer from food-borne carcinogens was worth an unlimited amount of money.
Opponents of tallying the costs and benefits of government interventions focus on the inherent uncertainty involved in putting a price tag on an ecosystem, or estimating the benefit in dollars of a decline in the risk of contracting cancer. In the United States, critics remember how cost-benefit analysis was deployed in the 1980s during the administration of President Ronald Reagan, a strong-willed free marketeer who flat out opposed government meddling in the economy. During his first inaugural address in 1981, Reagan stated: “Government is not the solution to our problem; government is the problem.” Shortly thereafter he determined by executive order that all federal regulations would have to be submitted to cost-benefit analysis to determine whether they were providing value for money, and used these evaluations in a systematic campaign to dismantle regulations across the board.
But the alternative to cost-benefit analysis is resource allocation by fiat. In the seven years that followed the attacks on September 11 of 2001, the United States government spent $300 billion bolstering its homeland security apparatus. Yet an analysis of the number of deaths likely to be averted by foiling potential future attacks concluded that the cost of each life saved by this bulging security investment came somewhere between $64 million and $600 million.
As a reaction to the attacks, Australia deployed about 130 air marshals on domestic and international flights, at a cost of about 27 million Australian dollars a year. The marshals were not entirely useless. They were called upon to act once, to wrestle down a sixty-eight-year-old man with a knife on a flight between Sydney