Priceless: Human Health, the Environment and the Limits of the Market

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In a 2002 report to Congress, the Office of Management and Budget (OMB) announced that the new forest initiative would cost about $184 million and produce benefits of only $219,000 a year. This lopsidedly negative result made forest protection look, in narrow economic terms, like one of the least defensible regulatory ideas of the previous year. So little, indeed, did OMB think of the forest initiative that the office put the policy on its infamous "hit list" of regulatory policies to be reconsidered by the agencies that had dreamed them up. How did a rule protecting 60 million acres of publicly owned lands, containing fragile and precious sources of water, wildlife, and plant species, come to look so bad in economic terms? The answer is simple: just ignore most of the good things one wants to protect forests for — both the good things that could comfortably be stated in dollar terms (such as the economic value of a forest for tourism) and the good things that money cannot buy (such as the knowledge that pristine forests are being protected in perpetuity). What did the tiny annual benefit of $219,000 reflect in this case? The savings from not building roads. Every park and forest that we protect "saves money" in this sense: imagine the cost of the asphalt that would have been required to pave the entire area. But is the avoided cost of exploiting nature — as OMB assumed — the only benefit of protecting it? At the start of the twenty-first century, the clock is starting to run backward as laws and regulations protecting health, safety, and the natural environment — some of the proudest accomplishments of the past 30 years — are now under attack.

The attackers do not explicitly advocate pollution, illness, and natural degradation; instead, they call for more "economic analysis." And the stories of "phoneslaughter," lead poisoning, and forest despoliation show where their kind of analysis all too often leads.

The new trend toward economic critique of health and environmental protection has caught on in every branch of the federal government — within the White House, in Congress, and even in the courts. Environmental advocates, decision makers, and citizens concerned about the environment often find themselves on the defensive, without an effective response to the arcane arguments and imposing data offered to show why, when it comes to protective regulation, less is better.

Our opening examples of this kind of economics in practice are not isolated or unusual; in fact, they are just the tip of the iceberg. Rules limiting arsenic in drinking water, air emissions from factories and power plants, snowmobiles in national parks, new development in pristine areas, and pollution in our rivers, lakes, and streams, all have been or may be weakened or even eliminated based on the same kind of counterintuitive economics.

The basic problem with narrow economic analysis of health and environmental protection is that human life, health, and nature cannot be described meaningfully in monetary terms; they are priceless. When the question is whether to allow one person to hurt another, or to destroy a natural resource; when a life or a landscape cannot be replaced; when harms stretch out over decades or even generations; when outcomes are uncertain; when risks are shared or resources are used in common; when the people "buying" harms have no relationship with the people actually harmed — then we are in the realm of the priceless, where market values tell us little about the social values at stake. There are hard questions to be answered about protection of human health and the environment, and there are many useful insights about these questions from the field of economics.

But there is no reason to think that the right answers will emerge from the strange process of assigning dollar values to human life, human health, and nature itself, and then crunching the numbers. Indeed, in pursuing this approach, formal cost-benefit analysis often hurts more than it helps: it muddies rather than clarifies fundamental clashes about values.

By proceeding as if its assumptions are scientific and by speaking a language all its own, economic analysis too easily conceals the basic human questions that lie at its heart and excludes the voices of people untrained in the field. Again and again, economic theory gives us opaque and technical reasons to do the obviously wrong thing. Obscuring the fundamental issues with talk of wage premiums and protest votes (topics that we'll meet in later chapters), cost-benefit analysis promotes a deregulatory agenda under the cover of scientific objectivity. To say that life, health, and nature are priceless is not to say that we should spend an infinite amount of money to protect them. Rather, it is to say that translating life, health, and nature into dollars is not a fruitful way of deciding how much protection to give to them. A different way of thinking and deciding about them is required.

The most common justification for the new mode of economic screening of regulations is that even a rich society can't afford to do everything. There are tradeoffs between different policy options, the argument goes, so it is important to pick the most cost-effective ones. Our response is twofold. First, resources are of course ultimately limited, but there is no evidence that we have approached the limits of what is possible (or desirable) in health and environmental protection. For instance, the fuel efficiency of automobiles is ultimately limited by physical laws, and cannot keep improving forever. But we are so far from the ultimate constraint that it is irrelevant to the practical challenge of improving fuel efficiency today.

Also, widely quoted evidence of absurdly expensive regulations is, as we explain in Chapter 3, mistaken on numerous grounds, and does not deserve to be taken seriously. In fact, only a minority of the costs of regulation show up in the federal budget. For federal expenditures, the limiting factor is not our society's limited resources in any absolute sense, but rather the mania for tax cut after tax cut, especially for those at the top who are most able to pay. However, most of the costs of regulation are borne not by the government but by the regulated industries themselves. There is no evidence that these corporate burdens are, or are about to be, unaffordable.

Despite frequent rhetorical claims to the contrary, virtually no job losses can be traced to environmental regulations. On average, 999 out of every 1,000 major layoffs are not due to environmental policies.

The second part of our response is that, even if some kind of screening of regulations is needed, the current methods are incoherent, as we will explain in the following chapters. Cost benefit analysis of health and environmental protection rests on simplistic, implausible hypotheses about the prices that would prevail if priceless values were to show up next to the lettuce on the supermarket shelf. A different method of analysis and comparison is needed to separate good policy proposals from bad ones, a method that does not pretend that a mathematical formula can solve our problems for us.

In this book, we offer an attitude rather than an algorithm.

We reject the atomistic analysis offered by contemporary economists, in which a problem is severed into its component parts, examined by experts, and reconstructed in a way that leaves most of the important parts on the cutting room floor.

In its place, we advocate a more holistic analysis, one that replaces the reductive approach of cost-benefit analysis with a broader and more integrative perspective. We also urge precaution in the face of scientific uncertainty and fairness in the treatment of the current and future generations. Above all, perhaps, we aim to restore a sense of moral urgency to the protection of life, health, and the environment — the kind of moral urgency today reserved mostly for questions concerning the military. The kind of economic thinking featured in our opening anecdotes is ascendant in public-policy circles today. If the advocates of free market economic theory get their way, the simplistic use of economics will become even more prominent; in fact, it will become the way of making critical policy decisions.

How have we come to this point?

The answer is a blend of political philosophy and economic research. Throughout this book we will criticize the role of economic analysis and theory as it has been applied to health and environmental policy. Cloaked in the language of scientific objectivity, economic arguments have repeatedly played a partisan role. It is time to look underneath the cloak, beginning with the theories behind the new approach to public policy. When free market economists dream of a better world, what does it look like? Chapter 2 explores those dreams and their frequent collisions with reality.

Part 1 | Part 2

Copyright 2004 New Press Publishing. Reprinted with permission.