Costly Mistake

When it comes to regulating business, the Bush administration insists that cost-benefit analyses are not simply useful but central to its decision-making process. But the president did not insist on his aides performing that kind of analysis before deciding to invade Iraq. The reasons why illustrate many of the fallacies in this approach to regulation and suggest that the concept is far less wise than the administration and its allies believe.

Few object to cost-benefit analyses being considered as part of the regulatory process. If there are two equally effective ways to save 100 lives, and one costs five times as much as the other, common sense dictates which one to choose. Before the Occupational Safety and Health Administration, for example, enacts a new standard for worker exposure to a toxic chemical, it should have a general idea of how many lives will be saved and a ballpark estimate of the cost to industry.

But cost-benefit fundamentalists have something much more elaborate in mind. They want agencies to put precise dollar values on the human lives saved, injuries avoided and other "benefits" of proposed regulation. A key feature of this calculation is the "senior death discount," in which the dollar value of a life diminishes with age. This one practice alone downgrades programs that address such long-term problems as global warning or diseases such as cancer that have long latency periods.

On the other side of the scale, the "costs" are generally calculated from estimates provided by regulated industries, which have an incentive to overstate them and which often ignore potential cost savings from innovation spurred by a proposed rule.

These assumptions result in a system rife with ethical quandaries and biased against even much-needed health, environmental and safety protections. The overall point of the cost-benefit proponents is clear: Don't act to address serious problems unless benefits, expressed in monetary -- not human -- terms, clearly exceed costs.

Apparently the administration thought cost-benefit analyses had no place in deciding whether to attack Iraq. The White House initially avoided questions about the cost of the war, then requested $78 billion to cover just the initial phase -- but only after the bombs started to fall. Even then it did not include the costs of rebuilding the country or replacing the regime with a democracy, one of its stated goals. And it certainly did not bother to calculate the value of the lives of soldiers and civilians who would die, or decide whether those lost lives were "worth" the benefits. Even now the administration refuses to estimate the number of Iraqi injuries and lives lost.

Just as with a regulatory matter, the cost of war is certainly relevant. As we are now learning, the price of occupation is about $4 billion per month, with no end or even reduction of costs in sight. Moreover, just as industry cost estimates are viewed with considerable skepticism (because they are so often overstated), a healthy dose of skepticism is also necessary for Department of Defense cost estimates (because they almost always turn out to be too low).

Even if no formal cost-benefit analysis is undertaken before a war begins, it would make enormous sense to have some idea of at least the additional costs to the American taxpayer so that they could be viewed in the context of other political goals, such as large tax cuts or a prescription-drug benefit for Medicare. It is now clear that the administration should have been more forthcoming about the Iraq War's impact on the federal budget and that those costs could have been part of the debate on whether, all things considered, it was wise to invade.

But should the administration be faulted for not applying to the Iraq War the kind of cost-benefit analysis that it requires for regulatory decisions? Almost certainly not. The reasons have nothing to do with whether sending troops to Iraq was the right decision and everything to do with the shortfalls of the cost-benefit model mandated by the administration.

First, costs and benefits alike are elusive, both to pin down and to evaluate, even when we put aside the highly dubious practice of assigning dollar values to the avoidable loss of human lives. It is impossible to attach a meaningful monetary figure to removing a repressive regime in Iraq, just as it is impossible to place a precise value on stemming carbon emissions that cause global warming. And it surely would have been an enormous waste of effort if the government had to calculate every significant cost and place a dollar value on every benefit before the president could make a decision with multiple ramifications, not just economic ones.

In some cases, no matter what the costs and no matter how hard it is to quantify the benefits, we simply have to do certain things because they are right for the country and the principles for which it stands. Reasonable people can debate which situations fall into that category, but it is hard to imagine that the president's decision to go to war would have been better informed if someone had put a dollar figure on, for example, the potential harm to our relations with other countries. Even if we could accurately compute the costs and benefits of these intangible values in a timely manner and at a reasonable cost, they should not be the deciding factor in whether and how to regulate -- or whether and how to go to war.

Perhaps if the cost-benefit cheerleaders asked why no such analysis was done for the Iraq War, they might understand why many are skeptical of the almost religious faith they place in the spurious economics of cost-benefit analyses as the ultimate basis for critical decisions affecting health, safety and the environment.

Joan Claybrook is president of the nonprofit consumer group Public Citizen and former head of the National Highway Traffic Safety Administration. Alan Morrison is co-founder and director of the Public Citizen Litigation Group.