Back in 2003, Michael Lewis wrote “Money Ball,” a book about how an Oakland, CA baseball team under head coach Billy Beane used player statistics to hire team members that gave them the greatest chance of a championship season at the lowest cost.
So by 2009 it was pretty clear what was coming when President Obama’s chief regulator, Cass Sunstein, began talking about how federal regulators should act less than green eye-shade bean counters and more like Billy Beane. Sunstein was going to base regulatory philosophy on statistics and cost/benefit analysis. On its face, that doesn’t sound like a bad thing.
But pointing out the difficultities of this approach is Susan Dudley, head of regulatory studies at George Washington University and Sunstein’s predecessor under President Bush. In her view, the new ‘statistics’ can be fudged to justify almost any kind of regulation. She uses recent EPA regs as an example
Dudley says that the bulk of “benefits” from Obama’s regulatory effort comes from new EPA limits on air particulates of 2.5 micrometers or less. Ask any electric power company executive and they will confirm that this has been the biggest expense for power producers in the last decade as they install expensive smoke stack scrubbers in their coal-burning plants.
Together, these regulations account for about 50% of the monetized cost of all new government regulations, according to Dudley. And they account for even more of the purported “benefits.”
The joke is in the calculation of the ‘benefits.’
According to Dudley the bulk of the benefit comes from extending the life expectacy of a certain group of citizens by 6 months.
Who are these lucky few? Says Dudley,’the beneficiaries of these life saving regulations is around 80-years-old.” Obviously, extending the life of 80-year-olds is a good thing to do. But there are also a lot of doubts about how much effect small particulants have on anybody’s health. Additionally, people in their 80s tend to have one or more other health conditions that may account for changes in mortality.
EPA adds to the accounting a claim that reducing air particulates also cuts back on fish exposure to heavy metals like Mercury that are contained in microscopic particulants. Whether or not these savings have been double-counted against other EPA interventions aimed at reducing Mercury, Dudley does not say.
Dudley, Susan, “Perpetuating Puffery: An Analysis of the Composition of OMB’s Reported Benefits of Regulation,” Business Economics, July 2012, Vol. 47 No. 3, pp 165-176
Lewis, M.M., 2004. Moneyball: The art of winning an unfair game, WW Norton. Available at: http://books.google.com/books?hl=en&lr=&id=oIYNBodW-ZEC&oi=fnd&pg=PR12&dq=%22I+was+inclined+to+concede+the+point.+The+people+with+the+most+money+often+win.%22+%22you+looked+at+what+actually+had+happened+over+the+past+few+years,+you+had%22+&ots=pcH3mzoxGM&sig=LtRBCL53W3-oazf2PxvVAnU8enY [Accessed September 26, 2012].