A Modest Normative Case for Feasible Regulation

David M. Driesen - Syracuse University College of Law

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In spite of Jonathan Masur and Eric Posner’s promise to unmask the normative commitments underlying feasibility analysis, their new article, Against Feasibility Analysis,1 fails to confront key normative arguments about the tendency of widely distributed regulatory costs to render trivial the individual impact on consumers of even high aggregate costs or about the nature of the experience of job loss.  One way of framing these issues is to ask a simple question:  Suppose we could save a single person from a painful death from cancer by demanding that an industry pay $10 million to reduce exposure to a carcinogen at the work place.  Should we do so?

A reasonable answer to this question depends on the cost’s distribution and one’s normative commitments.  Suppose, for example, that imposing this $10 million cost causes an industry selling one-hundred million television sets a year to raise prices by ten cents per set.  One should consider this $10 million cost insignificant because of its distribution and enact this regulation.  This is an example of feasible regulation.  Suppose, however, that the $10 million cost causes much of the industry to shut down, creating permanent unemployment for ten thousand workers.  One might respond to this case in one of two ways, depending on one’s normative commitments.  One could assert the primacy of human life and insist that this regulation is appropriate—a philosophy seen, to some extent, in health-based standard setting provisions.  Alternatively, one could say that an administrative agency should eschew this regulation as infeasible, because the industry cannot implement technological changes to save our cancer victim.  Because the industry could meet a fully health-protective goal by shutting down, the decision to insist on only feasible regulation rests primarily on a normative judgment that an administrative agency ought not impose the drastic consequence of permanent unemployment upon many workers.  My rather modest claim is that both responses are rational.

This claim supports the feasibility principle—the idea that administrative agencies should regulate serious health and environmental hazards as stringently as possible without causing widespread plant shutdowns—not as a perfect ideal for regulation, but as a rational norm among several plausible ones.  Moreover, even if one rejects the feasibility principle, feasibility analysis will provide useful information, because it identifies regulations distributing costs in atypical ways that produce widespread job losses, a consequence that may be comparable in importance to the serious harms to health that regulation prevents.

Masur and Posner’s main point—that the feasibility principle leads to under- and overregulation—assumes what they try to prove.  They define underregulation primarily as regulation where benefits exceed costs and overregulation as regulation where costs exceed benefits.  Of course, if efficient regulation is better than feasible regulation, then it follows that their conclusions about under- and overregulation are correct.  But nowhere do they grapple with the question that the television hypothetical highlights: is the equation of aggregate costs and benefits at the margin the proper ideal for regulation?

They fail to grapple with this question because they do not seriously address the possibility that distributional consequences may mean that the aggregate dollar costs should exceed the aggregate dollar benefits in many cases.  Knowing the numbers in my example ($10 million saves one life) can only make the decision “automatic” if one embraces arbitrary regulation.  Advocates of cost-benefit analysis (CBA) usually assume that any regulation demanding the expenditure of $10 million to save one life is not appropriate.  But unless one believes that distribution is irrelevant, one cannot automatically reach such a conclusion.   The “magic of quantification” that they associate with CBA2 works by sleight of hand; it makes an implicit normative judgment—that distribution does not matter—appear to disappear.

The analysis offered in this reply has broad implications for the regulatory reform debate:  maximizing the number of variables that an agency considers does not clarify normative commitments.  On the other hand, any attempt to clarify normative commitments by limiting the number of variables considered will, by making some normative choice, leave out other plausible normative choices.

While Masur and Posner identify me as the “leading defender of feasibility analysis,”3 they oddly overlook many of the arguments I made for such analysis in a review of Eric Posner’s recent book with Matthew Adler, New Foundations of Cost-Benefit Analysis.4 Loss of work constitutes a crisis for many people.  Martha Nussbaum has argued that affiliation with others, avoidance of emotional loss, and a feeling of control over one’s environment constitute critical aspects of well-being.5 Job loss, as I have explained, implicates all of these dimensions.  Most people develop a set of stable relationships with their colleagues and derive some of their sense of identity from their place of employment.  If they are fired, they suddenly lose a set of vital affiliations.  They experience a profound emotional loss.  Losing a job involuntarily is a shock.6 Moreover, in a reasonably stable work situation, people feel that they have some control over their environment.  Most employees believe that working hard will enable them to hold on to their jobs, and many may believe that their efforts make advancement likely.  While workers do not have complete control over their employment, they often feel that they have some influence over the environment that surrounds them for forty hours or more a week.  Being fired destroys the feeling that one has some control over one’s environment and makes workers feel that they are at the mercy of larger forces that they are powerless to affect.  As one worker fired during the recent financial crisis put it:

We grow up with the impression there’s a correlation between effort and the fruits of your labor . . . To be honest with you, I have very little confidence I’m going to be able to turn this around.  It just feels completely, completely out of my control.7

Thus, job loss involves an injury that dollar estimates of costs do not measure.

Ironically, CBA proponents have made even more of job loss’s importance.  They link job loss potentially resulting from costly regulation to suicide, and therefore argue that costs have health impacts comparable in importance to the benefits counted in CBA.  While CBA cannot predict the suicide rate among those losing jobs or measure the intensity of other emotional or health losses, feasibility analysis implicitly gives weight to job loss’s emotional consequences.

Masur and Posner rather breezily suggest that job loss is only important if it proves permanent.8 But studies show that job loss produces a decrease in the terminated employee’s feeling of well-being even after employment resumes.9 Moreover, a temporary loss of employment for a year or two can deliver quite a blow to a family trying to build savings to pay for college and support children well.  And displaced workers experience involuntary termination as a financial loss, not merely as a lack of opportunity to purchase more things.  The economics literature recognizes that people experience losses of what they already have more keenly than the disappearance of an opportunity for gain.10

Because job loss constitutes such a heavy blow, it may make sense to allow relatively lax regulation of an industry contributing serious damage to the environment or public health in order to avoid widespread plant closings from strict regulation.  Although this outcome appears troubling, so does the alternative of widespread plant shutdowns.  Many health and environmental problems that regulation addresses are cumulative, the result of lots of industries’ activities.  In these cases, when regulation of one contributing industry becomes lax because of strict regulation’s infeasibility, regulators can often make up for it with strict regulation of industries that can afford the cost.

By contrast, it makes no sense to give even large costs any weight if regulated parties will disperse those costs widely so as not to seriously harm any individual (as in my television example).  Proposed environmental regulations not producing widespread plant closures generally lead to agency predictions of modest price increases.  Prices go up and down all the time in our economy, and for the most part people adjust, often without noticing the impact.  Costs having no discernable impact on individuals would not significantly affect “well-being,” the moral-philosophical underpinning of Masur and Posner’s critique.

I pointed out in Distributing the Costs of Environmental, Health, and Safety Protection: The Feasibility Principle, Cost-Benefit Analysis, and Regulatory Reform (“Feasibility”) that most regulations distribute costs quite widely.11 There is a big difference between a regulation raising television prices by ten cents apiece for millions of consumers and a regulation of identical total costs that shuts down facilities employing thousands of people.  Treating the two the same, as CBA does, is arbitrary.

I do not deny that entertainment, food consumption, transportation, or the costs of raising children matter.  My argument is that the likelihood of any particular regulation having a significant impact on these things is so low—because firms distribute costs so widely, often compete with less regulated firms, and employ cost-saving innovation from time to time—that agencies can safely choose to ignore it when the alternative involves the extraordinarily burdensome and controversial procedure of quantifying costs and benefits.12 When they criticize feasibility analysis’s neglect of consumer welfare, Masur and Posner duck, rather than address, my argument that widely distributed costs have de minimis impacts on consumers.  Retrospective analysis of entire regulatory programs (not individual regulations) to evaluate actual (rather than predicted) cumulative costs, however, may usefully inform major legislative decisions.

Furthermore, I am not aware of a single CBA that takes in account any of the impacts of rules on any of these welfare effects.  Instead, a CBA typically focuses on the dollar costs of implementing technological changes and does not distinguish between regulation influencing food prices and regulation raising the cost of an entertainment option.  Feasibility analysis offers the advantage of reflecting elected representatives’ qualitative judgments about what is important.

The television example highlights another problem with Masur and Posner’s assumption that CBA advances overall well-being.  People spend money according to their preferences, but, as Posner and Matthew Adler have pointed out repeatedly,13 people’s preferences can be either welfare-decreasing or welfare-enhancing.  Loss of an opportunity to buy a television provides an example of a debatable case.  Perhaps losing television provides a benefit, freeing people addicted to television for pursuits creating more long-term satisfaction.  Perhaps not.  But money saved from reducing regulatory costs might be spent on something as important as life-saving surgery or as detrimental as addictive recreational drugs.  Hence, there are still more grounds for being dubious about CBA’s connection to overall well-being.  By contrast, we know that health impairment and job loss usually constitute serious setbacks for people, substantially impairing welfare.

A broader point about value may further account for some of the differences between my normative perspective and that of Masur and Posner.  Masur and Posner have, perhaps reflexively, adopted the economist’s habit of focusing exclusively on consumers’ economic welfare.  This focus on consumers proves extremely useful for economic modeling employed to describe a well-functioning market.  But if one is interested, as Masur and Posner are, in overall well-being, a focus on consumption proves odd.  We have little evidence that increased consumption breeds happiness.  Therefore, people’s preferences in the purchase of consumer goods may weakly correlate with their well-being.  This critique has been advanced in the economics literature at least since John Kenneth Galbraith’s work in the 1960s and 1970s.14 The psychological literature shows that well-being depends upon one’s health and affiliations with family, friends, and colleagues at work, and this literature tends to refute the idea that more consumption, beyond a certain minimum, generally increases welfare.15 In other words, people derive their most important satisfactions (and dissatisfactions) not from their consumption, but from their work and their families.

That said, the emphasis on plant shutdowns takes consumer welfare seriously where it seems most likely to merit attention.  While regulation almost always produces (or is modeled to produce) minor price rises having little effect even on preference satisfaction, plant shutdowns may signal a more serious disruption of markets.  If regulation bankrupts an entire industry, then a good may disappear altogether.  And if regulation bankrupts a significant segment of an industry, it may lessen competition and therefore stimulate price increases greater than, and longer lasting than, those typically associated with regulation, even though economists probably cannot reliably predict the extent of a changed market structure’s effect on prices.

In a pure free market, treating price increases, even small ones, as a minor matter would occasionally prove erroneous.  Suppose, for example, that a small price increase applied to a life-saving medicine made it impossible for a poor person to pay for it.  If we had a completely laissez-faire market, this sort of thing could kill somebody.  Fortunately, however, for essential goods we have safety nets: food stamps, health insurance, and state programs to help the poor with heating bills.  If safety nets develop holes, we should mend them. All kinds of things have the capacity to cause essential goods or services to become too expensive: taxes, patents and other forms of monopoly power, raw material shortages, unanticipated demand, and runaway executive compensation come immediately to mind.  Many of these factors dwarf regulation in their significance.  Once one concedes, as the information at hand should lead one to do, that the typical impact of regulation is minor price increases, the dramatic example of a marginal case for an essential good probably should not drive policy at all—and certainly not in most cases.

The problem with Masur and Posner’s argument is that they simply take no position on whether the distribution of cost—or job loss in particular—should matter, at least not in this article.  Saying that distribution does not matter is arbitrary given that a particular distribution can either render costs trivial to people’s lives or concentrate costs to deprive people of something as central to well-being as gainful employment.  Masur and Posner duck, rather than meet, this challenge by referring to the idea of weighting costs according to whether the consumers bearing the cost are poor or not.  While economic concepts of the marginal value of money may make CBA abstractly sensitive to poverty, that approach does not get at the type of distributional problem I highlighted in Feasibility: the problem of how to distinguish the routine cases where industry, when facing a cost, disperses its impact widely to consumers from the case where it concentrates the cost’s impact on a relatively small group incurring serious harms.

The feasibility principle is extremely likely to generate the proper result in the many cases where none of the available technological options leads to plant closures, because those cases generally distribute costs so widely among consumers that they have no significant impact on well-being. Yet a decision about whether to allow a large number of plant closures for the sake of preventing a cancer death (or similarly serious consequences) remains difficult in the few cases where the agency predicts plant closures.  In Feasibility, I developed a concentration principle: widely distributed costs almost always have minor effects, while concentrated costs (or harms, if you prefer) can have devastating impacts.  While this principle justifies maximizing reductions up to the point where plant closures (or at least job losses) begin, Masur and Posner correctly suggest that the concentration principle I developed does not justify a choice between avoiding widespread plant closures and fully protecting life or health.  That decision remains difficult.

For this reason, I specifically avoided making the claim that the “feasibility principle offers a perfect ideal for regulation.”16 Instead, I argued that the principle represents a “reasonable congressional judgment about how agencies should address the cost of environmental regulation.”17 I shared Masur and Posner’s concern that, under this principle, agencies might sometimes allow extremely harmful substances to go underregulated but pointed out that “Congress . . . may choose more demanding requirements for particular substances than the feasibility principle might induce.”18

Narrow CBA fails to give any weight to the concentrated harms that plant closures produce.  For this reason, it is normatively unacceptable and lacks a strong connection to overall well-being.  Masur and Posner might respond by saying that CBA should include job-loss estimates.  If so, then the analyst would have to conduct the feasibility analysis to which Masur and Posner object as part of the CBA, because plant shutdowns produce job loss directly.  A position stating that the regulator should consider a CBA that includes job-loss estimates to evaluate “overall well-being” would create a huge workload for regulators with no meaningful guidance about how to address the problem of distribution’s centrality to the significance of cost.

It is reasonable to say that generally we value protecting people’s lives, their health, and their environment over minor and often temporary price changes, but when health and environmental protection causes many more people to risk financial and emotional devastation through job loss, we hesitate.  We recognize that the tradeoffs in that case are difficult enough that we may not be comfortable delegating them to agencies without some default, bearing in mind that Congress might have to make a contrary choice directly.  So we direct agencies to presume that widespread plant shutdowns are not acceptable.

The feasibility principle at least provides evidence of sensible normative engagement in the relevant questions and a democratic legislative decision about how to presumptively resolve them.  Civic debate should help formulate and articulate public values.  One can see the principle’s presence in numerous statutes as an articulation of public values favoring public health and environmental protection but expressing concern about job loss.  It may be appropriate for a democracy to develop and embody public values in law rather than pretend that the “magic of quantification” obviates the need for value choices.

* * *

Against Feasibility Analysis assumes what it sets out to prove when it sets up the efficiency criterion as the implicit baseline for measuring under- and overregulation.  The feasibility principle has a good, albeit imperfect, normative justification.


Acknowledgments:

David M. Driesen is a University Professor at Syracuse University.

Copyright © 2010 University of Chicago Law Review

This Legal Workshop post is based on an article forthcoming in volume 35 of the Harvard Environmental Law Review.

  1. Jonathan S. Masur and Eric A. Posner, Against Feasibility Analysis, 77 U Chi L Rev 657 (2010).
  2. Id at 700.
  3. Id.
  4. See Amy Sinden, Douglas A. Kysar, and David M. Driesen, Cost-Benefit Analysis: New Foundations on Shifting Sands, 3 Reg & Governance 48, 63–66 (2009), reviewing Matthew D. Adler and Eric A. Posner, New Foundations of Cost-Benefit Analysis (Harvard 2006).
  5. See Martha C. Nussbaum, Women and Human Development: The Capabilities Approach 77–80 (Cambridge 2000).
  6. Michael Luo and Megan Thee-Brenan, Poll Reveals Trauma of Joblessness in U.S., NY Times A1 (Dec 15, 2009) (describing job loss as causing “financial and emotional havoc”).
  7. Michael Luo, For Many, Uncertainty, Fear and Shame Often Follow Pink Slips, NY Times A29 (Dec 15, 2009).
  8. Masur and Posner, 77 U Chi L Rev at 704–05 (cited in note 1).
  9. See Scott A. Moss and Peter H. Huang, How the New Economics Can Improve Employment Discrimination Law, and How Economics Can Survive the Demise of the “Rational Actor,51 Wm & Mary L Rev 183, 214–16 (2009) (discussing findings that unemployment causes permanent emotional “scarring,” creating insecurity that “decreases happiness”).
  10. See, for example, Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, Experimental Tests of the Endowment Effect and the Coase Theorem, 98 J Polit Econ 1325, 1328 (1990).
  11. David M. Driesen, Distributing the Costs of Environmental, Health, and Safety Protection: The Feasibility Principle, Cost-Benefit Analysis, and Regulatory Reform, 32 BC Envir Affairs L Rev 1, 19–22 (2005) (referring to the “vagaries of implementation” and suggesting that agencies have not consistently adhered to the feasibility principle).
  12. Id at 36 (describing how this occurs and providing illustrative examples, which are typical of many cases studied in preparing this article).
  13. See, for example, Adler and Posner, New Foundations at 35–39 (cited in note 4).
  14. See, for example, John Kenneth Galbraith, Economics and the Public Purpose 29–30 (Houghton Mifflin 1973).
  15. See, for example, Stephanie M. Stern, Residential Protectionism and the Legal Mythology of Home, 107 Mich L Rev 1093, 1119–21 (2009) (finding that physical health and social relationships are much stronger predictors of “life satisfaction” than home ownership); Ethan J. Leib, Friendship and the Law, 54 UCLA L Rev 631, 655 (2007) (explaining that friendship generates self-esteem, which is critical to happiness and avoidance of depression); Norval D. Glenn and Charles N. Weaver, The Contribution of Marital Happiness to Global Happiness, 43 J Marriage & Fam 161, 163–65 (1981) (concluding that, of all of the dimensions of well-being, marital happiness bears the strongest relationship to global happiness). Consider also Leaf Van Boven and Thomas Gilovich, To Do or to Have? That Is the Question, 85 J Personality & Soc Psych 1193, 1195 (2003) (finding that experiences rather than possessions bring happiness).
  16. Driesen, 32 BC Envir Affairs L Rev at 47 (cited in note 11).
  17. Id (emphasis added).
  18. Id.

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