Grading the Government

Abstract

For over a decade, scathing critiques of government have been fueled by a group of studies called regulatory scorecards, which purport to show that the costs of many government regulations vastly outweigh their benefits. One widely-cited study by John Morrall, an OMB economist, claims that government regulations cost up to $72 billion per life saved. Another study, co-authored by Bush's regulatory czar, John Graham, claims that over 60,000 people lose their lives each year due to irrational government regulation. A third group of scorecards - compiled by Robert Hahn of the AEI-Brookings Joint Center for Regulatory Studies - claims that over half of all major regulations issued since 1981 fail cost benefit tests. These widely cited studies have contributed mightily to a widespread skepticism about the ability of government to regulate rationally. This skepticism has produced, in turn: legislative requirements for more elaborate agency analyses, closer OMB oversight, congressional review of agency decisions, a stream of proposals for further regulatory reforms aiming at reining in government agencies, and a hostile climate for all proposed new measures to protect public health, safety and the environment through regulation.

But what is the skepticism based on? This Article offers a comprehensive evaluation of the three most influential scorecards behind the regulatory reform movement. It demonstrates that all three studies rely on undisclosed data and non-replicable calculations; use biased regulatory samples; misrepresent ex ante guesses about costs and benefits as actual measurements; and grossly under-estimate the value of lives saved, or the number of lives saved, or both. They also exclude all unquantified costs and benefits, disregard all questions about the fairness of the distribution of cost and risk, and conceal the large uncertainties that are present in virtually every regulatory analysis. Close inspection reveals that Graham's sensational claim - that 60,000 lives are lost each year through irrational regulation - is not supported by his study's own data. In short, these studies are so fundamentally flawed that they prove nothing at all about the rationality of regulation.

This Article also shows that the most serious defects in these studies are endemic to the enterprise of compiling a strictly numerical scorecards. They render the numerical scorecard a defunct mode of analysis. The Article concludes with several affirmative recommendations for improving the assessment of individual rules and government regulation overall.

Keywords: Cost-benefit analysis, regulation, regulatory policy, regulatory reform

JEL Classification: K23