Freeman

ARTICLE

How Government Prevents Us from Buying Safety

There Is a Stronger Bias to Expand Regulations Than to Increase Safety

DECEMBER 01, 2000 by DWIGHT R. LEE

There is a limit to how much people will voluntarily pay to reduce the risk of accidental injury or death. In other words, the marginal value people place on their lives is finite. We accept some risks to take advantage of opportunities to do things that, at the margin, provide more value than the expected sacrifice in health and life expectancy. In effect, people routinely put a price on their lives. They do it every time they go skiing, roller blade in the street, spend too much time in the sun, drive to the store, walk across the street, overeat, stay up late, go swimming, or do any of a thousand other things.

But saying that there is a limit to how much people will pay to reduce risk implies they are willing to spend something. People value safety just as they value other things, and they will purchase it up to the point where, in their estimation, its marginal value equals its marginal cost (the value of what has to be sacrificed to get the additional safety). In fact, we are buying more safety now than ever before because we are richer and can afford more of almost everything.

For example, our jobs are far safer now than they were in the past. In part this reflects the shift away from jobs demanding manual labor (like farming and mining) and into office jobs where paper cuts are the biggest hazard. But employers also spend more to provide safer conditions on all jobs because workers would rather have the additional safety than the higher salary and wages that otherwise could have been paid. We spend more on smoke alarms, slip-resistant bathtub interiors, air filtration systems, and outside lighting to make our homes safer. We demand levels of sanitation in the food we eat, the water we drink, the air we breathe, and the clothes we wear that would have been considered ridiculous a couple of generations ago, and unimaginable in many poor countries today. Airline travel is far safer now, with the number of miles traveled increasing as the number of airline fatalities is decreasing. And the car you drive today is safer than the ones available a few years ago because they are better designed, have better brakes, and contain more safety features.

Our increased demand for safety, and the response to that demand, is explained primarily by marketplace incentives. Without the cooperation and coordination created by market incentives, we would not have experienced the growth in wealth that increased our demand for safety. And when our demand for safety increases we can communicate that demand through prices and profits to those best able to respond. An automobile company that tried to sell cars no more safe than those made in 1970 would quickly go bankrupt, as would an airline with the same safety as 30 years ago. Some people will object that government regulations have forced automobile manufacturers, food processors, the airlines, building contractors, and employers to provide the additional safety. It cannot be denied that government regulations have had an impact, but it has been a far less desirable impact than most people realize.

Governments often enact regulations requiring more safety only after the private sector has started providing the desired amount. Indeed this is about the best we can hope for, even though government regulations commonly increase the cost of providing more safety by specifying one-size-fits-all approaches rather than allowing firms to use approaches best suited to their situations. But government regulators often require that we pay for far more safety than we want because of the tendency toward bureaucratic expansion, the desire for greater power, and the demands of politically organized groups. For example, some Environmental Protection Agency regulations are estimated to cost over $4.5 billion per life saved, and some Occupational Safety and Health Administration regulations that are estimated to cost over $72.7 billion per life saved.[1]

The CAFE that Kills

Unfortunately, while some government regulations are making us buy very little safety at exorbitant cost, others are discouraging us from buying a lot of safety at low cost. Consider federal Corporate Average Fuel Economy (CAFE) regulations that require automobile manufacturers to produce vehicles that average no less than a specified number of miles per gallon. CAFE now requires that new cars average 27.5 miles per gallon and that new light trucks (pickups, minivans, vans, and sport utility vehicles) average 20.5 miles per gallon. These regulations were imposed in 1978 to force us to conserve gasoline—after the federal government imposed gasoline price controls that denied people the information and incentive to conserve more efficiently on their own. More recently, environmentalists have lobbied for increasing the required mileage to cut down on the emission of pollutants and alleged greenhouse gases.

It is not clear that CAFE standards do much, if anything, to reduce either gas consumption or pollution. To the extent that the standards increase gas mileage, the cost of driving will go down and people will drive more miles. Also, because the standards increase the cost of new vehicles, particularly the larger ones that are artificially restricted in supply, people drive their old cars longer than they otherwise would, and older cars commonly get poorer gas mileage and almost always pollute far more than new cars. But it is clear that CAFE standards do increase traffic fatalities by preventing people from buying additional safety at very little cost.

Because of CAFE standards, automobile manufacturers have had to produce cars that are smaller and lighter on average than consumers want to buy. Straightforward physics insures that, everything else equal, smaller and lighter vehicles are less safe than large heavy ones—occupants are closer to windshields and dashboards and they are surrounded with less cushion. Not surprisingly, a recent study using government and insurance data found that for every mile per gallon added because of CAFE, 7,700 additional lives are lost in traffic accidents.[2]

One has to conclude that there is a stronger bias in the political process to expand regulations than to increase safety. What other explanation is there for simultaneously imposing regulations that provide almost no safety at ridiculously high costs and preventing people from significantly reducing their risks at the cost of a few gallons of gas? Unfortunately, CAFE is not the only regulation that prevents people from buying more safety at low cost. For example, thousands of people have died needlessly in the United States because of federal Food and Drug Administration restrictions on buying medicines that have been widely and successfully used in other countries to reduce the risks of heart attacks, strokes, and other diseases. Details on these restrictions will have to wait until a future column. []


Notes

  1. I discussed these and other examples of extremely costly safety regulations in my October column and explained why they result in less, rather than more, safety.
  2. This study was discussed by Murray Weidenbaum, “Saving on Gas Costs Us Money—and Lives,” Chicago Sun-Times, September 17, 1999, op-ed page.

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December 2000

ABOUT

DWIGHT R. LEE

Dwight R. Lee is the O’Neil Professor of Global Markets and Freedom in the Cox School of Business at Southern Methodist University.

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