Freeman

ARTICLE

Human Health and Costly Risk Reduction

The Federal Government's Risk-Reduction Efforts Are Badly Skewed

MARCH 01, 1995 by BRUCE YANDLE

With the Clinton administration’s misguided national health-care initiative dead, at least for now, it is time to consider an alternative. Let’s improve human health by eliminating or at least sharply modifying federal rules designed to reduce risk. Does this seem paradoxical? It shouldn’t.

Risk reduction is a natural substitute for health-care spending. If the incidence of cancer is reduced by proper diet and regular medical checkups, fewer people will need more costly medical treatment. Similarly, if it is cheaper to reduce the risk of respiratory illness by curtailing air pollution than by taking on the risk and later dealing with injuries and sickness, then we can bet that health-conserving actions will be taken.

But the current federal mandates for reducing risk are so ineffective that risks are not altered in many cases. In other cases, huge amounts are spent in an effort to reduce minor health risks, while larger ones go untouched. All along the burden of federal regulation continues to grow heavier.

Ineffective, costly regulation yields two unhappy outcomes. Unprotected people must still seek health care (since the risks haven’t been reduced significantly). In addition, ineffective regulation wastes resources, reducing incomes. Everyone knows that lower-income people, on average, are not as healthy as people with higher incomes.

Writing in Science magazine, Richard Zeckhauser and W. Kip Viscusi, two respected specialists in risk analysis, said: “Society’s system for managing risk to life and limb is deeply flawed. We overreact to some risks and virtually ignore others.”[1] (When they refer to “society’s system” for managing risk, they mean primarily the federal government’s system for managing risk.) As we shall see, the federal government’s risk reduction efforts are badly skewed.

A great deal of federal risk regulation involves efforts to protect against cancer by regulating or limiting carcinogens. When political proposals are made to reduce cancer risks at an apparent cost of zero to concerned citizens, regulation wins every time, no matter how costly the rules may become. But such regulations are plagued with problems.

The FDA’s enforcement of the 1958 Delaney Clause is a case in point.[2] This is a federal law requiring that any cancer-causing chemical be banned from food. In 1958 there were about 12 known carcinogens, and detection capabilities were weak. Since then, the number of identified carcinogens has risen to 26 and more than 600 chemicals have been shown to cause tumors in rodents, which raises the Delaney presumption that the chemicals are human carcinogens.

Following orders from Congress, the FDA developed a “safe dose” procedure for regulating food carcinogens. It started with the lowest exposure level that leads to observed tumors in laboratory animals. This dose was then extrapolated to humans and divided by 100 to determine the amount that could be ingested. Eventually, the FDA developed the one-in-a-million rule. This means that a substance under review will be banned if there is evidence that using the substance in a recipe generates one additional cancer per one million exposed people.

But the annual incidence of cancer mortality for all Americans is 300,000 per one million. That is, cancer is the cause of death for 30 percent of the population. The FDA is attempting to reduce the 300,000 to 299,999. To achieve this extremely small reduction, very costly regulation is required.

In fact, research on cancer-related deaths indicates that less than one percent are related to food additives. About four percent, on average, are associated with the workplace. Pollution is estimated to cause two percent of all cancer death, on average. The largest share of cancer deaths, 35 percent, is associated with diet, and the next largest, 30 percent, with tobacco.[3]

Misdirection of Resources

A number of people have noticed that the efforts of the federal government to address risk are disproportionate to the size of the problem. For example, Keith Schneider, a national correspondent for The New York Times, writing in ECO magazine, describes the case of abandoned Western mines where immense piles of tailings contain lead, sulfur, arsenic, and cyanide. These contaminants can leach into groundwater, causing trace amounts of the pollutants to make their way into drinking water; however, experts are convinced that the risk is small. Congress has chosen to deal extensively with the tailings problem and has budgeted $10 billion to clean up the tailings piles. In contrast, the government has budgeted less than $500 million to close abandoned mines and restore land affected by mining operations. Yet unprotected mine shafts have contributed to at least 162 deaths and hundreds of injuries since the late 1970s.[4]

Whether the federal government can or should do anything about the risk of injuries from abandoned mines is a separate question; but, clearly, political factors determine how government resources are directed. Government officials are aware of this. In a widely distributed 1987 study, the EPA examined its regulatory activities and the budget allocated by Congress to each of them, and then ranked the relative riskiness of 31 areas addressed by the agency.[5] The goal was to determine how well the agency’s effort to reduce risk matched the riskiness of various problem areas.

By the analysis of the EPA officials, indoor radon, indoor air pollution, non-point-source water pollution, and accidental releases of toxic materials were high risks, but little was being done by the agency to reduce them. In contrast, they viewed Superfund, hazardous waste controls, and municipal non-hazardous waste site activities as low risks, but the agency had large budgets directed to them. The EPA report concluded that “the rankings of risk . . . do not correspond closely with EPA’s statutory authorities” and “the rankings of risk also do not correspond well with EPA’s current program priorities.”[6]

Efforts to develop a more reasonable approach to regulation have been made by U.S. presidents from Gerald Ford to Bill Clinton, without significant progress. For more than 15 years, the Office of Management and Budget (OMB) has been required to conduct reviews of newly proposed regulation to assess their cost effectiveness. A recent OMB review of 52 different costly regulations raised a number of unsettling questions. The OMB stated:

 

The cost effectiveness for the regulatory actions listed varies over more than eight orders of magnitude, from about $100,000 (for certain automotive safety features) to more than $5 trillion per premature death prevented (for treating wood preserving chemicals as hazardous wastes). [S]pending $2 million today on highway safety would save at least one life in just a few years. [T]he same amount spent regulating the cancer risks posed by wood preserving only prevents one cancer case every 2.9 million years.[7]

Improved human health and well-being is the avowed goal of government efforts to regulate the environment, the workplace, food, automobiles, agriculture pesticides, and a multitude of other consumer products. The cost per person of all regulation is large, two-thirds that of health-care costs, which many believe to be out of control and unacceptable. Efforts to prevent harm must be considered in any overall effort to reduce health-care costs.

The historic record and understanding of regulatory politics suggest that any improvement will be difficult. To bring change requires a different set of incentives, and that requires institutional change. It is not that we are ignorant of the science, economics, and mathematics of risk reduction. What we lack are political institutions that provide incentives for intelligent people to respond logically to the forces of the market economy when attempts are made to improve human health and safety.

Two Recommendations

Two recommendations come to mind. First, all regulatory activity must be considered in the light of the effects of income on health and safety. Studies indicate that a loss in the nation’s gross domestic product of $3 million to $7 million in regulatory costs yields an increase of one additional fatality.[8] Recall that EPA regulations alone now impose an estimated cost of $100 billion annually, and there are several major studies indicating that safety and health regulation has reduced the growth of worker productivity, and therefore wages, by as much as 36 percent in one decade.[9] If Congress is going to mandate a host of actions designed to increase life expectancy, then Congress should provide an annual report card to the people. Each action required by Congress should be accompanied with an analysis that accounts for the effects of lower incomes and tells us just how much life expectancy has been added. The results of all actions taken in a given year should be reported to the American people, and federal agencies that reduce life expectancies should be punished. OMB should be made the watchdog.

The second recommendation is a bit more radical. Congress should get out of the business of mandating reductions of trivial risks. We should return to common law rules that impose severe penalties on firms that inflict harm on consumers. The court system should be buttressed, not suppressed. Then, threats of costly suits and the risk of losing hard-earned business reputations would work together to reduce the cost of reducing risk and improving health. []


1.   Richard J. Zeckhauser and W. K. Viscusi, “Risk Within Reason,” Science, May 4, 1990, p. 559.

2.   The discussion here is based on Lester B. Lave, How Safe Enough? Setting Safety Goals (St. Louis: Center for the Study of American Business, January 1990), pp. 6-13.

3.   See Joseph L. Bast, Peter J. Hill, and Richard C. Rue, Eco-Sanity (Lanham, Md.: Madison Books, 1994), pp. 41-42, citing data from Sir Richard Doll and Richard Peto, “The Causes of Cancer: Quantitative Estimates of Avoidable Risk of Cancer in the United States Today,” Journal of the National Cancer Institute, Vol. 66 (June 1981), p. 1256.

4.   Keith Schneider, “A Policy That Set the World Standard Goes Off Track,” ECO, June 1993, pp. 17-22, at 18.

5.   U.S. Environmental Protection Agency, “Unfinished Business: A Comparative Assessment of Environmental Problems,” Vol. I, Overview, Washington: U.S. Environmental Protection Agency, February 1987.

6.   Ibid., p. xix.

7.   Office of Management and Budget, Regulatory Program of The United States Government, April 1, 1992-March 31, 1993 (Washington: Government Printing Office, 1993), pp. 10-11.

8.   Ralph Keeney, “Mortality Risks Induced by Economic Expenditures,” Risk Analysis, Vol. 10, No. 1, pp. 147-159, 1990.

9.   See Gregory B. Christainsen and Robert H. Haveman, “The Reagan Administration’s Regulatory Relief: A Mid-Term Assessment,” in George C. Eads and Michael Fix, eds., The Reagan Regulatory Strategy: An Assessment (Washington: Urban Institute Press, 1984), pp. 49-80. Also see Wayne B. Gray, “The Impact of OSHA and EPA Regulation on Productivity,” Working Paper No. 1405, New York: National Bureau of Economic Research, July 1984, and Wayne B. Gray and Ronald J. Shadbegian, “Environmental Regulation and Manufacturing Productivity at the Plant Level,” Working Paper No. 4321 (Cambridge, Mass.: National Bureau of Economic Research, April 1993).

ASSOCIATED ISSUE

March 1995

ABOUT

BRUCE YANDLE

Bruce Yandle is dean emeritus of Clemson University's College of Business & Behavioral Science and alumni distinguished professor of economics emeritus at Clemson. He is a distinguished adjunct professor of economics at the Mercatus Center, a faculty member with George Mason University's Capitol Hill Campus, and a senior fellow emeritus with the Property and Environment Research Center (PERC).

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