But it would seem to me certainly better if we could have estimates of both benefits and costs in such an exercise. On the other hand, I would not want the process to be one that gets bogged down-as I say, there is value in just clearer understanding of the cost side, even if we do not have numerical estimates of the benefit side. So while it would be ideal to have both, even just having the cost estimates would be considerable improvement upon the current situation. Mr. PORTNEY. If I could just tack a clause on the end of that— so long as the fact that you do not have quantitative information on the benefits is not taken to mean that they are equal to zero, which I think is a concern that Carl Pope would have and I would have. I agree with Tom, we need to know much more about costs. If we can only quantify them or are only confident about them and do not present benefit information because it is too difficult to generate, but some people think that it is not there because it does not exist, then we are making a big mistake, and we are not going to put in place programs that we need and that the public in some cases wants. Chairman ROTH. Let me ask you this, Dr. Hopkins. When you calculate cost of, say, environmental regulation, do you anticipate the value of industries created to help compliance? Mr. HOPKINS. The cost data that I use are almost entirely taken from the Environmental Protection Agency itself, and those are compliance spending estimates associated with the particular regulatory provisions being implemented. There is, of course, an argument out there that environmental regulation spawns new industries and spawns new jobs, and these are somehow offsets to these costs. I have not found that set of arguments persuasive, and do not make any effort to incorporate any such numbers. Chairman ROTH. Gentlemen, does anyone else care to make any final comment? Yes, Mr. Pope? Mr. POPE. Senator, quickly, I think in presenting the benefits, I would urge you to present them in the form they come to us, whether that is cleaner air or fewer days of people being sick, rather than trying to turn everything into numbers. They are not dollars. We are not really saving dollars here; we are saving lives, or quality of life, or whatever we are saving. Let us present the data in the form that we really have it, rather than trying to manipulate everything into dollars. Chairman ROTH. Thank you. Thank you, gentlemen, very much. We would like to have your advice as the legislation proceeds, and we appreciate your forbearance and patience with the lateness of the hour. The Committee stands in recess. [Whereupon, at 12:45 p.m., the Committee was adjourned.] REGULATORY REFORM WEDNESDAY, FEBRUARY 15, 1995 U.S. SENATE, COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, DC. The Committee met, pursuant to notice, at 9:34 a.m., in room SD-342, Dirksen Senate Office Building, Hon. William V. Roth, Jr., Chairman of the Committee, presiding. Present: Senators Roth, Glenn, Levin, and Lieberman. OPENING STATEMENT OF CHAIRMAN ROTH Chairman ROTH. The Committee will please be in order. This is the third day in a series of hearings on reforming the regulatory process. It is our privilege to have here today some of the foremost experts in the country to speak on the issues of cost-benefit analysis, regulatory accounting and risk analysis. Some of our witnesses are strong proponents of more thorough analysis of the costs, benefits and risks associated with regulatory decision making. Others may express concerns about the limitations of cost-benefit and risk analysis. We want to take into consideration all of the thoughts expressed today to craft effective and responsible regulatory reform legislation. Before we begin, I do want to express our regret that Professor Tom McGarity was unable to attend today's hearing because of fog at the airport. Senator Glenn? OPENING STATEMENT OF SENATOR GLENN Senator GLENN. At our last hearing we heard from witnesses who described the oppressive, the cumulative burdens and cost of Federal regulation. Today's hearing, though, takes us several steps closer to the heart of the regulatory process by asking very specifically how can agencies conduct cost-benefit analysis and risk assessment? Agencies ought to think through costs, benefits and risks before they make rulemaking decisions. But they also need to do it in a way that leads to better decisions, not slower decisions or weaker decisions or no decisions at all, sometimes. So I hope today's witnesses will focus on this question: How do we make the regulatory process really work better? Not just from an academic standpoint on some idealistic view of how government works, but how do we really make it work better in the real world with multiple policy goals, resource constraints, scientific uncertainties and all the rest? I look forward to hearing your views on these things and I will have questions. Thank you, Mr. Chairman. Chairman ROTH. Thank you, Senator Glenn. I think we can all agree that the goal of these hearings is to develop smarter regulations and certainly that is my intent, and I know it is yours as well. We are pleased to have on our first panel Bob Crandall, a senior fellow at the distinguished Brookings Institute, and Kip Viscusi, who is a professor at Duke University. As I just announced, the flight was cancelled for Tom McGarity, the professor of law at the University of Texas. Gentlemen, it is indeed a pleasure to welcome both of you here today. We look forward to hearing your testimony. We would ask you to try to keep your testimony as brief as possible, but we will of course, incorporate your full statement as if read. By saying as brief as possible, please take sufficient time to spell out your case. Mr. Crandall, do you want to start? TESTIMONY OF BOB CRANDALL,1 SENIOR FELLOW, THE BROOKINGS INSTITUTE Mr. CRANDALL. Thank you, Mr. Chairman. It is a pleasure to appear before you this morning. I will summarize a written statement which I have submitted to your staff. I am here to discuss the important reforms of Federal Government's extensive regulatory programs, particularly those directed at health, safety and environmental risks. I am an economist who has studied a variety of regulatory programs over the past 27 years, including a number of health, safety, and environmental programs. I have been a member of the Economic Studies division at Brookings since 1978. During that time, I have written, co-authored, or edited books and articles dealing with the regulation of automobile emissions, automobile safety, automobile fuel economy, stationary-source air pollution, cable television, broadcasting and even more recently telephone services. Prior to 1978, I was deputy director and assistant director of the Council on Wage and Price Stability, which is one of the many agencies that have, over the past 20 years, carried out the regulatory analysis responsibility within the Executive Office of the President. I served there under both President Ford and President Carter. My primary purpose in appearing today is to support the use of cost-benefit analysis in regulatory rulemaking. But before doing so, I feel that it is necessary to step back and provide you with an evaluation of our current understanding, that is economists' current understanding, of how well regulatory regimes work in practice. Members of the Committee may remember that it was only about 16 or 17 years ago, perhaps even in this room, that regulatory reform was being discussed. At that time, it was reform of economic regulation, and in large part it ended up with abolition of Federal economic regulation. 1 The prepared statement of Mr. Crandall appears in the appendix on page 301. Over a period of less than a decade, airlines, trucking, railroads, natural-gas extraction, long-distance telephone services, telephone terminal equipment, cable television, oil production and financial services were totally or partially deregulated, resulting in much more freedom for producers to respond to market forces, set their own prices, and enter new markets. A substantial published empirical economic literature had documented the failure of most of these exercises in regulation and suggested that unregulated markets would work far better for consumers and even for many of the erstwhile regulated firms. Brookings was one of the leaders in developing this literature, publishing books on the follies of trucking, railroad, television, airline, and merchant-marine regulation, to cite a few of the betterknown examples. More recently, my colleague Clifford Winston has shown that, if anything, these studies and others underestimated the benefits of deregulation because these studies could not anticipate with accuracy the producers' responses to market forces and their opportunity to develop new services and new technologies. In other words, whatever we thought going into the deregulatory exercise were the social costs of regulation, it has turned out that they were much greater than we had anticipated. Today we are here discussing regulatory reform because of a new type of regulation that has developed principally since that time. That is Federal health-safety-environmental regulation which really began in the early-mid-1960s but picked up steam during the 1970s with the establishment of the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Consumer Product Safety Commission. Because this type of regulation necessarily involves threats to human health and safety from diverse sources for which there are no direct market transactions, there are few readily available data from which one can estimate the effects of most programs. True, we have some rough estimates of the costs of individual regulations and a few attempts to provide the costs of programs relating to clean air and clean water, but every student of regulation is forced to admit that we simply do not know the full costs of most of these programs. Perhaps even more surprising is the fact that we have little information on the benefits that these health and safety environmental programs have conferred upon Americans. There is a growing literature on the effectiveness of OSHA's safety regulations and Professor Viscusi is one of the principal contributors to that literature, but little on its regulation of chronic or acute risk from exposures to toxins or carcinogens in the work place. There is evidence on the effectiveness of motor vehicle emission regulation and reducing new vehicle emissions, but little information on the effect of this regulation on air quality or on human health. A few economists have done considerable work on the benefits of highway safety regulation, most concluding that there have been sizeable benefits. But for the vast majority of health, safety, and environmental programs, there are simply no thorough studies of the benefits they may have created. Indeed, for many of these programs one would be hard-pressed to find convincing studies that show that expo sures have been reduced over those that would have occurred in an unregulated market. For example, are surface waters cleaner or dirtier today as a result of the Clean Water Act? How much of exposures to carcinogens have been reduced by regulation under the Clean Air Act, the Clean Water Act, Superfund, the Toxic Substances Control Act, the Resource Recovery and Conservation Act, the OSHA Act, and so forth? This ignorance is not inevitable. We should be in a much better position to recommend changes in existing programs or rules if there had been any Congressional demand for evidence that the benefits of these programs more than offset their social costs. It may be difficult to study these matters because the full costs are not easily measured and the benefits may require years to become visible, but it is not impossible. Unfortunately, there has been no demand for such accountability. Because most programs, such as those governing Federal ambient air quality standards or the control of food additives or contaminants are to be carried out without regard to measuring either their likely costs or their incremental benefits, regulators have generally not bothered to worry about the ultimate costs or benefits of the rules the promulgate or the entire programs they shepherd. No attention is given, for example, to assessing whether the incremental benefits of reducing smog to a 0.12 parts per million level on the second smoggiest day of the year in, say Columbus or Wilmington, to use a couple of examples, are equal to the incremental costs of getting there. Congress does not ask, and regulators therefore do not provide answers to unasked questions. I do not mean to suggest the Congress may safely rely on regulators' own assessments of the effects of their programs if they did ask. Rather, I hope that legislation you are considering today can stimulate interest in actually investigating these phenomena. Congress should insist at a minimum that regulatory agencies collect the relevant data on pollution levels, exposure rates, accident rates, mortality rates, so that impartial academic studies of the effectiveness of the various regulatory programs can accumulate. We should remember that it was not the Interstate Commerce Commission's own studies to the benefits of deregulation of trucking or the CAB's estimates of how it kept rates high and entrants out of most interstate airline markets that led to deregulation in these two industries. But without data on trucking or railroad rates, economists could not have convincingly demonstrated the folly of barring entry in rate competition in the name of protecting consumers. In fact, that evidence was used very, very extensively in hearings in the Senate, chaired by Senator Kennedy at the time, whose staff director is now Supreme Court Justice Breyer. Supreme Court Justice Breyer is quite adamant that that research was very important in providing a record which would predict that deregulation would work, as in fact it has worked. Now I do not mean to say that we do not have any evidence on the efficiency of current programs, but what I am trying to say is that we simply do not have extensive evidence on most of the programs. We are beginning to accumulate evidence, that you have heard, about the extensive costs and prospective costs of attempt |