What's Good Enough for General Motors…

It’s hard to find someone who is not appalled at the news that General Motors knew the ignition switches on some 2.6 million of its automobiles were defective and yet did nothing to fix the problem, instead recommending that its customers stop using keychains.  It also lied repeatedly to its regulator, the National Highway Traffic Safety Administration (NHTSA), the media, and its customers. The company’s deliberate lies saved about 90 cents per car, but the defect, apparent for many years, cost lives. So far, GM admits to 13 deaths caused by the sudden failure of the ignition switches, shutting down the cars’ electrical systems, and with it, power brakes, power steering, and airbags.  But judging from the number of people who have filed lawsuits, the death toll could climb much higher, not to mention the non-fatal accidents caused by the problem, conveniently ignored by GM.

The outrage here is quite appropriate. After all, in order to save a little more than $2.3 million (90 cents times 2.6 million cars, that is), a company that reported a profit of $3.8 billion last year risked the lives of millions of customers — and then lost its stingy bet.

As GM now takes the shellacking it so richly deserves in the court of public opinion and, we can only hope, in actual courtrooms, it’s worth considering just exactly why that ratio of money saved to lives lost is so striking.  Is it the particulars of the figures?  Or is it that the balancing of profit against lives is appalling in and of itself?  After all, the government does this kind of cost-benefit analysis all the time in deciding how much protection to require companies to provide. In the frantic number-crunching that goes on in agency backrooms as they consider possible regulatory safeguards, not only is it commonplace for policymakers to ask how many dollars GM could pocket if it didn’t have to comply with a given regulation, it is considered rational.  

So, what if it had been a $5 repair that GM decided not to make? Or a $20 repair? Who’d like to argue that even a $40 repair to 2.6 million cars would be too much to pay to save lives? The cost-benefit analyses that the White House Office of Information and Regulatory Affairs (OIRA) imposes on federal agencies developing safeguards against pollution, unsafe vehicles and products, hazards in the workplace and in the food supply, hinge on just such calculations. The agencies work with  a relatively arbitrary dollar value for a human life, ranging from about $1 million per life to $10 million per life, depending on the agency, the protection on offer, and whose life—old people may be worth less than the young, for example, and OIRA requires that before agencies adopt safeguards against various hazards, they must demonstrate that the rule in question saves “enough” lives to earn back the costs of implementing the rule.

In practical terms, that means that for a rule to pass the OIRA’s cost-benefit test, it usually can’t cost industry more to implement than it will save in terms of lives saved or other benefits. If you happen to run a company that makes a whole lot of money doing something dangerous to consumers, workers, or the environment, that’s good news, because it means that a proposed rule will have a very high bar to clear. If it cuts into your profits too much, regardless of how large those profits are overall, it won’t pass the cost-benefit test, and likely won’t be adopted.

From the perspective of the green eyeshade set, what that boils down to is that the more profitable the dangerous behavior, the harder it is to regulate. That is what cost-benefit, as practiced by OIRA, imposes.

That is, of course, every bit as offensive as GM’s decision to risk lives to save 90 cents per car. The only significant difference is the price point. We’ve already established that it’s OK to risk people’s lives; indeed, we’ve embedded the approach in our public policy. Now, as the story goes, “we’re just haggling over the price.”

There was a time when many Americans believed the old saying that “what’s good for GM is good for America.” But in light of GM’s revelations, and mindful that cost-benefit takes a similar approach to environmental, health, and safety regulations, it might be time for an update: “What’s good enough for GM, is good enough for Americans.” A terrifying thought.