Cost-Benefit Analysis Is Racist

When it comes to legal institutions that reinforce existing race-based power disparities and perpetuate racial injustice, few are more insidious, pervasive, and influential on a day-to-day basis than cost-benefit analysis and the role it plays in the U.S. regulatory system. The prominence of cost-benefit analysis has grown steadily over the past 40 years, and conservative opponents of regulations continue to push its expansion – to the point of displacing the clear statutory authorities that Congress has conferred upon agencies. In turn, this trend has been one of the leading contributing forces to the deepening entrenchment of structural racism endemic to the U.S. regulatory system.

Tapping into cost-benefit analysis’s theoretical foundations in welfare economics, its champions describe it as an effort to promote policies that will increase the aggregate “welfare” of all members of society as much as possible. Since it is difficult to measure aggregate welfare, or even agree on what it means, they use the size of the nation’s economy as a proxy. In practice, that means that the quality of regulatory decision-making is judged by the extent to which it succeeds in maximizing wealth as determined through cost-benefit analysis.

According to defenders of cost-benefit analysis, the virtue of this myopic focus on maximizing economic growth is that it promotes rational decision-making that is insulated from the messiness of resolving incommensurable subjective values – justice and equity among them. In reality, though, this claim to objectivity is false. That’s because the choice of wealth maximization as a policy goal is itself a value-laden one that carries all kinds of moral baggage. Specifically, this choice reflects the economists’ value preference for economic efficiency at the expense, even the exclusion, of all other values. And, given that the economics profession is overwhelmingly white and the practice of cost-benefit analysis tends to be the province of wealthy elites, foregrounding this otherwise hidden or unacknowledged subjectivity is important to understanding its inherent racism.

More to the point, this commitment to “moral objectivity” is what makes cost-benefit analysis such an effective conduit for injecting racism into regulatory decision-making. It is, so to speak, the methodology’s racist original sin. It provides the methodology with a veritable blank check to ignore distributional concerns that often arise when a particular regulation enhances one group’s welfare at the expense of another. This, of course, becomes problematic when such distributional issues serve to reinforce preexisting racial inequities. This commitment also explicitly requires agency decision-makers to disregard important values implicated by their regulations, many of which, such as equity and justice, are foundational to American democracy and the purpose of the legislation under which they regulate. Even more outrageously, the corollary to this conscious disregard is that it effectively forces agency decision-makers to give equal moral footing to even the most undesirable of individual preferences, including, for example, a bigot’s preference to discriminate against members of racial minorities.

The practical result of cost-benefit analysis’s false objectivity is that nearly every step of its methodological process affords an opportunity for smuggling racism into the regulatory system, much as the facile rhetoric of “colorblindness” – whether the product of good faith naiveté or more sinister ulterior motives – has enabled racism to flourish in our country and weave its way into the fabric of many of our institutions.

This is true of the methodology’s first step when the analytical baseline against which potential policy impacts are to be measured is defined. By adopting the nation’s status quo conditions of injustice and inequality as part of this baseline without critical interrogation, cost-benefit analysis implicitly provides these conditions with moral sanction. Whether it is centuries’ worth of institutionalized wealth theft resulting in widespread poverty among the Black community, the concentration of Black families in pollution “sacrifice zones” brought about by decades of land use segregation, or a criminal justice system that has reinvented slavery in the modern-day guise of mass incarceration – all these injustices and more become reduced to mere undistinguished background features that comprise the cost-benefit analysis landscape.

Once baked into to the baseline, racism becomes inextricably intertwined with the rest of the analysis, its effect accumulating and magnifying with each step. The Department of Justice once performed a cost-benefit analysis on a rule to prevent the incidence of prison rape, for example. Even as this horrific exercise sought to calculate to the last penny the “value” or preventing a full catalog of different kinds of sexual assaults, it made no attempt to account for the fact that a disproportionate number of the victims are Black and had been improperly incarcerated in the first place.

Or imagine an air pollution regulation that requires petrochemical companies to install emissions controls to protect nearby frontline communities. As a cost-saving measure, though, these companies intentionally site their facilities among or near impoverished minority populations, where land is cheap and political power is in short supply. The Environmental Protection Agency’s (EPA) cost-benefit analysis then compounds this injustice by treating the expenses these companies incur to clean up their pollution as a “cost.” Note that the company's “right” to pollute is considered a cost-free given in that analysis. Cleaning up their mess is regarded as the cost, the burden to be minimized. Not the pollution. From a society-wide point of view, it would be more ethically defensible to regard these expenses as a benefit since they would function as a measure of corrective justice for the ill-gotten gains that petrochemical companies have earned through a business model intentionally designed to profit off of structural racism.

As with constructing the analytical baseline, false “objectivity” permits systemic racism to taint the next stage of the cost-benefit analysis process as well – namely, the identification and evaluation of potential policy impacts. For decades, legal scholars have recognized the ethical problems that arise from cost-benefit analysis assigning equal moral weight to the competing interests affected by a given regulatory decision. For instance, a cost-benefit analysis for an air pollution regulation implicitly treats the expenses that a wealthy corporation would incur through compliance costs as ethically commensurate with the compromised health, diminished quality of life, and premature deaths experienced by affected communities. According to the twisted logic of cost-benefit analysis, if the calculated cost to the company of cleaning up its own mess exceeds the artificially depressed monetary value of preventing people living in fenceline communities from getting unacceptably sick, then the regulation fails and must be watered down or abandoned. Note whose health is in the balance; it’s not the health of the investors in the polluting company, but the residents in the fenceline community who breathe and drink water. If the benefits and the costs were both on the same ledger – that is, if those who profited from pollution also bore its health burdens – there would be a hint of justice in the calculation. But that's not the case. Rich people do the polluting and the profiting, while someone else bears the health costs. All too often, that someone else is Black or Brown.

Nor is this reflexive “objectivity” the only defining feature of cost-benefit analysis that contributes to its intrinsic racism; so, too, does its methodological commitment to monetization of non-market goods, such as the prevention of workplace injuries or premature deaths from air pollution-linked cardiovascular disease. As other legal scholars have observed, by selecting money as the common metric for comparing welfare changes across individuals, cost-benefit analysis becomes systematically skewed to favor the interests of people and companies that have a lot of it. That is because the value of each dollar – its marginal utility – is greater for the poor than the rich. (In this regard, monetization can be seen as a variant of the broader attempt in cost-benefit analysis to ensure objectivity in regulatory decision-making that nonetheless has the perverse consequence of introducing systematic bias.)

Moreover, by using “willingness to pay” (instead of “willingness to accept”) as its default approach to measuring non-market benefits, cost-benefit analysis compounds this disparate treatment based on wealth, since a poor person’s willingness to pay for things like a safe workplace or clean air to breathe will necessarily be constrained by her ability to pay for them in the first place. Someone who makes $200,000 a year is more willing to pay to live in a neighborhood miles away from the nearest smokestack than someone who makes minimum wage and rents where they can afford to live. Again, the close association between poverty and race in the United States means that this wealth-based bias that cost-benefit analysis introduces into regulatory decision-making will necessarily translate into policies that reflect and perpetuate racial injustice.

The technique that cost-benefit analysis uses for assigning a monetary value to a human life – referred to as the “Value of Statistical Life” (VSL) – illustrates how the methodology’s various racist aspects can accumulate and reinforce one another. Because human lives are not for sale in the marketplace, creative economists have sought to reverse-engineer something similar by extrapolating from ostensibly analogous market transactions – specifically, the marginal increases in pay that workers receive for accepting more dangerous employment. These economists observed a curious result in these studies, though: Black workers typically “demanded” a much smaller wage premium than did white workers, which implied that their lives – or at least their VSLs – should be worth less for cost-benefit analysis purposes. (Similarly, studies have found lower VSLs for poorer people as compared to wealthier ones.)

Of course, Black workers do not value their lives any less than anyone else (if indeed they attempt to value them in dollar terms at all). Instead, decades of racial discrimination in the labor market has left these workers with far less bargaining power to demand higher wages. What’s more, disparities in education and other forms of “social capital” have likely weakened Black workers’ bargaining power even more by exacerbating information asymmetries between them and prospective employers regarding certain kinds of workplace risks.

Yet, instead of learning these obvious lessons, cost-benefit analysis proponents like Cass Sunstein have suggested that it might be proper for agencies to “disaggregate” the VSL to account for these kinds of race-based differences. That, in turn, would translate into weaker protections for Black Americans since the higher costs of more stringent regulations could not be justified in light of the smaller “value” of the benefits they would produce.

A defender of cost-benefit analysis might well respond to all of these criticisms by arguing that Black Americans still stand to benefit from cost-benefit analysis-informed regulations on balance because the losses they might suffer are outweighed by the gains they might receive when overall social welfare – that is, aggregate economic growth – has been maximized. In other words, the rising tides coerced by cost-benefit analysis’s gravitational pull lifts all boats. This response offers cold comfort to those Black Americans who find their boat never seems to rise with the tide.

As cost-benefit analysis threatens to increase its stranglehold over federal regulations, it is revealing to contrast this form of state action with others that are categorically exempted from the practice. Even at this threshold delineation, the intrinsic racism of cost-benefit analysis is evident. In particular, this delineation betrays an unmistakable political statement regarding the relative “value” of the public goods that a given state action produces – for instance, the health, safety, environmental, and individual financial security safeguards supplied by protective regulations – and thus the amount of social resources that are “worth” devoting to securing those public goods. Not surprisingly, the manner in which political elites have dictated which actions are subject to cost-benefit analysis-imposed constraints and which are exempted from them has tended to reinforce their power while exacerbating pre-existing inequities.

The two most obvious examples of state actions that have historically been exempted from cost-benefit constraints are the military and local law enforcement. Not only do both these institutions have long, appalling histories as agents of racial discrimination and oppression, they continue to serve as two of our government’s most prominent contributors to structural racism today. Beyond the conspicuously egregious acts of racism enabled by these institutions – police brutality or embrace of overtly racist symbols of the Confederacy, for example – both routinely deploy their monopoly on state-authorized violence on behalf of elites’ interests in ways that maintain status quo conditions of injustice and inequality.

Of greater relevance to the issue of cost-benefit analysis, though, both the military and local law enforcement consume an enormous share of public resources. In Fiscal Year 2019, military spending accounted for nearly $700 billion, or one-sixth of the entire federal budget. In Fiscal Year 2017, cash-strapped state and local governments spent a total of approximately $115 billion (or about 4 percent of their budgets) on police. From a racial justice perspective, these expenditures have displaced potential investment in social programs that could help remediate the causes and consequences of structural racism, such as education, public housing, and poverty reduction. Nevertheless, military and police budgets have continued to grow even in the face of serious questions regarding their efficacy, particularly relative to alternative approaches for promoting national security (e.g., diplomacy) and crime prevention (e.g., diversionary programs). These are precisely the kinds of misallocations of public resources that defenders of cost-benefit analysis claim that the practice is meant to prevent. It is a cruel bit of irony that a rigorous cost-benefit analysis would likely find that a significant portion of resources spent on military and policing programs would be better allocated towards investment in communities of color.

The brutal killing of George Floyd at the hands of a Minneapolis police officer – and the wave of civil unrest it unleashed across the country – has spurred a critical evaluation, long overdue, of how many of our legal institutions promote and reinforce race-based disparities of power. This evaluation should extend to the various institutions that constitute our federal regulatory system, including cost-benefit analysis. The regulatory system holds the promise of serving as a powerful institutional tool for addressing structural racism, but only if we're willing and able to recognize and address its intrinsic racism first.

Learn More About Cost-Benefit Analysis and the Need for a Progressive Overhaul of the Regulatory System

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