Statement of Joan Claybrook
On the Nomination of John Graham to the Office of Information and Regulatory Affairs
Office of Management and Budget
United States Senate Governmental Affairs Committee
May 17, 2001
Mr. Chairman and Members of the Committee:
I am pleased to offer this testimony for the record on the nomination of John Graham to the post of Administrator of the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB). I am President of Public Citizen, a national public interest organization with 150,000 members nationwide that represents consumer interests through lobbying, litigation, regulatory oversight, research and public education. Public Citizen recently authored a 130-page report on nominee John Graham, which details his decade of efforts on behalf of regulated industrial interests, which funded the organization that he headed at the Harvard School of Public Health. We oppose this nomination because of Graham's long record of crusades against health, safety and environmental safeguards. In this role, he would be responsible for overseeing the work of various regulatory agencies charged by law with protecting the public, including laws that he has disagreed with or fought to limit. If appointed, this would truly be a case of the fox guarding the hen-house.
We also wish to express our deep disagreement with Chairman Thompson's decision to prohibit witnesses at the hearing, other than the nominee. This very important and powerful post affects the public's daily life, and this Committee, we believe, should respect its obligation to air opposition points of view. Others who requested to testify and were denied the opportunity include Frank Mirer, of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW), Dr. Eric Chivian of Harvard Medical School, Dr. Philip Landrigan of Mount Sinai School of Medicine and Dr. Herbert Needleman, of the University of Pittsburgh School of Medicine.
The Potential for Misuse of Review Powers at OIRA
The development of new regulatory safeguards by federal agencies requires skilled experts, scientists and professionals to conduct extensive studies, research and economic analyses. The federal agencies also conduct a formal notice and comment process, in which stakeholders, including members of the public and representatives of industry, submit written testimony and testify at public hearings. As a result, regulatory agencies sometimes take years to develop new rules.
A series of presidential executive orders has provided that all significant new rules are reviewed by OIRA. In theory, the OIRA director should serve as an honest broker, reviewing regulatory proposals from federal agencies and deferring to agency expertise on most technical and scientific matters. Federal safeguards on industrial chemicals, fuel economy standards, air and water pollution levels, tobacco regulation, implementation of a Patients' Bill of Rights, and virtually every other issue that is critical to human and environmental health fall under the office's purview.
The review power given to OIRA means that its Administrator can serve as a last-minute chokepoint on agency action and has, in the past, enabled anti-regulation political appointees and government economists to intervene in the regulatory process. In addition, under the Paperwork Reduction Act, no government agency can gather information from ten or more entities, a request which often is essential for the research that justifies regulation, without approval from OIRA. Through these mechanisms, OIRA can slow, stall, weaken or stop regulatory proposals and final rules that regulated industry opposes. For example, OIRA has sought to control the agencies' economic analyses so that the costs of a regulation appear greater and the benefits less; ordered agencies to consider decisions on cost-benefit calculations even when prohibited to do so by Congress, which under the law put safety and public health first; and required agencies to reconsider data it had already disregarded as scientifically unhelpful or flawed.
Under the Reagan and Bush I administrations, OIRA was viewed as a "black hole," and many needed standards were revoked or delayed for long periods, altered to be less protective of the public, or blocked altogether. The office was the home of last resort for regulated industries: whenever an industry did not prevail in the public rulemaking process conducted by agency experts, it came through OIRA's back door to quash a rule. President Bush I created the Council on Competitiveness, the so-called "Quayle Council," headed by Vice President Dan Quayle, to work with OIRA in facilitating industries' anti-regulation objectives. During the Reagan years, Vice President Bush headed the "Task Force on Regulatory Relief," which played a similar role.
There is no doubt that business interests desire the same level of access that they had then to challenge and change regulatory agency decisions. The U.S. Chamber of Commerce told The Washington Post in February 2001 that it has drafted a presidential "executive order of its own that it hopes the new administration will use as a template for rewriting its policy on regulation."(1) The draft order lays out the process for "how rules should be reviewed, the role of the Office of Management and Budget, and the economic and scientific criteria that agencies should apply to rule-making."(2) "If you fix [OMB], you rein in all the agencies," Bruce Josten, the Chamber's executive vice president for government affairs, told the Post.(3)
Graham's first move at OIRA would likely be to draft a new executive order that could immobilize the issuance of new health, safety and environmental safeguards. But Congress has never approved a sweeping regulatory reform bill that would harness every new, significant regulation to a cost-benefit or risk management straitjacket. In legislation and in mandates to the federal agencies, Congress has also repeatedly authorized many statutes, such as the Clean Air Act, which state that public health should be considered paramount when drafting the goals of protective regulation. Under the cover of a re-written executive order, Graham could attempt to undermine these mandates, and accomplish everything that business interests have thus far failed to do through a fair and open democratic process.
Graham is unfit to serve as the Administrator of OIRA, and wield this tremendous power, due to the many conflicts of interest that would plague his service, his history of conducting research that places anti-regulatory policy objectives before academic accuracy and integrity, and his often-stated goal of further enlarging the use of a set of already-suspect economic evaluation tools, tools that contain a bias towards industry and against public health. We are deeply concerned that, in defiance of both express and implicit directions from Congress, an unaccountable OIRA will be able to overturn years of investment by the public, stakeholders, scientific experts and the agencies, and that the OMB will once again become a "black hole" which swallows sorely needed health and safety regulations, turning laws made by Congress into mere paper promises.
Objection One: Graham Has Deep Ties to Regulated Industries
Over the past decade, the Harvard Center for Risk Analysis (HCRA) directed by Graham has received unrestricted funding from 100 major industrial corporations and corporate trade associations, including oil, energy, chemical, agribusiness, mining and auto interests, such as Monsanto, National Steel, Kraft Foods (a subsidiary of Philip Morris), Atlantic Richfield, Ford Motor Company, Dow, 3M, DuPont, Exxon, the Chlorine Chemistry Council, the American Automobile Manufacturers Association, the American Petroleum Institute, the American Crop Protection Association, and the Chemical Manufacturers Association, now called the American Chemistry Council. A fuller list is appended to this testimony. Notably, unrestricted funding is not covered by his Center's conflict of interest policy, so the timing of these donations and the amount of money given to the Center remain a mystery to the public. Corporations also provide restricted funding for use in particular projects, such as the $300,000 from AT&T Wireless Communications that was noted in news reports as the basis for the Center's year 2000 study on the hazards of cellular phones and driving.
High-ranking executives from Oxford Oil, the National Association of Manufacturers, Eastman Chemical, Tenneco Incorporated, CK Witco Corporation, and Novartis Corporation serve on the Center's Executive Board. The Center's Advisory Council includes corporate officers from DuPont and the Grocery Manufacturers Association, and the chief attorney for environmental affairs at Exxon Chemical Americas.
Industry funders, which according to news reports comprise 60 percent of the Center's current annual budget, have seen their interests reflected in the Center's research, in Graham's work, and in his statements to the media and testimony to Congress. As the Public Citizen report, Safeguards At Risk, shows,(4) Graham's work at the Harvard Center for Risk Analysis has lent academic legitimacy to regulated industries' opposition to environmental, health and safety standards. Graham has consistently invoked the name of Harvard University and of the Harvard School of Public Health, while failing to mention that a majority of his Center's funding derives from industry sources. Corporations and industry trade associations have, predictably, been delighted to sponsor an advocate bearing the highly esteemed credentials of Harvard to serve as a mouthpiece for their opposition to potentially costly new rules.
Due to the long history of Graham's service to regulated interests, and his failures to identify relevant financial and other connections to corporate sponsors in his testimony before Congress, there is a special concern about the appearance of conflicts of interest in this case. Graham's record suggests that he may not be as sensitive to issues concerning a real or perceived conflict of interest as he should be as a public servant, and that concrete steps are needed to ensure that his longstanding relationships with regulated interests do not impede his service if he is confirmed. Our conflict of interest laws address perceived, as well as actual, conflicts as part of maintaining governmental integrity.
In addition, it should be made clear that the relationship between OMB and regulated industries is a matter for public scrutiny. There has been, in the past, a grave problem with the staff of OIRA and OMB conducting secret meetings and communications with industry representatives, outside the scope of agency transparency and accountability. Given the intense public interest in the operations of this office, and its enormous power over the regulatory process, Congress must remain vigilant, and, regardless of who occupies this office, must take whatever steps are necessary to maintain OMB's obligation to keep a valid, complete public record of its communications and to remain accountable to the public, Congress and government regulators.
Objection Two: Graham Research and Advocacy Has Serviced His Industry Funders
Recently, two separate letters from 74 academics including 11 colleagues of Graham's from Harvard Medical School and the Harvard School of Public Health, which houses Graham's Center wrote to the Governmental Affairs Committee in opposition to the Graham nomination. Both letters raised concerns that Graham's industry-funded research has downplayed hazards faced by the public and triggered conflict-of-interest concerns, one suggesting that his work shows "a remarkable congruency with the interests of regulated industries." Serious questions have been raised about the conflicts involved in the positions advocated by Graham, the research underlying those positions and the links to corporate sponsorship of the Center's and his own research.
Automobile Air Bags
In March 1997, the National Highway Traffic Safety Administration was considering an auto industry proposal to amend the safety standards on air bags in order to allow a reduction in inflation power because of problems with particular models of passenger side air bags. Graham announced in news appearances and before the National Transportation Safety Board that a new, unpublished Center report had convinced him that passenger-side air bags were not cost effective enough to justify being mandated. His research, Graham suggested, showed that passenger-side air bags cost $399,000 for each year-of-life saved. After harsh criticism from auto safety advocates, Graham's data and conclusions were revised and peer-reviewed.
This resulted in a dramatic turnaround by Graham, published in the Journal of the American Medical Association, which showed that the cost of the same passenger-side air bags had been reduced to $61,000 for each year-of-life saved. Graham's new conclusion was that those air bags were a worthwhile investment by economic standards. Graham's Center has received unrestricted funding from the auto industry, but it is not known in what amount, and unrestricted funding is not covered by Graham's Center's conflict of interest policy.
Graham solicited financial contributions from tobacco giant Philip Morris in the early 1990s as the company was fighting an international battle over the regulation of tobacco. Graham also invited Philip Morris officials to review a draft of a chapter on the subject of the Surgeon General's report on smoking. While Graham initially returned a check sent by Philip Morris, later that year money was given to Graham by Kraft Foods, a subsidiary of Philip Morris. According to The Boston Globe, the Harvard Center's spokesman, David Ropeik, "said Graham returned the January 1992 Philip Morris donation at the insistence of Harvey Fineberg, then dean of the public health school. The $20,000 check from Kraft General Foods followed that summer, which was noted in a Philip Morris internal memo with the comment 'I hope we can continue to work with and support Dr. Graham's work.' "(5)
Cell Phones and Driver Distraction
The Public Citizen report, Safeguards at Risk, shows that in July 2000, as many cities and states were considering outlawing the use of cell phones while driving, Graham published a study, funded by $300,000 from AT&T Wireless Communications, assessing the risks to drivers. The Center's self-published study, unsurprisingly, came out against a ban on using cellular phones while driving, concluding that such a ban would be more costly than air bags and that there was "not enough reliable information on which to base reasonable policy." The study was publicly criticized by one of its peer reviewers, Dr. Donald Redelmeier, who suggested that the study lacked rigor because it "provides no new data, gives no new expertise and provides no new analysis."(6) Redelmeier also told reporters that the "Harvard researchers left the report open to conflict-of-interest questions because they didn't publish it in a scientific journal or take other steps to demonstrate the study's fairness."(7)
The ultimate conclusion of the cell phone study was that it was premature to enact a ban, thereby in effect placing the burden of proof on regulators to show that there is sufficient economic justification to act to protect human life. Because crash data on driver distraction was incomplete, yet the reductions in industry profits from a ban on cell phone use on driving were clear, the Center concluded in its monthly newsletter, Risk In Perspective, that nothing should be done to address the risks. In drawing such policy conclusions, the Center thus discarded the practical and policy implications of the common sense approach used by the communities considering legislation to prohibit the use of cell phones while driving. In contrast, a study by the National Highway Traffic Safety Administration on the same issue, while acknowledging that the data were incomplete, had concluded that using a cell phone while driving does increase the risk of a crash from driver distraction.(8)
Graham's public communications on risk issues that affect his funders have sometimes been misleading. A National Public Radio (NPR) story on dioxin last year reported that EPA scientists had determined that dioxin causes the average American "an additional lifetime risk of cancer as high as one in a hundred."(9) The story also indulged Graham's sleight-of-hand: " 'That would put dioxin on par with other common risks,' said Graham. 'The average American in their lifetime has about one chance in a hundred of dying in a car crash . . . So this type of risk they're talking about here, if true, would be a significant risk, but it would not be something that would be out of the norm of what people experience in daily life.' "(10)
The catch is that the risks demonstrated by the EPA are cumulative to existing risks, not merely "on par." Although Graham did not say so, these data reveal that members of the public may now have both a 1 percent chance of dying in a car crash and a 1 percent chance of contracting cancer from dioxin -- for a 2 percent fatality rate. The NPR program also failed to mention that Graham has received funding from dioxin interests such as Dow, the Chlorine Chemistry Council, Du Pont, the American Chemistry Council, and a number of others.(11)
Notably, Graham's approach also fails to account for the non-cancer effects of dioxin that were not measured in that particular EPA study, or for the interactive effects that dioxin may have with other chemicals added to the environment. In addition, if, following Graham's advice, we merely compare the magnitude of one risk to another -- 1 percent to 1 percent -- and declare that a one in a hundred risk of dying from a particular hazard is "normal," what would stop the manufacturers of unsafe products and polluters from adding just one more "normal" risk? The more risky the world gets, the lower our benchmark of "normal" will go -- into a downward spiral. This is a classic example of the kind of "race to the bottom" that our tradition of strong health and safety regulation is intended to prevent.
Graham's other work on dioxin has also attempted to "normalize" the risks posed by the chemical. Graham served as a consultant on the 1995 Science Advisory Board (SAB) Dioxin Reassessment Review Committee and until his recent resignation was a member of the current SAB Dioxin Reassessment Review Committee. In 2000, the Environmental Protection Agency (EPA) prepared a draft risk assessment that showed the public faces much higher risks of cancer and non-cancer health harms (infertility, immune system damage and learning disabilities) from dioxin, even at very low levels of exposure, than was previously understood. The EPA's risk assessment was based on more than 100 studies in animals and humans showing that dioxin caused cancer at low doses. More than 90 percent of dioxin exposure comes through the food we eat, and is particularly concentrated in fish, meat and dairy products.
At a meeting of the SAB in November 2000, citing only two limited, outlying studies, Graham claimed that low levels of dioxin may actually protect against cancer, suggesting that the studies showed that dioxin may be an "anti-carcinogen." Based on the transcript of the meeting, it appears that Graham argued that the SAB should ask EPA to revise its risk assessment on dioxin to include the following statement: "It is not clear whether further reductions in background body burdens of TCDD [dioxin] will cause a net reduction in cancer incidence, a net increase in cancer incidence, or have no net change in cancer incidence." If the EPA did adopt Graham's approach, its dioxin risk assessment might fail to provide a basis for federal regulators to ask companies to curtail dioxin emissions.
The Washington Post reported that at the November EPA SAB meeting, "[a]bout a third of the 21 panel members were scientists and scholars who have worked as paid consultants to the chemical industry. They included John D. Graham -- long a critic of the notion that dioxin and cancer are linked and founder of the industry-backed Harvard Center for Risk Analysis."(12) According to the Center for Health and Environmental Justice, Graham's Center has received financial support from at least 47 different dioxin producers, including incinerator companies, pulp and paper companies, cement kilns, copper smelters, PVC manufacturers, PCB producers, and the petroleum industry.
Despite the conflict of interest created by Graham's obligation to serve as an objective expert, as a consultant to the SAB, and his real or perceived obligations to HCRA's dozens of dioxin-producing supporters, Graham continued to participate in the SAB process as a vocal proponent for industry's position. Even when two scientists Frederica Perera and Ellen Silbergeld recused themselves from the SAB because of their close association with environmental organizations that were pushing for tighter controls of dioxin, Graham still failed to resign.(13)
OIRA will play a key role in reviewing any new pesticide regulations that the EPA may promulgate. But in August 1999 Graham's Center issued a biased and fundamentally flawed report(14) on implementation of the unanimously passed Food Quality Protection Act (FQPA). The study was funded by the American Farm Bureau Federation, which opposes restrictions on pesticides. The report, dubbed "The Truth from Harvard" by pesticide lobbyists, has been used to generate congressional support for rolling back FQPA's key public health provisions, which require that manufacturers prove that pesticides are safe for children and infants, yet its methodologies were severely biased and produced results suggesting that such regulation would be very costly for industry.
The report's most prominent flaws are the extreme and unwarranted assumptions that implementation of the FQPA would cause a catastrophic shortage of insecticides available to farmers and that the readily available alternative chemical and non-chemical pest control options would not be used to replace the banned pesticides. The authors assumed for the purposes of the study that EPA would ban all uses of all organophosphate (OP) and carbamate insecticides. This complete ban of more than 50 chemicals is far outside the scope of any action EPA has considered necessary to achieve the goals of the FQPA. The report's authors acknowledge this fact, but then base their analysis on what they concede is a false assumption. Researchers justified their decision on account of its "analytic virtue" (i.e., simplicity). The report's assertion that alternatives are too costly is not based on any analysis of actual costs and is simply not credible.
The truth is that pesticide prices and expenditures in the U.S. are falling across the board as dozens of new products have increased competition. There are many existing, proven alternatives to high risk insecticides. The pest control industry has been developing and introducing new products in response to FQPA's pressure to phase out older, high-risk chemicals. Ironically, the HCRA analysis ignores the effects of market-driven innovation. The study also ignores the progress made by farmers in adopting bio-intensive Integrated Pest Management, or a least-toxic approach.
Objection Three: Graham Has Made Extensive Use of Faulty Methodologies
If confirmed, Graham is expected to rely heavily on highly disputed cost-benefit calculations to determine when particular regulations are warranted. But there are numerous problems with those methods in the regulatory context. The tools that Graham would be very likely to apply at OIRA should be viewed as severely limited in their usefulness to policymakers because cost-benefit analysis systematically short-changes public health and environmental goals and can easily be manipulated on behalf of industry opponents to regulation.
For example, OIRA sometimes uses the industries' own cost estimates, yet studies have shown that the industries' numbers are badly inflated, that companies often find highly cost-effective means of complying with regulations once they are implemented, and that many regulations may even stimulate productivity through the development of sustainable technologies.
The value of any cost-benefit analysis is also limited by the available scientific data -- garbage in, garbage out. Because we don't have good numbers for diseases other than cancer, benefits such as a reduction in gastrointestinal or reproductive ailments are usually left out of these types of calculations altogether. Due to a near-exclusive focus on the number of human lives that are saved by a regulation, and the difficulty of deriving a definitive value for so-called "non-tangible" benefits, such as a view of the Grand Canyon, the practice of cost-benefit analysis also often fails to take these factors into account. Yet the focus of much protective environmental legislation is precisely to protect and preserve the value of a healthy ecosystem, or to minimize the effect of human activities upon animal life and habitat. In addition, many believe that translating the value of life into dollar amounts as a basis for societal decision-making is morally questionable, if not reprehensible. At the very least, rendering the impacts on human suffering and lives in monetary terms is out of touch with the public's notions of human value in ways that should matter to democratic decisionmakers.
Graham's agenda, has, over the years, closely tracked the interests, and potential liabilities, of his corporate benefactors, and he has used various cost-benefit and other analytic techniques to accomplish their goals. For example, Graham has stated in testimony before Congress that virtually any hazard-related agency action should pass through a formal review by the White House. In his 1997 testimony, Graham advocated a sweeping requirement that would have imposed upon all of the government's risk-related policies a "peer review" by committees likely to be staffed with industry-friendly "experts" and an onerous, centralized clearance of both the protocols for the risk assessment and the risk assessment's end results through the White House Office of Science and Technology Policy. These red tape burdens would apply even if the agency were merely publicizing information on a hazard that had not been part of any formal rulemaking, such as a pronouncement by the Surgeon General on the risks of smoking.(15) In short, Graham proposed a near stranglehold on the government's ability to communicate public health information.
Graham has also repeatedly suggested that omnibus regulatory rollback legislation should be so sweeping that it over-rides existing agency mandates and requires cost-benefit and risk-benefit analysis before any safeguard can be issued.(16) In his over-reaching prescription, the results of a highly technical (and potentially manipulable) economic analysis, often based on severely limited or questionably accurate data, could determine the survival of a rule. In 1997, Graham said that all the agencies' "enabling statutes should be superseded by the general requirement that each rule's identified benefits must justify its identified costs."(17)
Graham has acknowledged that so-called "intangibles," i.e., equity, distributive or ethical goals, may allow a regulation that fails a strict cost-benefit analysis to be enacted by a regulator who is able to show a compelling reason for the rule outside the cost-benefit calculus.(18) But Graham's partial and somewhat begrudging solution fails to explain why regulators must re-justify an action which a congressional mandate, and the democratic process, have already more than fully authorized. Indeed, Graham's history of overlooking the natural limits of his discipline has offended other scholars of regulatory studies, political science, bio-ethics, moral philosophy, public health policy and other social sciences, as recently indicated in two separate letters opposing Graham's nomination that were sent to the Committee. As some of these scholars have argued in their published research and in their letters, allowing cost-benefit analysis the power to overcome agency mandates handed down from Congress is anti-democratic, and is an invitation for abuse by special interests that have a concentrated financial stake in the outcome of regulatory and other federal policy decisions.
A very similar proposal to Graham's, above, in relation to the role of cost-benefit analysis in protective regulation, was soundly rejected by a unanimous Supreme Court in a February 28, 2001 decision. The American Trucking Associations sued the EPA to block new requirements issued under the Clean Air Act.(19) Graham and other anti-regulatory economists, several from the American Enterprise Institute-Brookings Joint Center for Regulatory Studies (AEI-Brookings), submitted a brief to the Court on the side of the trucking industry, arguing that requiring cost-benefit analysis would "improve regulatory decisionmaking."(20) Justice Scalia, writing for the full Court, disagreed, holding that neither the Clean Air Act nor the U.S. Constitution requires that corporate compliance costs be considered when EPA writes a clean air rule.
Graham also often argues that risks should be compared, for policymaking purposes, with other risks. In the parlance, this is called comparative risk analysis or risk-benefit analysis. Graham promoted this approach as a media strategy at a Heritage Foundation meeting in 1996, arguing that anti-regulation advocates would appear more environmentally friendly if they couched regulatory rollback arguments in efficiency terms.(21) In order to move an anti-regulatory agenda along more politically acceptable lines, Graham suggested that: "We ought to make the case that if these agencies were smarter and more scientific, we could reallocate resources, save more lives, and do more for the environment at no increased cost to the taxpayer. . . This basic principle of comparative risk, using our resources better, is one that I think we should force some [congressional] votes on -- not linked to congressional review of regulations, not linked to costs and benefits, just that specific issue of comparing risks."(22) In other words, because industry interests are not persuasive if they merely oppose all protective regulation, business interests should hone in on regulatory comparisons and suggest that regulators merely have the wrong priorities.
In fact, Graham has made ample use of this technique in his comments to the media on risk issues. Graham has repeatedly endeavored to deflect attention from toxic chemicals such as pesticides, arguing that instead, regulators should focus upon such uncontroversial, "soft" social interventions as violence prevention and bicycle helmets for children. The news articles that contain such comments often fail to mention that many of the corporate sponsors of Graham's Center have a direct financial interest in the public health and regulatory decisions that are the topic of discussion. A list of Graham's recent comments in this regard, and the corporate sponsors related to the subjects at the center of the article, is appended to this testimony.
In 1996, according to news reports, Graham told political strategists at the Heritage Foundation that environmental regulation should be depicted as an "incredible intervention" in the operation of society.(23) He has also said that support for the regulation of chemicals in our water supply shows the public's affliction with "a syndrome of paranoia and neglect."(24) According to news reports, Graham explained to attendees at a conference at Duke University in 1996 that he believed that "government agencies should be required to depend on expert analyses, rather than public views, in deciding which threats to regulate."(25) Because it is well known in Graham's field of risk management that the public possesses a more cautious attitude about risks than do the so-called "risk experts," a suggestion that agencies should rely on experts alone reveals Graham's disdain for the concerns of the public, and his willingness to arrogantly dismiss the significance of risks faced by the public in the workplace, on the highway, and in their daily lives.
Another good example of the bias inherent in both cost-benefit analysis and comparative risk analysis, as they are currently practiced by OIRA, is the devaluing of future generations and the environment which is caused by inappropriately "discounting" the value of the future benefits of regulation. This occurs when the value of goods received in the future are reduced to an estimate of their "present value." If, as Graham has proposed, reviewers give cost-benefit analysis and comparative risk analysis substantially more weight in the regulatory process, this highly technical aspect of the process alone will systematically skew regulatory decisions in favor of regulated industries, and against protecting future generations and the environment.
The practice of "discounting" is perhaps most easily explained by reference to the present and future value of money. In financial terms, it is correct that receiving $1,000 today is worth more than receiving $1,000 in ten years because the $1,000 received today can be invested, and thus would be expected to be worth more ten years from now. It is thus a financial truism that money received in the future is worth less than the same amount of money received today, and this fact requires an adjustment in the estimate of that sum's value in the present.
However, it is not necessarily true that non-monetary benefits, such as health, safety, and environmental benefits, are worth less tomorrow than if they were immediate. Discounting the value of future health, safety and environmental benefits, which cannot be invested, at the same rate used to discount money is illogical because such benefits do not become less valuable over time, the way that money does. The practice also makes regulations with long-range benefits appear to be far less beneficial than they actually are. By discounting health, safety and environmental benefits received in the future, we underestimate their true value to society. Such a system will therefore produce policy decisions that are fundamentally out of step with our support for environmentally sound regulation and with Congress' expressed desire, in legislative mandates to the federal regulatory agencies, to preserve the earth for our children and future generations.
Discounting can have an enormous effect upon whether a rule appears sensible or ridiculous. For example, because there is typically a 30- to 40-year lag time between exposure to a harmful substance such as asbestos and a person's resulting death from cancer, in "discounting" a life saved 40 years from now is calculated as a mere fraction of that person's present value. Moreover, the higher the discount rate that is used, the greater is the bias against protecting future generations and the environment.
Although experts disagree over whether health, safety, and environmental outcomes may properly be discounted, among academic economists who do support discounting such benefits, the consensus is to use the so-called "social rate of time preference," estimated to be a real rate of approximately three percent.(26)
However, the agencies are currently advised by an OMB circular to discount all goods at a rate of seven percent, which represents the "opportunity cost of capital," or the rate that money could likely earn if invested. That means that benefits that become evident in thirty years including lives saved by regulations are considered to be worth 87 percent less than they would be worth today.
An example of how the choice of discount rate can affect cost-benefit results is a 1996 Housing and Urban Development (HUD) regulation of lead-based paint.(27) This regulation was estimated by the agency to have net benefits of $1,080.2 million when a three percent discount rate was used, even though it showed net benefits of only $39 million at a seven percent rate. As agencies are pressured by OIRA to identify the most "cost-effective" regulatory option, or the option with greatest "net benefits," the discount rate that is used could determine which regulatory option survives.
Although OIRA currently recommends a seven percent discount rate to the executive agencies, in practice the agencies have had some freedom to use lower discount rates to assess benefits in certain cases. It is crucial that the agencies retain this freedom. Forcing agencies to use five or seven percent rates to assess the values of latent harms could actually prevent those harms from ever being regulated. However, because Graham favors greater OMB control and uniformity in agency analyses, he is unlikely to permit agencies to choose lower discount rates.
Even when it is properly applied, cost-benefit analysis is controversial enough, but Graham also has a history of misapplying the conclusions of his own cost-benefit analyses. In testimony recently submitted to the Senate Governmental Affairs Committee, Professor Lisa Heinzerling at Georgetown University School of Law completely debunks Graham's most renowned scholarly work -- an article that claimed his analysis of life-saving programs, completed with a graduate student, showed that every year 60,000 people die because the nation has chosen less cost-effective programs. Heinzerling establishes in her testimony that many of the cost-ineffective "programs" Graham considered were never implemented by any government body.
Heinzerling also establishes that Graham has perpetuated and encouraged a misinterpretation of his own research data, one that wrongly concludes that Graham's data show that actual federal regulations result in the "statistical murder" of 60,000 Americans every year. This is a misleading overstatement of the results of his studies, which in fact covered proposed but unimplemented programs, as well as medical interventions, which are not typically part of a federal program at all. As Safeguards At Risk further explains, Graham's "statistical murder" hypothesis requires that money saved by regulation be available for other government programs, yet compliance costs "saved" through the de-regulation of the environment or a diminution in health or safety standards lines the pockets of company shareholders, rather than the government's or the public's at large. This bit of misinformation has become legend among opponents of regulation and has been repeated dozens of times by the media, anti-regulation analysts, and even by several Members of Congress. Graham's mischaracterizations of his results in this manner are a serious blemish on his reputation as a scholar.
It is extremely important that someone nominated to a position with oversight of the regulatory process has demonstrated sensitivity to the many difficulties that plague the application of economic analysis in the regulatory setting. As I noted in testimony before Congress that appears in a 1980 Congressional Report on cost-benefit analysis, there are many serious problems faced by regulators in trying to quantify the costs and benefits of regulation:(28)
We attempt to quantify the life saving potential of our regulations, but imperfect data makes it impossible for us to assess all of the benefits ranging from the saving of lives, reduction of trauma, the maintenance of family relationships, the achievement of employment goals, the reduced cost for state and local governments in emergency medical services, police traffic services, hospital care, rehabilitation, unemployment and welfare, continuing medication, special transportation services, and so on. . . .
Even when we can quantify benefits we are mainly able to do so in terms of fatalities avoided but much less so the reduction in injuries. We are faced with judgmental decisions in comparing the cost with the benefits. How much should consumers or automobile manufacturers spend to save a child's life? Regulatory analysis will never be able answer such a philosophical question.
Just as important are the effects which can never be quantified, pain, suffering, crushed dreams, guilt. How do we place a value on a victim never being able to walk, what number do we pick to represent the inability to purchase that home the victim otherwise could have afforded, how much should society spend so as to avoid a mother's grief because one of the thousand little children killed in auto accidents each year was hers?
Cost benefit analysis will never be able to reduce these intangible foregone opportunities to a simple numerical ration, and ignoring them in our decisionmaking simply because we cannot quantify them would be an abrogation of our responsibilities under the statutes which govern our program.
For more than a decade, John Graham has been at the nexus of a corporate public relations effort intended to undercut the ability of federal agencies to enact new public and environmental safeguards. As Public Citizen's Safeguards at Risk report documents, Graham has devoted years to discrediting government regulators and shooting down safety and environmental standards through the use of economic pseudo-science.
Given Graham's past work and close collaboration with regulated industries, his appointment to OIRA would give industry a back door to the White House, enabling the Bush administration to block, delay or diminish new regulatory initiatives under the misleading pretense that they fail on cost-benefit or so-called "sound science" grounds. In ways the public and Congress may never know, the appointment of John Graham to this powerful office within the OMB could dramatically diminish the quality of the air we breathe, the wholesomeness of the food we eat and the safety of the cars we drive.
The members of the Senate Governmental Affairs Committee should not approve the nomination of John Graham to the Office of Information and Regulatory Affairs in the Office of Management and Budget.
1. Cindy Skrzycki, "Lining Up to Lobby for Rule Recission," The Washington Post, Feb. 6, 2001.
4. The full text of the report, published March 2001 and entitled Safeguards At Risk: John Graham and Corporate America's Back Door to the Bush White House, was submitted to the Senate Governmental Affairs Committee to be printed in the hearing record.
5. Anne Barnard, "Nominees Funding At Issue: Critics of Harvard Risk Analyst See Ties to Industry" The Boston Globe, Mar. 18, 2001.
6. Jay Lindsay "Harvard Study Says Risks of Driving With Cell Phones Are Overstated," Associated Press, July 24, 2000.
7. "Drivers Not Risking Much on the Horn, Study Says," The Providence Journal-Bulletin, July 25, 2000 (emphasis added).
8. See "Introduction" of study by the National Highway Traffic Safety Administration at <www.nhtsa.dot.gov/people/injury/research/wireless/#exec>.
9. Noah Adams, "EPA Report on Dioxin is Released and Confirms a Cancer Risk Exists to All Americans," All Things Considered, National Public Radio, June 15, 2000.
10. Id. (emphasis added).
11. Listed on the HCRA Web site by its former name, the Chemical Manufacturers Association.
12. "Dioxin Report by EPA on Hold, Industries Oppose Finding of Cancer Link, Urge Delay," The Washington Post, April 12, 2001.
13. "Expert Panel Backs EPA Dioxin Study," The Charleston Gazette, October 1, 1995 (Perera, an environmental health sciences professor at the Columbia University School of Public Health, was a board member of the Natural Resources Defense Council. Silbergeld, an epidemiologist at the University of Maryland, was a former staffer for the Environmental Defense Fund).
14. "Risk/Risk Tradeoffs in Pesticide Regulation: Evaluating the Public Health Effects of a Ban on Organophosphate and Carbamate Pesticides."
15. Testimony of John D. Graham before the Senate Committee on Governmental Affairs, Hearing on S. 981, "The Regulatory Improvement Act of 1997," Sept. 12, 1997.
16. Testimony of John D. Graham, before the Senate Committee on Environment and Public Works, hearing on "Impacts of Regulatory Reform on Environmental Law," Mar. 22, 1995. The Harvard Group On Risk Management, led by Graham, proposed, among other things, authorization of a science advisor to assess and rank all risks addressed by federal agencies, requiring flexibility for industry to comply with rules, and devolvement of regulation to states and localities.
17. Testimony of John D. Graham before the Senate Governmental Affairs Committee, Hearing on "The Role of Risk Analysis and Benefit-Cost Analysis In Regulatory Reform Legislation (S.291)," Feb. 15, 1995.
18. Testimony of John D. Graham before the House Government Affairs Committee on Regulatory Revision, Feb. 15, 1995.
19. American Trucking Associations, Inc., et al,. v. Whitman, Administrator of the EPA, No. 99-1257 (slip. op.) Feb. 27, 2001.
20. Brief of Robert E. Litan, Counsel of Record for the AEI-Brookings Joint Center For Regulatory Studies, in the case American Trucking Associations, Inc., et al,. v. Carol M. Browner, Administrator of the EPA, On Writ of Certiorari To the United States Court of Appeals (for Cross Petitioners, the American Trucking Association).
21. Making Regulatory Reform a Reality, Heritage Foundation Reports: A Heritage Foundation Symposium; No. 559, Jan. 31, 1996.
22. Id. (emphasis added).
23. "Risk-Expert Graham as Political Guru," Air/Water Pollution Report's Environment Week, Feb. 2, 1996 (emphasis added).
24. John D. Graham, "Making Regulatory Reform a Reality," Heritage Foundation Reports, Jan. 31, 1996.
25. "Excessive Reports of Health Risks Examined," The Patriot Ledger, Nov. 28, 1996, at 12.
26. Richard O. Zerbe, Benefit-Cost Analysis in Theory and Practice 281, 287 (1994).
27. 27 Comment: Judicial Review of Discount Rates Used in Regulatory Cost Benefit Analysis, 65 U. Chi L. Rev. 1333, 1337 (1998) (citing 61 FR 29170 (1996)).
28. Statement of Joan Claybrook, "Cost-Benefit Analysis: Wonder Tool or Mirage?" Report by the Subcommittee on Oversight and Investigations of the Committee on Interstate and Foreign Commerce, United States House of Representatives, December 1980.