The office’s administrators require that federal agencies express the costs and benefits of their proposed rules (lives saved, swampland preserved) in dollars. Moral principles, filtered through this cost-benefit analysis, find their way into confounding little boxes. A human life, the E.P.A. figured in a 2001 rule about arsenic and drinking water, was worth $6.1 million. (If an environmental regulation would save one life but cost $4 million, it ought to be put into effect; if it cost $8 million to save that life, the regulation would be scuttled.) Each I.Q. point a child lost because of exposure to lead was worth $8,346 over the course of a lifetime. A lost workday was worth $83. Many of these estimates used data from surveys — taken at malls, among other places — that asked passers-by how much more they would need to be paid to take on a job that carried, for instance, a 1-in-10,000 risk of death. Richard Posner, who has the most magnificent and chilly mind in this realm, used similar projections to price the benefit of preventing the extinction of the human race at $600 trillion.
For years, Sunstein has wrestled in his writing with the difficulty in estimating the possibility of catastrophe — studies of insurance markets have found that we tend to ignore small risks until their probability passes a certain threshold, at which point we overspend wildly to prevent them. Our public assumptions about costs and benefits are often similarly out of whack. We probably spent too little on air security before the Sept. 11, 2001, attacks, Sunstein says. Afterward we have struggled to calibrate the appropriate response. Likewise, the threat of catastrophic climate change bedevils even experts. How do you account for a small but real chance that the global sea level will rise by 20 feet?
In OIRA’s cost-benefit calculations, the government’s willingness to spend depends on how expensive the damage will be — on what economists call the social cost of carbon. Sunstein and others in the government have spent several months trying to define this cost, and he talked me through the process. One of the most important issues is the discount rate — the depreciation of money over time. All else being equal, if given a choice between paying $1 million now and $1 million five years from now, economists will choose to pay later. After all, if money depreciates at say, 3 percent a year, then spending $1 million today is the equivalent of spending only about $860,000 of today’s dollars five years from now.