The nation lost an unlikely and mostly unsung hero with the death on Christmas Eve of Walter Oi. Armed with keen insight of the sort that has almost entirely vanished from Washington, this University of Rochester economist was instrumental in demonstrating the superiority of a voluntary military force over a conscripted one. He proved proper economic analysis could be as important as the latest ship, tank or airplane. Mr. Oi, who was 84, was a second-generation Japanese American who was interned during World War II. He had been blind since he was 27.
In 1967, government accountants measured the cost of a soldier by the size of his paycheck. The Pentagon’s bean counters took that to mean that an army of draftees would be cheaper than recruiting volunteers. Mr. Oi (rhymes with “coy”) went beyond this obvious calculation and included in his analysis the value of what each draftee did in civilian life. Pulling an engineer or a plumber from civilian life meant that there was one fewer engineer or plumber to contribute to the private economy. There’s a measurable cost to society when nobody’s around to help when the drains back up or the lights flicker out. By 1973, the Pentagon was convinced, and it abandoned the draft.
Careful economic analysis is the last thing Washington wants. Politicians vote for programs not because they’re effective, but because they show they are “doing something.” When a cost-benefit analysis is required for new regulations, agency bureaucrats satisfy the letter of the law by sticking to the most superficial methods possible, lest they dig too deeply and discover their numbers don’t add up.
The ever-expanding Federal Register is littered with proposed rules that demonstrate the resistance to considering alternatives to red tape. Common sense takes a day off when the government comes up with a new scheme. Agencies consider it a “benefit” to require consumers to buy more expensive and less effective microwave ovens, light bulbs, shower heads, refrigerators and toilets. They don’t take reality into account that there’s no net “water savings” when a toilet must be flushed several times or a load of dishes must be run through a cycle twice before they’re clean. Such made-up benefits always exceed the real costs of the programs.
Ronald Reagan recognized the value of a more rigorous cost-benefit analysis when he established the Office of Information and Regulatory Affairs within the White House to serve as public advocate to keep unnecessary rules in check. It did good work while the Gipper was around to call the shots, but since then, the administrative state has ballooned far beyond the small office’s ability to enforce restraint. According to the Mercatus Center, more than 3,200 rules with an economic impact of greater than $100 million were promulgated between 2003 and 2012. Almost 35,000 smaller rules have taken effect in the past decade, yet only 115 of these rules included a monetized cost-benefit analysis that the office could review and include in its annual report.
These spools of red tape entangle the private sector with no accounting of their true cost. It’s no mystery why unemployment is high and economic growth is low. Instead of devoting its energy toward producing great products and services, business spends too much time and effort pleasing Washington at a cost that far exceeds any claimed benefit.
Mr. Oi showed us there’s a better way, that the most powerful weapon against a government grown too big for its own good is keen analysis. Instead of high-profile budgetary battles, more good may be done by gaining ground on behind-the-scenes struggles for rigorous cost-benefit analysis.