Cost-benefit analysis was used only occasionally in government until President Kennedy appointed Ford Motor Company president Robert McNamara to be Secretary of Defense. McNamara, originally an accountant, preached cost-benefit with all the force of a Biblical zealot. Stated in its simplest terms, cost-benefit analysis says that if the cost is greater than the benefit, the project is not worth it—no matter what the benefit. Examine the cost of every action, decision, contract part or change, the doctrine says, then carefully evaluate the benefits (in dollars) to be certain that they exceed the cost before you begin a program or—and this is the crucial part for our story—pass a regulation.
As a management tool in a business in which profits matter over everything else, cost-benefit analysis makes a certain amount of sense. Serious problems come, however, when public officials who ought to have more than corporate profits at heart apply cost-benefit analysis to every conceivable decision. The inevitable result is that they must place a dollar value on human life.Ever wonder what your life is worth in dollars? Perhaps $10 million? Ford has a better idea: $200,000.Remember, Ford had gotten the federal regulators to agree to talk auto safety in terms of cost-benefit analysis. But in order to be able to argue that various safety costs were greater than their benefits, Ford needed to have a dollar value figure for the “benefit.” Rather than be so uncouth as to come up with such a price tag itself, the auto industry pressured the National Highway Traffic Safety Administration to do so. And in a 1972 report the agency decided a human life was worth $200,725. Inflationary forces have recently pushed the figure up to $278,000.
Furnished with this useful tool, Ford immediately went to work using it to prove why various safety improvements were too expensive to make.Nowhere did the company argue harder that it should make no changes than in the area of rupture-prone fuel tanks. Not long after the government arrived at the $200,725-per-life figure, it surfaced, rounded off to a cleaner $200,000, in an internal Ford memorandum. This cost-benefit analysis argued that Ford should not make an $11-per-car improvement that would prevent 180 fiery deaths a year. (This minor change would have prevented gas tanks from breaking so easily both in rear-end collisions, like Sandra Gillespie’s, and in rollover accidents, where the same thing tends to happen.)