More problems on the horizon for cost-benefit analyses at the FDA (and likely other places)

I have prevously written about the serious problems with the way that the FDA has done cost-benefit analysis of the effects of tobacco control policies, most notably warning labels on cigarette packages.  Among other things, the FDA, led by economist Clark Nardinelli, assumes that steps that will reduce smoking have the effect of depriving smokers (and potential smokers) of the "pleasure" of smoking, quantified using the economic idea of "consumer surplus."  Counting this lost pleasure as a cost led the FDA to substantially discount any health benefits of stopping (or not starting smoking), which made the regulation harder to defend in court..
 
On February 25, 2014, Nardinelli and colleagues at the Office of Management of Budget published a short paper in Health Economics, "ESTIMATING THE BENEFITS OF PUBLIC HEALTH POLICIES THAT REDUCE HARMFUL CONSUMPTION," that argues that the consumer surplus discount is even higher than that used in the FDA's cost-benefit analysis of warning labels, up to a 99% discount of the health benefits of reducing "harmful consumption."  (The smallest discount they estimated was 67%.)
 
They also suggested that this approach also be applied to other harmful substances, such as those that produce obesity.
 
Their paper replaces the extensive literature on smoking behavior and nicotine addiction with a simple economic model (see figure).  The authors do recognize that they are making some assumptions, but nevertheless argue that the huge discounts of any health benefits because of lost consumer surplus are a robust finding.
 
This paper would be an interesting acadmic exercise that could be dismissed as a naive attempt to model smoking behavior, except that the authors are the ones who are deciding what the FDA and OMB think the costs and benefits of public health interventions are.  If this thinking continues to dominate the regulatory process in the Obama Administration it will doom any meaningful regulation of tobacco products (on the grounds that there is little net benefit) and probably lots of other public health regulations as well.
 
I fully expect to see this logic in the FDA's e-cigarette "deeming" rule (when the Administration finally releases it), which will probably make any regulations all but impossible.