Field of Science

The Cost of Environmental Regulations

By now the anti-environmental mantra of the GnOPers is well known to all in the USA where conservative has nothing whatever to do with conservation. Duh! Other than thinking that safe guarding the environment is a good thing, the Phactor, like most other people is unable to judge fairly whether such regulations, onerous as they may be, are hurting industries, the economy, and costing us jobs. Dealing with waste and emissions certainly costs companies, although the idea that environmental degredation is an OK business practice results in another cost subsididzed by the environment and everything else that uses it and needs it. The current crop of GnOPe presidential hopefuls have made it pretty clear that they think EPA rules and regs hurt the USA's economy. Without being overly cynical, if such a thing is possible these days when speaking of politics, it strikes this thinking person that like most of their other positions this is simple-minded thinking, or campaign rhetoric, or most likely both, as no towering intellect has been demonstrated among them. After all if new regulations require new technology, somebody gets employed to design it, make it, install it, and maintain it. The money it costs industry A to safe guard the environment doesn't just disappear, it goes to industry B, C, D, and E, generating jobs in the process. So it comes as no surprise really when people who understand these things better agree with my basic understanding of the issue.


EricW said...

I'm not an economist and I wish I could properly cite the literature - but I will freely admit that I cannot. Nevertheless, I've heard it pretty plainly stated that this notion that environmental regulations help the economy by creating a need for equipment manufacture and installation fails simple econ 101. I think the basic premise is that mandating a specific capital expenditure that does not increase profit takes away money that would have been invested in a capital expenditure that does increase profit. The later would have greater economic benefit than the former.

I'm not saying this because I am some anti-enviro capitalist pig. In fact, I am closer to an enviro-nazi. I'm just saying that my previous cursory study of this idea left me with the notion that it was easily refuted.

The Lorax said...

@EricW I think your concerns are only addressing one side of the equation and leaving out some important variables.

The concern about profits and expenditure is for the industry being regulated. What about the profits of the company making the clean equipment? What about the profits to the company installing said equipment?

I think econ 101 only fails if one looks at the issue by squinting really hard through one eye.

EricW said...

But if a capital expenditure produced a profit for both the company investing in the new equipment AND the company providing the improved equipment, would that not be a larger net economic gain?

Anonymous said...

Eric is correct. What this post describes is the "fallacy of the broken window." If a shopkeeper's window is broken by a careless boy, the shopkeeper must replace the window which gives business to the glazier. But that is money that he might have spent on a dress for his daughter, which would have given business to the dressmaker. You may say that this is then a wash, except for the utility that the dress would provide the shopkeeper's family. If broken windows stimulated economic activity, then we could replace President Obama's economic team with delinquent teenager vandals.
Regulations act, to industry, like the shopkeeper's broken window. They are an external cost of doing business that provides no direct benefit to the company. They can and do slow economic activity. But if the price to pay for robust economic growth is diminished environment, then we need to have a serious discussion about priorities. Is a plasma TV in every room worth strip-mining Yellowstone Park?