What’s good for job growth, good for the environment, and good for public health? No, it’s not a trick question, but it is a reassessment of what passes for conventional wisdom in Washington these days. The answer is the Clean Air Act, the Clean Water Act, and other enormously popular environmental regulations enacted in the 1960s, 70s and 80s with strong bipartisan support.
Let’s start with the conventional wisdom. House Majority Leader Eric Cantor recently called for the repeal of ten “job-destroying” regulations, calling them “costly bureaucratic handcuffs that Washington has imposed upon business people who want to create jobs.” On the list are regulations that limit air pollution, maintain the ozone layer, curtail greenhouse gas emissions, and prevent contaminants from entering ground water. (Also on the chopping block: labor standards and health benefits.) The rationale behind the proposed repeal of these important environmental regulations is somewhat baffling, but here’s an example to try to sort it out.
The Environmental Protection Agency’s (EPA) new regulation of space-heating boilers would, according to Cantor, impose, “billions of dollars in capital and compliance costs.” The question is, where do those billions of dollars go? If we are to believe the Majority Leader, this money is flushed down the proverbial toilet. Its only impacts are to raise the costs of goods and services, and to put hundreds of thousands of jobs at risk (presumably, employers – cash strapped after flushing all that money – would have to fire workers to make ends meet). Environmental regulation, we are told, is nothing but a burden both to business and labor.
This strange and clearly disingenuous characterization of the impacts of environmental regulation has taken center stage in today’s national policy debate. A few fuzzy points in this logic, however, could benefit from some closer examination. Three questions come to mind.
What happens to the billions spent in capital and compliance costs? Far from being thrown away, this money supports jobs in sectors that manufacture capital goods and provide support services for compliance. Often called “green jobs,” the employment generated spans from the blue-color assembly line to white-color scientific research. Installing new equipment to prevent pollutants from leaching into our air and water also brings work to electricians, plumbers, and other more specialized technicians. Money spent for environmental regulation is spent productively, and the result is job creation.
When facing these new costs, will employers cut their workforce? This old supply-side war horse gets dragged out every time regulations need to be cast in a negative light. When the cost of doing business goes up – and especially when those cost increases are just a small share of revenues, as they are with almost every environmental regulation – firms don’t start cutting production and, consequentially, their workforce. Instead, they pass the costs on to their costumers and keep production and employment steady. (At present, with profits relatively high and demand low, it’s not even clear that prices would increase – it could be a pure Keynesian stimulus, forcing a small share of profits to be spent on goods and services, without any price changes.) Whether higher costs will dampen customers’ demand, and producers will respond by cutting back, is a separate, more complicated question. For many of the goods and services most affected by environmental regulations – electricity generation, for example – demand is extremely insensitive to small changes in the price. Studies have shown that environmental regulations very often create more jobs than are lost from reduced demand for the regulated, and therefore more expensive, goods and services.
What about the benefits of environmental policy, and the cost of allowing pollution to continue? Missing from the call to repeal key regulations is any mention of these policies’ benefits for environmental and public health. A recent EPA study estimated that just one law– the Clean Air Act – was preventing 230,000 deaths, 3,200,000 lost school days, and 13,000,000 lost work days a year in 2010. The benefits of this act, including savings in medical expenses and increased worker productivity, are 30 times greater than its cost of implementation, and the benefits of regulation, more generally, also have been shown to exceed costs. Not inconsequentially, clean air (and other) regulations also provide us with a cleaner, healthier natural environment.
It may be hard to believe after watching a little too much cable news but environmental regulations prevent senseless deaths and improve our standard of living, often while creating new jobs. Yes, they make the goods and services that pollute our neighbors’ air and water more costly – and any economist should be willing to admit that correcting these sorts of “market failures” is all for the good – but their job-killing powers have been greatly exaggerated. The jobs-environment trade-off is a scary story, but it’s not based in fact. When we are asked to choose between jobs or clean air, the answer should be, “Both.”