Lisa P. Jackson has a tough job running the EPA. This article highlights some interesting politics. For profit firms are happy to overstate their compliance costs with her new regulations. Ideally, Jackson’s staff can correctly estimate the true regulatory costs but this is tricky because firms differ with respect to their ability to comply and many of these regulations have never been rolled out before. As an optimist, I believe that among diverse firms that some “green” firms will have an easy time complying while other firms will not. Thus, such regulation leads to industrial churning as “brown firms” exit and new “green firms” enter the industry. The lobbying challenge occurs because the “green firms” (who will enter the industry because of the new regulations) do not exist yet.
On the benefits side, what are the benefits of environmental protection? How much cleaner is the air if the EPA regulates mercury? How much do we value reductions in mercury levels? Both of these are very hard questions to answer. So, we have an asymmetry. The costs of regulation occur now and are blown up and are salient and the benefits are hard to quantify. The article puzzles over why President Obama’s team spends little time with Ms. Jackson but in the midst of a recession her efforts must be perceived as counter-productive to short run “stimulus” goals. As I have argued before, recessions are bad for the environment (because we aren’t in the mood for green love).
Switching subjects, Jane Scott lived quite a life and got to see Deep Purple in concert.
On the benefits side, what are the benefits of environmental protection?
A half-dozen times the EPA has answered this question. Various ratios of cost:benefit have been published, but the general number of corporate regulation cost:public health benefit is ~1:5. No brainer.
Once you start talking about the “costs” of regulation as something that has to be compensated, you turn compliance into a profit center. Can you imagine a business operating this way? “Well, we got bids of $500,000, 450,000, 600,000, and $9,000,000 to do this job. $9,000,000 is way too much, so I guess we’re going to have to do without.”
Those questions in your second paragraph are hard to answer because there is no obvious dollar sign on them. So, as an economist, you don’t know the meaning of any of them.
Oh, and on the other hand, recessions are good for the environment because for the time being GDP and pollution are still strongly coupled.
Factoring in costs of government projects is fascinating. It’s obviously incredibly dicey. But very strong cases can be made that, at least in theory, a good project will “pay for itself”.
So, for instance, an earthquake retrofit could save an entire building, bridge, etc. A public park could increase property values. A job training program could increase productivity, etc. Of corse, the question then becomes is the future reward worth the initial cost. This is why it makes sense to think of projects or programs in terms of investments.