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The economic benefit of regulation

March 7, 2018

Unsurprisingly, some coal-powered utilities, recently required to examine local ground water, have discovered they have been tainting it with arsenic, radium, and other poisons. The Trump administration has a solution for this. They are rolling back the Obama regulations that require utilities to look at that. Knowledge can be a costly thing, when you are handling coal ash.

Of course, the side effects of contaminated water is costly to those who drink it and fish in it. Those costs are very real, whether they can be tied back to the cause or not. Economists call those costs externalities, because polluters take the profit, while others bear the burden. Regulations work when they make businesses lessen their externalities. When the cost reduction for others exceeds the regulation cost, there is a clear benefit to the economy. The OMB just released a report comparing the costs of federal regulations from 2006 to 2016, to the benefits of those regulations. In aggregate, they had a minimum benefit more than two and a half times their cost. A benefit measured in hundreds of billions of dollars. I suspect the Trump administration will want the OMB to stop looking at that.

Of course, we all know regulation might have other problems. They stifle innovation, right? Two conservative economists took a look at that question, and failed to find the correlation they were expecting. The scatterplot above shows zero correlation between which industries are more regulated and which exhibit more business dynamism. (Cite.) The journal Economic Policy should be congratulated, for publishing, indeed highlighting, a paper that has negative finding.

The economic benefit of environmental regulation isn’t some socialist pipedream. It is capitalist economics, that one can read from most any introductory text. The Trumpistas who deny it by rote are not practicing economics of any sort. They are simply ignoring the real costs of pollution, and politically dismissing those who bear it, and trumpeting the profits of polluting industries uber alles.

Hat tip to WFQ for some of these links.

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