The Future of the EPA

This NY Times Room for Debate managed to exclude the economists from participating in a debate on the future of the EPA.  When I skimmed the pieces, nobody mentioned the efficiency criteria.  What are the benefits of EPA regulation?  What are the costs of such regulation?  One debater implictly assumed that current air pollution levels would revert back to nasty 1960s levels.  How does he know this?  Would new cars be as dirty as 1960s cars?  Would dirty industry move back to the cities and use their 1960s technology?  Has exogenous technological advance taken place so that cars, power plants and industry would be cleaner in the absence of regulation?   I give the EPA a lot of credit for “green city” progress but we have to quantify stuff here.

For an example of research conducted by an economist to measure the benefits of regulation, please take a look at Michael Greenstone’s work.  Credible work on the cost of regulation is tough to do because firms have an incentive to overstate the cost of compliance and we have trouble predicting what new firms will enter the market if new regulations are enacted.   There are many papers on the unintended consequences of regulation.   Here is an example by Randy Becker and Vern Henderson.

A major reason that I support EPA action is that as we grow richer, we desire less risk in our life and we want to be healthier and happier.  “Green Cities” contribute to all three of these goals.    Would you want to live in Pittsburgh in 2011 or in 1951?  The EPA has also contributed to social justice goals.   Have you read my paper on this topic?

 

Comments

  1. Mark Kleiman says

    Matt, you’ve been away from Chicago (and St. Louis) too long. You’ve forgotten the basic principle of regulatory impact analysis: in estimating costs, assume that all costs are created by regulation; in estimating benefits, assume that all benefits would have arisen in the absence of regulation.

  2. NCG says

    Your premise is faulty. Poor people would also like to have a clean environment and less risk in their life. They just have less power. I suspect prejudices like these are why people don’t always listen to economists. They just don’t seem very … relevant.

    The only sensible future for EPA is for it to get a lot more assertive. And they probably need more money too. ; > We need a carbon tax anyhow.

  3. navarro says

    having worked in both heavy industry and academia, it is my belief based on my experience guided by my intellect that most (not all, but most) businesses would would sell their employees’ spare organs on the black market if they were assured of getting away with it. to put that another way, if the e.p.a. were eliminated, cheap and dirty coal-fired power plants would spring up across the country in however long it takes to put one up.

  4. says

    I’ll make a deal with you, Matt: Room for Debate can have all the economists it wants if Economix gets rid of Casey Mulligan. Come to think of it, given that of all the NYT blogs, only one is completely dedicated to a particular academic discipline, not to mention an academic discipline who main theories over the last 30 years have been shown to be utter and completely failures, economists have little Room to Complain.

  5. says

    Cost benefit analysis seems like it gets moral very quickly, and how do you quantify that? Not saying you can’t – we put a dollar value on things like life all the time. But how do you put a dollar value on things like increased risk for cancer or asthma? Or put int the reverse, how much do you value people *not* being at risk for such things?

    Just to go by tradition, as NCG pointed out, in the absence of any regulatory body, people without power have had to live with a much different moral valuation.

  6. Dan Staley says

    What are the benefits[: costs] of EPA regulation?

    We already roughly know it is ~5.5:1, just to bring it out. We know public health benefits immensely from lowering air and water pollution.

    Just making it explicit to make discussion easier.

  7. prognostication says

    @Eli:
    The typical copout answer is that you develop a cost of illness estimate, use that, and then caveat that it is a “lower bound” on the true value. This is frequently done for federal analyses of sublethal health effects. Not saying I agree with it, but that is one common “solution.”

  8. James Wimberley says

    “…managed to exclude the economists…”
    Do those polls trying to capture the reputations of various professions – Congressmen, doctors, teachers, the military – among the general public include economists and members of other academic disciplines? A priori, the stock of economists should go down when times are bad. All the more when the profession is so clearly divided in its policy recommendations between freshwater and saltwater schools, and there’s no consensus message coming out as from the climate scientists. It’s a bit unfair of course, and individuals should be judged on their own merits, but the wisdom of crowds and all that ….

  9. Barry says

    Mark Kleiman says:

    “Matt, you’ve been away from Chicago (and St. Louis) too long. You’ve forgotten the basic principle of regulatory impact analysis: in estimating costs, assume that all costs are created by regulation; in estimating benefits, assume that all benefits would have arisen in the absence of regulation.”

    Snap!

    Mark, congratulations! You just punched your first Chicagoist :)

  10. NCG says

    Just to quibble with what Jonathan said: it’s not that economic theories are “wrong,” it is that they are at best half-right, under lab conditions, yet we’re all expected to genuflect.

    Also, it doesn’t seem like economists care about things regular people would care about, such as “how can we create *good* jobs?,” or, “how can we smooth out economic cycles?” If there are economists working on this, they sure are quiet. Maybe they don’t get any grant money.

  11. Maynard Handley says

    “Cost benefit analysis seems like it gets moral very quickly, and how do you quantify that? Not saying you can’t – we put a dollar value on things like life all the time. But how do you put a dollar value on things like increased risk for cancer or asthma? Or put int the reverse, how much do you value people *not* being at risk for such things?”

    We can even be somewhat rigorous about this. Economics, as normally constituted, pays attention purely to the MEANs of distributions, but actual human beings care a lot about the spread of distributions — there are plenty of people willing to take jobs that pay somewhat less but, one way or another, carry some sort of guarantee that their pay/benefits will not be reduced or the employees laid off.
    An economics that paid attention to real human needs would take cognizance of this reality rather than the current sneering “well, you only have a 4%pa chance of being laid off, so quit your whining [or get a university job like me, so you have a 0%pa chance!]“. (You could even throw in a whole lot of math to make what is being done look oh so scientific and thus publishable — the relevant buzzwords are stochastic calculus and Ito calculus.)