Out of Control Policy Blog

The Costs of Environmental Regulation

This is interesting:

    [D]ecades of "green" regs have significantly dampened the growth of the American worker's real wages. To see why, it is helpful to review some economic history.

    Economists have noted a slowdown in the growth of output in the U.S. economy from the early 1970s to the mid 1990s. After 1973, when the cool-off began, the annual increase in real GDP fell from 3.6 percent per year to 2.8 percent. In human terms, this meant that millions of Americans had to delay the purchase of a new home or car, buy cheaper quality clothing, and save less of their incomes than they would have had the economy remained vibrant. For those at the margins of our economy, slower growth meant a precarious existence between the Scylla of a dead-end job and the Charybdis of the welfare state.

    According to the 2005 Economic Report of the President, the growth of real output declined because annual labor-productivity growth slowed from 2.5 percent (prior to 1973) to 1.5 percent (from 1973 to 1995). Consequently, real weekly earnings -- what workers took home in inflation-adjusted dollars -- actually decreased during much of the latter period.

    Although the oil-supply shocks, stagflation and price controls of the 1970s have often been blamed for inaugurating the economic slowdown, environmental regulations -- particularly air- and water-pollution compliance -- also took a heavy toll. In a study published in the 1995 Yale Journal on Regulation, economist James C. Robinson (currently with U. C. Berkeley's School of Public Health) found that between 1974 and 1986, manufacturers' direct costs of complying with environmental regulations had increased to just over one percent of the value of manufactured goods. Furthermore, multifactor productivity -- the efficiency of labor, machinery, and other inputs working together -- had fallen about 11.4 percent short of where it would have been without the edicts of the Environmental Protection Agency (EPA).

    . . . .

    In response to pressure to reduce environmental compliance costs, the EPA recently selected only 42 regulatory reforms to implement. These reforms were taken from a list of more than 700 suggested by the public, according to an agency official who testified at a congressional hearing on the issue last September. This may seem promising but is insufficient. Lawmakers should require the EPA to explain, case by case, why it rejected the vast majority of reforms suggested by the public. Making the agency more transparent would help make it more accountable, as well as facilitate needed reform. Similarly, state lawmakers should make state-level environmental agencies more transparent.

Good call. A reorientation towards transparency, accountability, and performance are the perfect recipe for reform in bureaucracy run amok.

One additional thought...I'd wager that the public's currently lukewarm support for environmental protection would drop off significantly if people really knew (1) what the true costs of regulation are, and (2) what the real world, bottom-line impacts on families are.

Leonard Gilroy is Director of Government Reform


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