Krugman’s Politicized Plug for New EPA Regulations

Just before Thanksgiving the Obama Administration released its regulatory roadmap with more than 3,000 new rules that are estimated to cost American taxpayers and businesses hundreds of millions of dollars in the near term. Among them are several new EPA regulations and rules.

The New York Times’ Paul Krugman spilled a lot of ink on Thanksgiving Day in his column “Pollution and Politics” blasting Republicans as being the “party of pollution” for opposing the new regs and trying to convince us that the (exorbitant) costs are well worth it:

Earlier this week, the Environmental Protection Agency announced proposed regulations to curb emissions of ozone, which causes smog, not to mention asthma, heart disease and premature death. And you know what happened: Republicans went on the attack, claiming that the new rules would impose enormous costs.

There’s no reason to take these complaints seriously, at least in terms of substance. 

One would think that a Nobel Prize-winning economist would spend less time on partisan politics and more time focusing on a straightforward cost/benefit analysis.  Instead, Krugman simply mentions in passing:

In the case of the new ozone plan, the E.P.A.’s analysis suggests that, for the average American, the benefits would be more than twice the costs.

Krugman takes the EPA’s word as Gospel truth and devotes the rest of his column to blaming Republicans for being obstacles to what he considers very sensible environmental policy that, for once, as he insists, will benefit everybody—instead of just the top 1 percent of Americans. (For more on this, see “Krugman's On-Again, Off-Again Analysis” by EconLog co-editor David Henderson.)

In a nutshell, Krugman blames what he considers a Republican shift to the right over the past decade or so such that:

… the modern conservative movement insists that government is always the problem, never the solution, which creates the will to believe that environmental problems are fake and environmental policy will tank the economy.

Judging by last month’s mid-term election results, a majority of American voters agree that government has gotten far too big and is very much the problem. It’s also fair to say, at a minimum, many of Obama’s key constituencies—women and minorities, for example—didn’t agree with this administration’s vision of big government.

Which brings us back to Krugman’s blithe acceptance of the EPA’s cost/benefit estimates—and why, perhaps, Americans in general are far more skeptical than Krugman apparently is that government is the go-to resource for public and social policy solutions.

Let’s think about it: since when is any government agency an unbiased, objective source of its own costs or benefits? In 2010 the Office of Management and Budget (OMB) reported that in the previous year alone:

The estimated annual benefits of major Federal regulations …for which agencies estimated and monetized both benefits and costs, are in the aggregate between $128 billion and $616 billion, while the estimated annual costs are in the aggregate between $43 billion and $55billion. These ranges reflect uncertainty in the benefits and costs of each rule at the time that it was evaluated. (Emphasis added, p. 3.)

That year, the EPA issued more than three-fourths of all new regulations, 77 percent (p. 12). Concerning clean air mandates in particular, the OMB found:

It should be clear that the rules with the highest benefits and the highest costs, by far, come from the Environmental Protection Agency and in particular its Office of Air. … The rules that aim to improve air quality account for 94 to 97percent of the benefits of EPA rules. Most of the large estimated benefits of EPA rules are attributable to the reduction in public exposure to a single air pollutant: fine particulate matter. … The cost estimate for the Clean Air Fine Particle Implementation Rule is also the highest at $7.3 billion per year. …

With respect to many of these rules, there is substantial uncertainty in benefits estimates. … In the case of the EPA rules reported here, however, a substantial portion of the uncertainty is similar across several rules, including (1) the uncertainty in the reduction of premature deaths associated with reduction in particulate matter and (2) the monetary value of reducing mortality risk. (p. 14)

Things aren’t much better based on findings from the OMB’s final 2013 annual review. Again, the EPA accounts for a majority of new rules and regulations, 56 percent (p.  13), and leading the way is its Office of Air with the highest annualized regulatory costs exceeding $8 billion (pp. 14-15). As in the past, the OMB explains:

Importantly, the large estimated benefits of EPA rules issued pursuant to the Clean Air Act are mostly attributable to the reduction in public exposure to a single air pollutant: fine particulate matter (referred to henceforth as PM). While some of these rules monetize the estimated benefits of emissions controls designed specifically to limit particulate matter or its precursors, other rules monetize the benefits associated with the ancillary reductions in PM that come from reducing emission of hazardous air pollutants. (p. 15)

Justifying the claimed benefits amounting to hundreds of billions of dollars, however, is a lot trickier. In fact, the OMB devotes several pages to explaining around half a dozen core assumptions behind the EPA’s mortality and health impacts benefits claims (pp. 16-20). The OMB concludes:

To the extent that any of these assumptions are incorrect, the benefit ranges…might be significantly different. We understand that significant additional research is currently being conducted that should help to improve our understanding in each of these areas. (p. 20)

Keep in mind the EPA’s benefits claims include several non-quantifiable costs and benefits, as well. It’s also worth noting that the EPA has one of the worst documented compliance records with the same Clean Air Act mandates it’s now trying to expand.

To be sure, no one wants a polluted environment. But research shows that countries with the most economic freedom, and less government micromanagement, have the cleanest environments. The reason is that unlike people in parts of the world where just surviving is a daily battle, prosperous people have the time and the resources to devote to improving their quality of life—including the environment. Economic opportunity means an ever-expanding majority of middle- and upper-income earners who want and can afford to pay for better quality goods and services offered in environmentally responsible, sustainable, and cost-effective ways.

Government mandates can’t achieve those goals—but free and prosperous people can but putting powerful pressure on businesses to deliver or risk losing customers to other businesses that will.  Helping make American businesses stronger by being demanding customers—not by demanding more costly government regulations that hinder new business and growth—is the best way to improve the environment and prosperity for all Americans.