Regulating Our Way to Prosperity

According to government math, issuing new rules is the same as minting money.

DollarsEdward BettsIf you’re wondering why the stock market has risen in recent months despite uninspiring economic news, look no further than the Federal Register. This massive volume, where all new regulations are published, promises a bright economic future that should ease anyone’s concern over the direction of the U.S. economy.

Agencies are required to conduct cost-benefit analysis for regulations estimated to cost more than $100 million. Thankfully, there are hundreds such rules underway, and they forecast tremendous growth for our sluggish economy.

Consider one such regulation, the Utility Mercury and Air Toxic Standards (MATS), which applies to coal-fired power plants. Finalized by the EPA in 2011, the regulation is estimated to cost the economy about $10 billion per year. But the EPA claims the annual benefits from the rule will be between $37 billion to $90 billion. In other words, its benefits will be four to nine times higher than its costs.

The EPA doesn’t claim such benefits are theoretical. The agency says they are “monetized,” meaning they will show up in higher gross domestic product. And since GDP is about $16 trillion, this one rule should add as much as half a percent of growth to the economy—hardly a trivial amount.

Regulations have costs as well, a fact the EPA acknowledges. Implementing the MATS rule will result in the loss of 23,000 megawatts of electricity production and 200,000 jobs by 2015. It’s just one of seven major rules that will eliminate between 544,000 and 887,000 jobs and cause a 1.5 percent reduction in the nation’s electric generation capacity.

But this loss is swamped by the economic benefits of lower carbon emissions resulting from the MATS rule. The government asserts that the value of carbon not emitted into the atmosphere is somewhere between $12.60 and $119 per ton. Whether you take the high or low value doesn’t matter. The benefits of environmental regulations clearly exceed their costs. Exactly how these benefits are monetized in the economy is not explained, but the EPA asserts they are real, so the regulations must provide a fabulous rate of return.

Such growth-inducing regulations are being implemented for a wide range of products and industries from microwaves to cement manufacturing. The Department of Energy, for instance, recently issued new energy standards for residential furnace fans. The agency’s analysis admits that the industry will lose 21 percent of its value, but that loss will be more than offset by energy savings for consumers and, even more, by billions of dollars in benefits from reduced carbon emissions. A single microwave regulation is said to produce benefits that are 35 times higher than its costs.

The benefits of regulation are derived primarily from the social cost of carbon, as it has been divined by a panel of experts. An interagency working group determined the price of carbon based on estimates from the Intergovernmental Panel on Climate Change of the future impact of carbon emissions. Those estimates are routinely used to justify nearly any regulation. Investments in carbon reduction, the experts tell us, will pay off for decades to come and will show up in GDP.

Anytime now, the benefits from all these regulations will reveal themselves and drag the economy out of its rut. The value of carbon, as decreed by experts, will finally materialize into real economic growth. Then the forced allocation of resources by the EPA and other regulatory agencies will make perfect sense.

Until then, we can sit back and relax knowing that growth is on its way. And if we’re lucky, even more regulations will be justified as economic stimulus. Nearly any proposed environmental regulation should pass the cost-benefit test. With central planners promising such extraordinary economic returns from regulation, what could possibly go wrong?

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  • antisocial-ist||

    Jesus tap dancing Christ. Where do you even start to unpack that level of stupid.
    The purely arbitrary cost of carbon?
    The "benefits" promised to monetize that reminds me of the underwear gnomes from south park?
    Or the utter blindness to the fact that government regulation has yet to create a nation of millionaires here, or anywhere else run by these jacobins.

    At least they didn't promise us any multiplier effect bs this time.

  • Dan The Man||

    The benefit to the economy is through health care savings, it might surprise many on this site that arsenic and mercury which is what where talking about is not conducive to either wealth or health. The use of the term carbon in this article is an attempt to play down the fact that the law is an attempt to limit the deadly gases and chemicals these plants emit.

  • Will4Freedom||

    It's a good thing China, India, etc. are all on board with this.

  • Dan The Man||

    What are you saying, you want to beat china and india in the race to poison the air and water. West Virginian's were talked into that and are having second thoughts now. You think you don't like government control? Wait until you get a taste of corporate control, They'll take care of you!!

  • The Original Jason||

    We have corporate control already. It's called "Federal regulation".

  • The Tingler||

    Dan The Man

    “it might surprise many on this site that arsenic and mercury which is what where talking about is not conducive to either wealth or health”

    Why Dan, are you implying that the people at Reason are uncaring about health issues? Maybe you would like to tell us at what point diminishing returns set in for EPA regulations? Or tell us how many plants need to close for the cost to out way the benefit? Is there such a number? Would you like to close 25% of all power plants to improve health? Or 50%? 100%? Please tell us all caring one?

  • fish||

    Consider one such regulation, the Utility Mercury and Air Toxic Standards (MATS), which applies to coal-fired power plants. Finalized by the EPA in 2011, the regulation is estimated to cost the economy about $10 billion per year. But the EPA claims the annual benefits from the rule will be between $37 billion to $90 billion. In other words, its benefits will be four to nine times higher than its costs.

    Shit if they had only found a way to make it cost industry a trillion dollars all of our troubles would be behind us!

  • cluskillz||

    Well, shoot. If the EPA shuts down all industry and all business activity in the country, think of all the economic gains from carbon savings! We'd all be rich! Hell yeah! Let it ride! LET IT RIDE!!!

  • ||

    Considering that humanity is a cancer on the planet and we'd be better off if a mutant virus wiped us all out, we ought to be calculating the cost benefit analysis of REQUIRING medical facilities to spread Ebola. The benefits of killing off a few billion people are incalculable.

  • Unable2Reason||

    Not to mention, regulations are going to continue to save more and more lives until we need to put electric fences and minefields around all the cemeteries to keep the dead from rising up and demanding back payments of their Social Security.

  • ||

    Think of all the regulations we could impose to stop the dead from rising.

    Locks on all the coffins - infinite ROI!

  • ||

    I see. So you can basically add "benefits" to the "benefit" side of any cost-benefit analysis by saying "But look at the benefit of averting the future zombie apocalypse! NOT having a zombie apocalypse has got to be worth, like a mega-zillion dollars!"

  • ||

    The EPA doesn’t claim such benefits are theoretical. The agency says they are “monetized,” meaning they will show up in higher gross domestic product.

    Zow. Even by the social cost of carbon theory, these benefits are indeed theoretical, at least to us today. In fact, again by the same social cost of carbon theory, allowing the burning of carbon at the cost of global warming is actually net-GDP positive until at least mid-century. It turns negative only after that. So imposing regulations to forestall global warming today is very clearly a "monetized" negative GDP change.

    There may be a case to be made for carbon taxes. But monetization that creates greater GDP today is definitely not it. That's just plain fraud.

  • NotAnotherSkippy||

    Couldn't post this earlier, but it goes straight to your point. Funny thing happens when the EPA does the calculation by the gov't's own guidelines...

  • NotAnotherSkippy||

    Couldn't post this earlier, but it goes straight to your point. Funny thing happens when the EPA does the calculation by the gov't's own guidelines...

  • Cloudbuster||

    Man, if regulating carbon is so good for the economy, imagine how great it would be if we banned carbon!

    What? We're *made* of carbon? Oh no....

  • The Original Jason||

    If everyone replaced their single pane windows with double or triple pane windows, less heat would be lost during winter and less heat would enter the house in summer, resulting in lower heating and cooling costs. The environmental savings from not generating the electricity to run those systems or burning fuel to heat houses would be immense! How about we require everyone to replace their windows? Or, better yet, pay people to break single pane windows to force homeowners to replace them with more efficient windows! Just think of the economic growth! A job for people to break windows, more work for window glaziers, and savings for the homeowner!

  • Dan The Man||

    I think part of your idea is great, installing insulated windows double or otherwise saves money and helps the environment. I don't think throwing stones/rocks through windows is a great idea though, some people in the house might be hit with them and some people would just cover the holes with tarp/cardboard and the problem becomes worse.

  • Lost Sheep to Shepherd||

    Dan,

    It's a joke. Look up Bastiat's broken window fallacy for more information. If you still don't get it, you never will.

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