Sunday, September 11, 2011

Why Rolling Back Environmental Protection is the Wrong Fix for Jobs

Originally published on

Just when it seemed nothing could do it, persistently high U.S. unemployment has produced bipartisan agreement in Washington—agreement to roll back environmental protection in an attempt to save jobs and create new ones.

The White House, shrugging off off environmentalist opposition, has quashed a major EPA initiative that would have strengthened ozone regulations and is reportedly leaning toward endorsement of the Keystone XL pipeline to carry petroleum from Canadian oil sands. Republicans have applauded and issued their own list of proposals, including rollbacks of regulations for coal ash, farm dust, greenhouse gasses, and cement plants, among others.

None of this is good news, either for the environment or the economy. Rolling back environmental regulations is the wrong way to fix the jobs problem. Here's why.

Jobs are created when businesses hire workers, combine their labor with capital and natural resources, and use them to produce goods or services. If the products that come out are worth more than the inputs that are used up, the process adds value to the economy. Businesses make profits, workers get jobs, and consumers get goods or services that enhance their standard of living.
Right now, though, not enough jobs are being created that way to bring the unemployment rate down. High unemployment is creating a lot of pressure on the government to force-feed the job creation process. But how to do it?

One approach would a program of federally financed infrastructure investment. As discussed in an earlier post, there is reason to think there are plenty of projects, from repairing dams and sewers to modernizing the electric grid, that would both create jobs and add value to the economy. The Obama administration's new jobs initiative includes some of them. Many independent economists endorse immediate infrastructure spending, paired with a credible commitment to medium-term deficit reduction, as components of a sensible fiscal strategy.

Unfortunately, the costs of infrastructure projects are highly visible. They must either be covered by borrowing or by raising new revenue, but right now too many politicians have sworn to do neither. That is why the search is on for programs that would create jobs—or at least appear to do so—while hiding the costs.

Rollbacks of environmental regulations are a perfect vehicle for that purpose. The jobs they save or create are highly visible. Without regulatory relief, jobs would be lost at cement plants that might have to close, utilities that would sell less power if they couldn't keep costs artificially low, and farms that could export less if they had to worry about environmental compliance. The costs of rollbacks are less visible. They take the form of damages to health, property, or other environmental values that are collectively large but widely spread in space and time. Furthermore, if rollbacks, although saving some jobs, cause others to be lost—for example, jobs that would have been created to produce pollution control equipment or energy from alternative sources—those would-have-been jobs, too, are less visible. Taken together, it easy to exaggerate the net job creation from any given reversal of environmental protection.

The trouble is, when producers are allowed to capture the benefits of increased output of cement, energy, crops, or whatever while shifting the costs to others, they produce too much. They expand production up to the point where the value of additional output is just equal to the visible cost of production (the internal costs, to use the economic term), but not enough to cover the invisible (external) costs. That means that even if they create net jobs, rolling back environmental regulations subtracts value from the economy, rather than adding it. Not a good idea.

In fact, if creating jobs by subtracting value and shifting costs were a good idea, we would have no jobs problem. Job creation would be easy, at zero cost the federal budget. Here are three suggestions:
  • For unemployed urban youths, a Licensed Shoplifter Corps. LSC members would have immunity from prosecution for theft. They could appropriate cell phones, Levis, and canned goods from local stores and sell them at discounted prices in special neighborhood shops. Jobs would be created both for LSC members and for workers who resold the stolen goods.
  • For unemployed rural youths, a Biofuel Expansion Initiative. BFI participants would be given permits to cut trees (without paying for them) on anyone's property, or any public land, and chop them up for firewood. Jobs would be created not just in harvesting the trees, but in hauling them, making chainsaws and wood splitters, and other steps in the supply chain.
  • For properly qualified unemployed professionals, a designation of Certified Public Embezzler. CPE members would receive immunity to hack into people's bank and credit card accounts and divert funds to their own purposes. As self-employed professionals, CPE members would disappear from the unemployment statistics, and, in addition, would create jobs in subsidiary markets for computer services and hardware.
Absurd? Why is licensing people to shoplift, poach firewood, or embezzle money any more absurd than licensing them to poison the air, pollute waterways, or add to the pace of climate change? If jobs are the goal, it is never hard to create jobs at someone else's expense. The trouble is, when the hidden costs are added to the visible ones, such jobs end up costing more in the long run than real, value-adding jobs do. There Ain't No Such Thing As A Free Lunch.*

Originally published on 
*Follow this link to get a copy of my new book TANSTAAFL: A Libertarian Perspective on Environmental Policy

1 comment:

  1. Nice post Dr. Dolan. I really enjoyed your job creation suggestions. I would love to hear the Econ blogoshpere kick this around a bit. I will try to direct Drs DeLong, Kling, Cowen, Mankiw, Krugman, Baker, Sumner, Henderson, Thoma et. al. over to your blog. I think many would enjoy a bit of banter about this very clear post.