Everybody’s ‘Real’ Economic Impact is Different

Do a Google search on “Do environmental regulations hurt economic growth?” and you will come up with enough studies to cover a wall in your local public library.  If you review the studies themselves – or at least flip through the abstracts – you will find most of the researchers answer “no.”

That answer is understandable given the liberal bias of the members of the academic establishment who undertake the lion’s share of such research.  But does that “no” reflect reality?  Unfortunately, that question is unanswerable because every “reality” – translated as the data the researcher’s select and how they assess that data to reach their conclusions – is different for every study.

For example, one study may look at an entire sector – let’s say portland cement manufacturing – and determine that the sector has grown over the last several years despite the imposition of complex and costly federal and state air quality regulations to control toxic pollutants.  Therefore, the conclusion is that environmental regulation has not harmed the industry.

But that hardly tells the whole story about the impact of regulations.  For example, while some federal air regulations make concessions to small sources of toxic air pollution, others are rooted in the belief that the threat posed by even small amounts of certain pollutants is of such concern that the emission limits imposed on those pollutants should be the same for all businesses, large or small, in a sector.  This situation in fact applies to the portland cement industry, and it means the economic impact will not be the same for all cement companies.

A large cement corporation with deep pockets and access to loans will be able to spend millions of dollars on environmental upgrades needed to achieve compliance while their small competitors may not be able to afford it.  Hence the small company must undertake cost-cutting changes, such as laying off employees or reducing operations.  Or the company can try to keep up with the competition, put itself into deep debt, and possibly be forced to close its doors in several years (or sell itself to a sector giant).  The small company’s customers may then look for a larger, more stable supplier.

In other words, while publicly opposing regulation, the large businesses may have an eye on the silver lining – growing their market share at the expense of their smaller competitors and recouping the cost of those pollution control upgrades.  Overall the sector may be doing well, but the effects of regulation are far from equal for all its members.

So, how is the economy affected in such a situation?  Can one say that the impact of regulation is not negative if the revenues of a sector go up even if thousands of jobs are lost?  Also, how many jobs are actually “lost” if the expanding corporation hires the employees of its defunct competition?

Economists are aware of these and many other complicating factors.  But does that knowledge dissuade them from manipulating the data to support a pro- or anti-regulatory agenda?  Is the manipulation dishonesty?  Perhaps not.  Researchers differ in what they believe are the essential data.  Microeconomics and macroeconomics are both legitimate in their way even if they lead to entirely different conclusions.  (When you find an economist switching regularly from one viewpoint to the other – that’s a different story.)  Also, academics under pressure to publish may not have the time to see how the economy or a sector responds to regulation over the long term.

Consider another example.   Anti-regulatory studies pay little if any attention to the monetary savings of better human health resulting from a cleaner environment because, they say, people with jobs are healthier than the unemployed.  On the other side, pro-regulation studies contend that better air and water reduce sick days and the extraordinary costs of hospital stays and constitute the most important economic data of all.  Which data are more convincing?

As I see it, there will never be agreement on the economic effect of environmental regulation because there will never be agreement on which data to examine, how to interpret it, and which time frame to use.

Going back to the initial question – “Do environmental regulations hurt or harm economic growth?” – you can certainly give a definitive answer for yourself if you’re a business owner.  But coming up with an answer that applies to the nation as a whole or even a single sector – good luck!

Bill Schillaci is a freelance writer who has written about environmental regulations since 1995.  Previously, he was a technical and marketing writer for two large engineering firms in San Francisco and New York City.  He majored in English literature at New York University and lives now in Ridgewood, New Jersey. Contact Bill at bill.schillaci@verizon.net.