Why the Axed Ozone Regulations Would Have Created Jobs
One central theme in conservative orthodoxy is that regulations are bad for business — and bad for jobs. A central theme in Barack Obama’s presidency is that he will do exactly what conservatives want, lest they call him mean names. It was therefore sadly unsurprising when last week he cancelled plans to bring the EPA’s outdated standards up to the minimum health standard for the pollutant ozone.
That this was a terrible move for Obama and the nation has already been parsed out pretty thoroughly. These regulations, which would have tightened the National Ambient Air Quality Standards, would have reduced the incidence of killers like asthma throughout the country. For Obama, it has alienated him from a core constituency of environmentalists, conservationists and people who generally do not enjoy smog, who had previously supported him.
Even more puzzling for Obama, though, is that many economists are arguing that the EPA regulations would have created jobs, which is ostensibly Obama’s biggest goal right now. Even in non-recession conditions, industry claims about job losses have been greatly overblown. The New York Times reported today that previous regulations (that industry insiders predicted would cost tens of thousands of jobs) actually “had been a modest net creator of jobs through industry spending on technology to comply with it.” These statements bolster the argument made by economists that conservative cost-benefit analyses show that ozone reduction would significantly improve the welfare of people living in the US, no matter what dastardly pronouncements industry insiders make.
Some economists are arguing that given the current threat of a double dip recession, these public benefits — namely job creation — would have been even more pronounced in the nixed ozone regulation. According to the basic macroeconomic IS-LM model, in a recession the problem is that there is insufficient demand. Basically, because people, businesses and the government are not buying enough, businesses cut production, and jobs along with it. Firms, instead of investing their profits, just stockpile cash for a day when demand picks up again. The trick to recovery is boosting demand in a way that leads firms to hire more people, thus giving previously unemployed workers disposable income that, in turn, increases their demand for goods.
In light of this economic model, many economists and activists are arguing that the conservative complaint of ozone standards — that it makes businesses spend money — makes absolutely no sense. As Nobel Prize-winning economist Paul Krugman writes on his blog: “it would have forced firms to spend on upgrading or replacing equipment, helping to boost demand. Yes, it would have cost money — but that’s the point! And with corporations sitting on lots of idle cash, the money spent would not, to any significant extent, come at the expense of other investment.”
Krugman is not alone in this view. Joe Romm of Think Progress pointed out that “the standard would not have any noticeable negative impact on the economy and, if anything, would have driven investment and innovation even in the short term.” Given that investment is an important part of the demand, this would have increased economic activity, creating jobs and sparking economic growth. Especially since businesses have huge cash reserves – in the trillions — this investment would have come out of nowhere, and wouldn’t have been redirected from anything else, meaning it would have represented real growth.
According to these standards, by the economic view of the situation, Obama passed up on a policy win-win that would have simultaneously improved public health and stimulated economic growth. Looking forward to his jobs speech on Thursday, the best the American people can hope for is that he will learn from his mistake on ozone.
Photo credit: jonny goldstein's Flickr stream.