Recent Federal Regulation Mostly Targets Environmental Externalities

A blog about business and economics.
Dec. 27 2012 2:21 PM

Recent Federal Regulation Mostly Targets Environmental Externalities


I seriously doubt this is the point he was trying to make, but out of all the year-end chart roundups my favorite one yet is from Doug Holtz-Eakin of the conservative American Action Network who persuades me we don't need to worry too much about federal overregulation of business. Here's DHE's gloss:

AAF looked at 10 years of data and more than 230 regulations issued during the last 10 years to illustrate what drives regulatory spending by businesses and consumers; the bulk of the cost of regulations involves mandates to improve energy efficiency, with various environmental rules coming in second place. Together, those two categories account for roughly two-thirds of the economy-wide costs of complying with various federal regulations. Despite a pronounced regulatory slowdown before Election Day, regulators still managed to add more than $215 billion in final rules this year.

The world is full of dumb regulations of private economic activity, but as far as recent federal regulatory action is concerned I find this very reassuring. The control of environmental externalities is the quintessential vital purpose of regulation. In particular, given the physics of energy production an unregulated market will massively overproduce air pollution related to the combustion of fossil fuels. Obviously there is a cost of complying with regulations that aim at preventing this outcome (if it were cost-free to comply there'd be no need to make people comply) but that's simply the flipside of the cost of having your air and water polluted. Obviously if the fumes from coal plants were piped directly into the homes of shareholders in utility companies there wouldn't be any coal-fired power plants in America. The viability of the business depends entirely on the owners of the plants' ability to offload the air pollution onto the general public. Giving polluters zero ability to pollute would be immiserating, but given them infinite license to pollute would be absurd.

It's great to know that the bulk of compliance costs stem from this worthy purpose. At the state and local level I fear that things like incumbents trying to shut down food trucks are a much bigger slice of the regulatory pie.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


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