Regulations kill jobs, right? Not according to Josh Bivens, acting research and policy director at the Economic Policy Institute:
Textbook macroeconomics indicates that, from the perspective of job
creation, the best time to enact regulations that may require costly
investments is precisely when the economy is depressed.
Huh? Isn't that exactly the opposite of what we've been hearing? Well, I'm not an economist and Wikipedia refers to the Economic Policy Institute as a "liberal, non-partisan think tank" (emphasis added), but Bivens arguments make sense to me. Here they are in a nutshell:
When the economy is functioning well, the effect of environmental regulation on job growth is roughly neutral. It creates jobs in industries that supply equipment and services necessary to comply with regulations even as jobs in industries affected by the regulations may be lost.
Generally, these direct influences cancel each other out. Even if they don't, the second reason for regulation's neutral effect on jobs comes into play: the central bank. In an effort to hit its overall inflation and unemployment targets, a nation's central bank - in the US, the Federal Reserve - will simply sterilise any change in job growth stemming from regulatory changes by adjusting interest rates to spur or slow economic activity.
When the economy isn't functioning well, environmental regulation creates jobs because:
The investment necessary to respond to regulations wouldn't happen otherwise. It's the opportunities to invest that are limited, not the financial capital.
Increases in costs aren't likely to be passed on. Consumers can't afford them.
The employment boost won't be neutralized by the Federal Reserve.
The parts of this argument that seem likely to be contentious are the claims that (a) direct influences of regulation cancel each other out when the economy is functioning well and (b) opportunities to invest rather than financial capital are what's limiting in a recession. Both of those claims seem plausible to me, but as I said, I'm not an economist. I'm willing to be persuaded that they're implausible.
Last February, I noted that the United Nations Environment Program released a report, Towards a green economy. In that report, UNEP argued that investing two percent of global GDP "can kick-start a transitition towards a low-carbon, resource efficient Green Economy" (from the press release announcing the report).
Writing in last week's Nature, Peter Victor and Tim Jackson voice considerable skepticism:
For full convergence of living standards by 2050, coupled with the 80% reduction in global CO2 emissions required to meet a 450 p.p.m. target, we would need a decline in average CO2 intensities in both regions of 8.2% per year.
Taking these factors into account, we cannot presume that a green economy would grow faster than a brown one.
They base their conclusion on two claims:
The target for CO2 emissions (35% relative to 2011 emissions) is too modest to reach the IPCC's 450ppm target.
UNEP's calculations depend on treating the world economy as a single entity, ignoring regional inequities.
If they're right, that's bad news for proponents of a green economy. The first claim is plausible, but I don't know enough about economics to be able to assess (a) whether the second claim is right and (b) whether it would favor a "brown" economy over a green one in the way that Victor and Jackson claim. If there are responses to their letter, I'll let you know.
It is sometimes argued that poorer countries should welcome industries that are more environmentally degrading than would be welcome in richer countries.1Edward Carr brings this up in the context of a recent report from PRI on the global asbestos trade.
Asbestos is vilified in the United States and banned in the European Union, but growing usage in the developing world has stoked fears of more asbestos-related deaths.
A proponent of continuing asbestos use in the developing world argues that other insulators are so much more expensive that the savings from using asbestos are greater than the cost to human lives and health.
What does this have to do with the value of a statistical life? What is the "value of a statistical life" anyway?
I'll answer the second question first. The value of a statistical life is a statistical construct based on how much people are willing to pay to avoid particular risks.2 As for the first question, when someone makes a claim like "the benefits from X (or savings from X) outweigh the costs associated with it", they're either making a bald assertion and hoping you won't ask how they made the calculation3 or they are reporting the results of a cost-benefit analysis, an analysis that depends on some estimate of how much a human life is "worth". That's where the value of a statistical life comes in.
To get back to asbestos then, if proponents of asbestos use a cost-benefit analysis to justify their assertion that use of asbestos is worth the cost in human health, they have to include some estimate of the value of a statistical life -- and there's the rub:
[T]he trouble [with] value of statistical life (VSL) calculations is they are
based on willingness (and ability) to pay. Since environmental quality
(and health and safety) is a normal good -- people want more if it when
their incomes increase -- environmental quality (and health and safety)
will be valued lower in places that have lower incomes. This naturally
leads to lower VSL calculations and the policy implications are clear.
The net benefits of many policies will be positive in rich countries and
negative in less rich countries. But, this is not because lives are
worth less in less rich countries but because less rich countries can't
afford as much environmental quality (and health and safety) as rich
countries. Sad, but true. (John Whitehead)