Thursday, June 27, 2013

Environmentalism good for economy right now

By Frank Moraes 

I'm glad to see that Obama made his big speech and that he is now going to take executive action on climate change. I do, however, wonder why it took so long. The standard answer is that the president can only do so many things at once. While that is certainly true of me, I don't think it applies to him. He has an enormous staff. He could hire more people if he needed. Why didn't he, on day one, tell some people, "Put together a report on what we can do on climate change." That would have taken 4 seconds. Or six if he had added, "Make it so." But it's all good and I am eager to see what actually gets done. A big part of it will depend upon the Senate getting past the Republican filibuster machine.

As I've been arguing for the last four years, now is the time to clean up the environment. Conservatives (and sadly, many liberals) claim that we can't do that because it will hurt the economy. That seems like a logical complaint. But the situation is exactly the opposite. Right now, we have a huge amount of unused capacity. There are lots of people sitting around because they can't find jobs. Corporations are sitting on piles of money they can't find uses for. Now is the time to require companies to become energy efficient. If we wait until the economy is booming, then such regulations really will hurt the economy.

But you see, when conservatives claim that environmental regulations will hurt the economy, what they mean is that it will hurt corporate profits. And that's true. But keeping corporate profits high is not the business of the government. That's especially true when unemployment is high. Pollution is what economists call an externality. All of us pay part of the production costs of a polluting company through reduced quality of life (and often also quantity of life).

All economists agree that externalities are bad. They distort markets. Let me give you an example. Suppose you are making a dress at home. After you are done, there is a lot of trash: paper, thread, cloth. If you clean this up it will cost you time, thus increasing the cost of the dress. Or you could just throw it all on the floor. That wouldn't cost you any time, but it would make your house messy, which would harm everyone in the house. By "polluting" the house with your trash, you've just made your housemates pay for part of the cost of your dress, even though they get none of the benefits.

We have lots of externalities in our economy and we should eliminate them as much as we can. So forcing companies to use less and cleaner energy is not depriving the company of freedom. Their actions are depriving all of us of freedom. As the companies get greener, they are taking responsibility for their actual costs of production. And now is the time for them to make the necessary changes. Not only can they afford it, it will act as a stimulus for the economy, putting unused capacity to work.

Environmental regulation during bad economic times is a win-win situation. 

Update 1

Matt Yglesias reports on some of the details of regulatory stimulus. It's good, although what he says about power plants is obviously the way that it would work. 

Update 2

Paul Krugman provides a standard economics discussion of what I wrote above. He doesn't mention dresses at all!

(Cross-posted at Frankly Curious.)

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