COLUMN RIGHT/ VIRGINIA POSTREL : Regulating Ourselves Out of Jobs : Seek targeted solutions rather than socking the entire country with rules that cost billions.
President Bill Clinton and Gov. Pete Wilson face the same problem: how to jump-start a sluggish economy and put people back to work without making looming budget deficits any worse.
Wilson has proposed targeted tax cuts to give businesses incentives to invest. Clinton is still toying with the idea of a “stimulus package” of federal public-works spending. In both cases, critics wonder where the money will come from.
There is an alternative way to jettison the ballast from the economic balloon without increasing the state or federal deficit. The secret lies in “taxes” that never show up in government budgets: the costs of inefficient regulations. These costs are real, and they are enormous.
Many people have become skeptical of claims that regulatory costs drive companies offshore or out of state. And sometimes the costs do seem trivial. When the South Coast Air Quality Management District fined Micropolis Corp. $35,000 last year for not implementing a ride-sharing plan, the disk-drive maker didn’t leave California. And it agreed to spend another $15,000 to push employee car pools.
But where else might the $50,000 have gone? For new equipment? For employee training? For additional workers or pay raises? Such “opportunity costs”--the alternatives we give up when we spend time and money to meet regulations--measure the real economic impact of the rules.
They explain why the trade-off is not simply between regulation and “jobs” but between regulation and wealth-creating jobs. Environmental lawyers and regulatory-compliance officers do, after all, have jobs. So do prison guards.
But paying them means not paying the people who make the economy grow. “For every employee persuading other employees not to drive,” said Cypress Semiconductor chief executive T.J. Rodgers, “there is one less employee designing, manufacturing or selling competitive products.”
Such opportunity costs build like a snowball as they roll through the economy, affecting saving, investment, prices and labor supply. Consider a study published not in a Chamber of Commerce press release but in a prestigious academic journal.
Writing in the RAND Journal of Economics, Harvard economists Dale W. Jorgenson and Peter J. Wilcoxen estimate that the environmental regulations of the 1970s and ‘80s cut economic growth, leaving gross national product 2.6% lower in 1985 than it would have been without the regulations. That’s $107 billion--nearly twice as much as the federal government collected from corporate income taxes.
This figure doesn’t take into account the benefits of regulation. But it does raise the question of whether we’re getting the most bang for our bucks.
Brookings Institution economist Robert Crandall notes, for instance, that 12 million Americans--less than 5% of the population--are exposed to smog above the EPA’s “safe” levels for more than 100 hours a year, mostly during hot, sunny months. All these people are in California. Instead of socking the entire country with rules that cost billions, we should look for targeted solutions.
And there are, in fact, efficient alternatives to California’s current tangle of emissions controls, ride-sharing mandates and other costly regulations.
In Southern California, cars account for about two-thirds of air pollution, and 10% of them--the “gross polluters”--produce half the smog. To spur growth and cut smog, the state could replace its bureaucratic regime with two reforms that make polluters pay: congestion pricing, in which peak-hour drivers pay for highway use, and mobile emissions testing, which identifies gross polluters while they’re on the road.
Technology exists to make both cheap and easy (no tollbooths needed). But scrapping the current system for a better one means changing laws--and that requires political leadership. We have to overcome the twin notions that intrusive regulation is inevitable and that reducing pollution should reduce growth.
The new President has said he’ll make economic growth his top priority. But Clinton has apparently accepted the fallacy that environmental regulation is just social policy and can be treated as cheap symbolism. “He’s abdicated the whole area to Gore,” says a disillusioned Clinton adviser. “I see no signs of restraints from Clinton to Gore’s religious approach.”
But regulation is in fact hidden taxation. The jobs it “creates” wipe out more valuable jobs and investment. Al Gore may not recognize this fact. But the producers on whom the nation’s wealth depends live with it every day.
