After blogging last night about EPA’s mercury emissions rule, I spent today reading about cost-benefit analysis as an approach to evaluating environmental regulations. I’m a fiscal conservative, but also a dedicated conservationist. As an undergraduate, I took every Econ class I could to boost my GPA. I understand cost-benefit analysis, and I understand economics. More importantly, I understand opportunity costs.
Cost-benefit analysis is meaningless unless one understands opportunity costs. After all, the argument isn’t really about whether something costs too much compared to the benefits received. The real argument is the trade-offs one must make when one decides to ‘purchase’ one thing rather than another thing, such as mercury free emissions rather than ‘insert your favorite good or service here’. What critics of the EPA’s mercury rule are really arguing is that there are better uses of the money that the rule would force us to spend.
To this end, those who place monetary values on human well-being and life are not monsters. They are providing a valuable service, an ethical service even, to the public and decision-makers. Consider this scenario: We’re told that the mercury emissions rule will cost $XX, and that this is too much money for $X benefit in sickness averted or lives saved. But the true value in cost-benefit analysis is to show that for those $XX spent on mercury emissions reductions that only save $X in human welfare, we could turn around and spend those $XX monies on items or services that maybe provide $XXX in human welfare.
I’m not a fool. I served my time in politics (and I’m sure I will again). I understand the motivations of those who are making these arguments about the costs and benefits of the mercury rule. Most of this is not altruism. But I think we need to separate the wheat from the chaff, so to speak, and understand there is value to economic analysis and economic measures assigned to environmental regulations, even to those regulations which protect human health and save human lives.
We need to understand that budgets are real, both at the government/societal level, and at the individual level, and we need to recognize that regulations carry costs. We need to understand that to do one thing may preclude the opportunity to do another more productive or valuable thing with our financial resources. We need to recognize that economics, at its heart, is the art of balancing finite resources against infinite wants and needs. Desire always outweighs the pocketbook. This is a fact, a truism, and it’s not wrong to apply economics to environmental policy.
Now, having written all of that, I’ll offer a follow-up post on why the cost-benefit analysis offered for the mercury rule is bunk. Stay tuned…