Daily Archives: 1 July 2013

Regulation(s) and our Economy

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The American Enterprise Institute‘s AEIdeas has looked at the economic cost of Federal regulation and growth in regulation; this study and one by The Heritage Foundation make…interesting…reading in conjunction with each other.

Here’s the money headline on the AEI report:

Federal regulations have lowered real GDP growth by 2% per year since 1949 and made America 72% poorer

And the money graph:

And now some highlights [emphasis in the original]:

Macroeconomists typically divide government economic activity into four broad classes: spending, taxation, deficits, and monetary policy.  There is, however, a fifth class of activity that may well have important effects on economic activity but that nevertheless has received little attention in the macroeconomic literature: regulation.  Although microeconomists have analyzed both the causes and effects of regulation for decades, macroeconomists have joined the discussion only much more recently, with a number of empirical studies suggesting that regulation has significant macroeconomic effects.

They conclude, in the main:

Regulation’s overall effect on output’s growth rate is negative and substantial.  Federal regulations added over the past fifty years have reduced real output growth by about two percentage points on average over the period 1949-2005.  That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011.  That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level.  One channel through which regulation has reduced output is TFP*.  We find that federal regulation can explain much of the famous and famously puzzling productivity slowdown of the 1970s.

Hmm…

 

* Total-Factor Productivity (TFP) is a variable which accounts for effects in total output not caused by inputs (inputs here are the classic factors of production: raw materials and labor, for instance).  Technology Growth and Efficiency are regarded as two of the biggest sub-sections of Total Factor Productivity, and now, Federal regulation is shown to be a major sub-section, also.

A Bit More on “Climate”

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Recall that Candidate Barack Obama said in 2008 that if

someone wants to build a coal-powered plant, they can.  It’s just that it will bankrupt them because they are going to be charged a huge sum for all that greenhouse gas that’s being emitted.

In President Obama’s speech last week, he announced the next phase of his assault on our economycontributions to climate dysfunction, and in it he’s going after existing coal-fired power plants.  Indeed, Obama’s attack on coal—on cheap energy for the American economy—and on coal-related jobs is now explicit: his climate advisor, Daniel Schrag (formally, Schrag is a member of the President’s Council of Advisors on Science and Technology), also said last week that

a war on coal is exactly what’s needed.

Some of the broader economic damage to be done through Obama’s new policy phase has been estimated by The Heritage Foundation.

First, some highlights from the Heritage Foundation‘s report:

In March 2012, the EPA proposed a rule that would prohibit new power plants from emitting more than 1,000 pounds of carbon dioxide per megawatt of electricity generated.  Without the addition of carbon capture and sequestration…the regulation would effectively ban the construction of new coal-fired plants.*

The President’s recent announcement also threatens existing plants and would adversely affect the more than 1,100 coal-fired generators at nearly 600 plant locations that generate 40 percent of America’s affordable, reliable energy.**

Last year, the EPA finalized new mercury and air toxics standards that will force utilities to use maximum achievable control technology standards to reduce mercury emissions and other hazardous air pollutants.  By the agency’s own admission, the rule will cost $10 billion by 2015 but have only $6 million in purported benefits from mercury reductions.

[Never mind that i]n the absence of these new regulations, US air quality [already] has improved significantly over the past several decades.  Emission of toxic pollutants [already] has dropped as much as 96% since 1980.

Now, some of the economic losses that will occur by 2030 according to the Heritage Foundation:

  • Employment falls by more than 500,000 jobs;
  • Manufacturing loses over 280,000 jobs;
  • A family of four’s annual income drops more than $1,000 per year, and its total income drops by $16,500 over the period of analysis;
  • Aggregate Gross Domestic Product (GDP) decreases by $1.47 trillion;
  • Electricity prices rise by 20%;
  • Coal-mining jobs drop 43%; and
  • Natural gas prices rise 42%.

In sum, Obama’s war on coal will cut GDP by $1.47 trillion by 2030.  All for no impact at all on our climate, since atmospheric CO2 (the biggest target of this war) is well-established as a trailing indicator confirming warming that’s already occurring and increasing health of the planet.

 

*It’s important to note that carbon capture has never been successfully demonstrated in a production-sized mechanism and that no one—including Obama’s administration—has been able to figure out what to do with the “15–20 super tankers’ worth of liquid carbon dioxide that…carbon capture would create” annually.

**This also ignores the impact on an already marginally stable American electric power grid that cannot handle such a catastrophic drop in power production while demand continues to rise—or would with an actual economic recovery.

 

h/t Power Line