In a 2010 analysis of rules passed in the prior decade, the non-partisan Office of Management and Budget calculated benefits-to-cost ratios across various government agencies. The EPA came out on top with the highest ratios by far, with benefits from its regulations exceeding costs by an average of more than 10 to 1. If you care about well-functioning, free markets, the EPA would be the last federal agency you’d want to cut.
None of this is magic. It’s something much more mundane: honest accounting.
As any economist worth his or her professional crest will tell you, regulation solves problems that markets ignore. For example, they ensure that the costs of those who pollute show up on their own books, rather than increase the costs for others — either those left with cleanup costs or the healthcare expenses of those who live downwind or downstream.
Those who create costs pay for them — that simple idea is the logic behind the Clean Air Act and most other environmental regulations. It forces markets to reckon with the true costs of doing business, to be more efficient, and to innovate. And it does so at a great benefit to society, even boosting GDP in the long run by making us all healthier and more productive.
The post goes on to argue that tighter EPA regulations are good for the macroeconomy in the short run, increasing net jobs through investment ("Yes, EPA regulation does bring down the unemployment rate ...."). I'm not quite ready to go there (are there any published studies that show that?), since in a simple demand and supply model a regulation raises production cost and price so that the net effect on consumer and producer surplus is negative. It takes inclusion of nonmarket benefits to make a regulation pass the benefit-cost test, and not all do.
Hat tip: Gernot's publicist.*
*Gernot has a publicist?