Stimulative Effects of Environmental Regulations

Paul KrugmanPaul Krugman wrote about the current partisan nature of environmental laws and how it wasn’t always this way, Pollution and Politics.

I think it is important to understand why doing something about pollution is good for the economy — at least when economic demand is low as it is now. As you have no doubt seen, since the economy crashed in 2008, corporate profits are at an all time high. Because there are so many more people looking for jobs than there are jobs, there is no pressure to raise wages, so the the owners of capital can keep more of the profits of productivity gains to themselves. It’s funny that conservatives think that in this environment, businesses need incentives in the form of lower taxes and fewer regulations in order to “create” jobs.

The problem with this situation is that the rich — the owners of capital — end up just sitting on the money. There is no incentive for them to invest the extra money, because demand is low in the economy and they are likely to lose on the investments — in the short term at least. But by requiring that the owners of capital invest to improve their infrastructure, this money that would be sitting around in the pockets of the rich doing nothing would be cycling in the economy. (Say’s Law is a myth!)

It is understandable why corporations would not want to be forced to upgrade their physical plant. But the effect on the macroeconomy is win-win: there is less pollution and the economy is stimulated. And given that the corporations are sitting around harming the economy with a kind of paradox of thrift, there is no reasonable political complaint against environmental regulations in a depressed economy.

Of course, what we hear from conservatives is that a depressed economy is a bad time to enact environmental regulations because it will kill jobs. To start with, this is a disingenuous argument because they would make the same argument in a booming economy: we can’t harm the good economy! This second claim actually has a theoretical basis. But environmental regulations in a depressed economy is a jobs program. It takes money that the rich are refusing to spend and makes them spend it to create jobs. And meanwhile, we get a better economy and become more competitive compared to other countries.

Marketplace Magic: And Then a Miracle OccursConservatives always argue for their policies of letting the business community do whatever it wants because this will somehow create jobs. It is similar to their healthcare logic, “High cost healthcare; then a miracle occurs; low cost healthcare.” But in this case it is: cut taxes and regulations on corporations; then a micacle occurs; jobs are created.

Krugman suggested that the issue is primarily rising income inequality. But I really think it is mostly ideology. Environmentalism poses a huge problem for conservatives and that is especially true when it comes to global issues. Conservatives cannot accept that collective action is sometimes needed. This is actually quite a typical conservative-liberal divide. Liberals have no problem with individual action. In fact, if we could have a good society without government, liberals would have no problem with it. As I note a lot around here: liberalism is a very practical ideology. But conservatives are not okay with collective action. To them, the need for any collective action other than getting together occasionally and killing hundreds of thousands of people would prove that the government isn’t always the problem. Ronald Reagan would be wrong about, “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.'”

This is why distinguishing between different economic situations is anathema to conservatives. Monetary stimulus is always inflationary. Deficit spending never creates jobs. And environmental regulations always kill jobs. My atheist friends rightly mock fundamentalist Christians who are immune to proof. But perhaps they should spend more time looking at political conservatives who seem to be no less immune to proof.


Note that in practice, conservatives are not for a small government. But because they hate government, they simply turn it into a corrupt system that enriches their already rich friends. And the one area where they think the government absolutely much be small is in its role to help the weak.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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