FOR MOST OF 1978, the public was exposed to a barrage of information on the costs of environmental quality and other federal regulatory programs. At one time Special Assistant to the President Robert Strauss included environmental regulations on his list of "public enemies" in the battle against inflation. Washington University economist Murray Weidenbaum estimated that all federal regulatory programs taken together carried in 1976 a price tag of $66 billion, about $9 billion of which was accounted for by our major environmental programs. Business has complained loudly and unceasingly that these regulatory costs are responsible for unemployment, inflation, a declining trade balance, and, by extension, the decline of the dollar abroad. Yet in spite of these claims and the magnitude of environmental control costs, Data Resources, Inc., in work done recently for the President's Council on Environmental Quality, has pegged the contribution of environmental control costs to the annual inflation rate at no more than one- or two-tenths of one percent. V. Kerry Smith and Robert Haveman, in their chapter in the RFF study, Current Issues in U.S. Environmental Policy, estimated that the full impact of environmental regulation will add no more than one-half percent to the inflation rate by 1983.
Aspects of cost. What should we make of all the attention being devoted to the inflationary consequences of environmental protection programs? Several points seem worth making.
First, the focus on the costs of environmental legislation is healthy. Knowledge of these magnitudes is one —but not the only—important consideration in evaluating the wisdom of the legislation. This is especially true now that inflation has become such a persistent and irritating problem.
Second, the concern with costs is natural because too little attention was paid them when the major pieces of environmental quality legislation were passed in the early 1970s. In other words, annual costs running billions of dollars merit no less than our rapt attention.
Third, the close scrutiny now being given environmental control costs can be misleading. This will be so if we try to pass judgment on our environmental programs solely on the basis of their costs. This would lead us to neglect the very real, and often very valuable, benefits of these programs.
Calculating benefits. One reason for our current fascination with the costs of environmental quality is their calculability when compared with benefits. For surely it is simpler to pin down the cost of the equipment that air or water polluters must install to reduce their effluent than it is to identify—much less value—the health, esthetic, agricultural, recreational, and other benefits that result from cleaner air or water. Nevertheless, these benefits are real and can be significant.
For example, on the basis of their RFF study, Air Pollution and Human Health, Lester Lave and Eugene Seskin estimate that the annual health benefits alone of compliance with the standards of the Clean Air Act could be as much as $20 billion by 1979. To this would have to be added reductions in crop loss, cleaning costs, and materials damage as well as the value of esthetic improvements. Water pollution control costs, while formidable, make possible the revival of long-dormant fishing and recreational industries, reduce significantly municipal water treatment costs, and help shield millions of Americans from exposures to possibly carcinogenic substances in their drinking water. These are important benefits that we should never lose sight of in our concern with the costs of environmental protection.
Another important point has been obscured by the furor over the costs of regulation. The increases in product prices induced by environmental (and often other regulatory) legislation make good economic sense. That is, while no one likes higher prices, prior to the environmental legislation now under fire, product prices in polluting industries were too low in the sense that they failed to reflect these industries' true social costs of production. Far from being interferences in the free market system, the Clean Air Act and Water Pollution Control Act, for example, were necessary corrections where markets had failed. Whether these corrections were excessive depends upon a careful accounting of costs and benefits, of course; in theory, however, they are perfectly consistent with, and indeed called for by, a properly functioning, free market economy.
Finally, it is worth mentioning that environmental quality legislation can sometimes, but certainly not always, be deflationary. This can be so if the benefits of these programs take the form of, say, reduced crop losses (where the increased supply is sufficient to affect the market price of the crop) or reduced health expenditures (where each dollar of environmental control costs permits households to reduce by more than a dollar their expenses on doctor visits, medication, or the like). What is important in these and other cases, however, is not the direction of change in the consumer price index, however much we may be concerned about inflation. These environmental quality and other regulatory programs are good economic investments if the positive effects they generate—that is, their benefits—are more highly valued than the economic burdens they impose upon us. This is the principle that should guide us in thinking about environmental quality and its cost. Unfortunately, it has been conspicuously absent from much of the recent debate.
A version of this article appeared in print in the January 1979 issue of Resources magazine.
