How does policy drive change?



  1. 0 Votes

    Usually badly, as a result of what is called the law of unintended consequences, and also because of poltical considerations.

    Accordng to the GAO there is no reason to have any policy or regulation that does not provide a net social benefit. The easy way to “prove” a net social benefit is to have the financial “winners” compensate the financial “losers”. If you think of this in terms of the fifth amendment, the net social benefit is a “public use” that requires compensation to those whose property is taken – the “financial losers” from the policy.

    In a similar manner the EPA says that no person, entity, or group should bear an undue burden due to the enactment, enforcement, or lack of enforcement of any environmental regulations.

    Unfortunately, such equity is hard to enforce in practice, and various special interests try to push the regulation one way or another so that they can “win” by avoiding a burden or getting undue protection. One way we try to manage things equitably is to require cost and benefit analyses for major initiatives, but these are as much art as science and they are subject to claims of political manipulation as well.

    In environmental law we have a concept known as “polluter pays”. This is an attempt to make the polluter pay for any and all environmental damage, as we are now seeing in the gulf of Mexico. However, if consumers are buying and using the products of a company that pollutes, who is really responsible? Certainly, if the manufacturor installs pollution control equipment, that becomes part of his cost, and it is transferred to conumers as part of the price of goods. The consumer then pays one price for the manufacture of the goods and an additional price for enviromental cleanliness.

    Pollution control equipment is never 100% efficient, and some pollution or waste escapes to the environment. This causes “external costs” which apply to everyone, whether they use the product in question or not. A Pigovian tax is one applied against a manufacturor to compensate for external costs: to pay the “financial losers” enough to make them whole.

    However, because of our propensity to assess blame and liability we sometimes go overboard and charge more tax than what covers the external costs. At this point a Pigovian tax which is designed to promote equality (covering the external costs and no more than that) becomes a sin tax which is designed to punish. Whether it is a Pigouvian tax or a sin tax, thse costs are incorporated inthe manufacturors costs, and they are paid by the consumer of his product.

    A wise and fair and green consumer, then, would want to see that the best and most efficient combination of pollution control and pollution tax is used so that the consumer gets the lowest over all cost: including the cost of escaped pollution. It makes no sense for the consumer to demand $100 more of pollution control if the next increment of technology only reduces his “external” pollution cost by $10, and yet we frequently hear demands for “zero pollution”.

    External costs are diffiult to measure, with one side claiming they are high and the other low, in order to achieve their objective while shifting costs away from themselves. At this point government steps in and makes the decision for us. If the government reaches a decison that is too strict, then it costs us money in terms of the goods we purchase. If the government reaches a decison that is too loose, then it costs us money in “external costs”.

    And we have to pay for the government.

    So our Total Cost = Production Cost + External Cost + Government Cost. In this equation, benefits count as negative costs. 

    If we apply excess resource to any of the terms on the left, they are wasted resources, which is never green, and it increases our total cost on the left.

    Good policy, then, minimizes our total cost on the left, and insures equality by properly compensating for external costs (and no more than that), while minimizing the cost of government for necessary regulation, monitoring, compliance and enforcement.

    Minimizing our costs on the left means we have more money left over to devote to other good works. It is often politically popular to demonize the manufacturors, but as their consumers we are part of that system, too.

    Because external costs ae so hard to quantify they are sometimes described as in calculabel or of infinite value (what is the value of a life?). Yet once we make a decsion on pollution control ro taxes, we have effectively monetized (put a price on) exactly those unknowables. We therfore face a situation in which one policy may value the lives and health of some people one way and the lives and health of other people a different way.

    This would be in violation of the EPA’s goal of making sure no one has to carry an unfair burden. 

    Not all externalites involve costs: sometimes we get free benefits from some activity, which means that activity is not being compensated for all that we get from it.





    • 0 Votes

      Terrific answer Hydra. I wonder how it is ever possible to accurately price a Pigovian tax? It seems like inevitably the tax will be too high or too low since externalities seem nearly impossible to price. For example, how in the world would we know how to set a gas tax to pay for the costs of too much driving/burning petroleum?

    • 0 Votes

      It is hard, but not impossible. Anyway, you do the best you can and plan on improving it. What that means is that you need to go back periodically and review your previous decisions, which is something government is usually terrible at: there is no control feedback loop like you would have in and Airrplane or automobile, where, if you turn too hard, you know about it.

      Then, there are political considerations. Recently EPA adjusted their calculations on the statical value of a human life, which is a key component of environmentla related cost and benefit analyses. environmental groups were outraged becasue they thought that it enat their favorite programs would get less money. In one sense, they were right, but in another sense it meant that they would get the correct amount, and no more.

      Theoretically, the new calculation would shift the way monies are spent so that more health issues could be averted for the same money. However, you have to believe that the new calculations were based on the newest and best data, and not just a politically motivated change by the Bush administration.

      By now, we do have good information on some things, like the relationship between asthma and the pollution in various cities, therefore if we spend money reducing pollution we should see a reduction in asthma, which can be measured. As one epidemiologist put it to me, “We know pretty much what the relationship is between how much time you spend o a treadmill and how much the heart exercise will lengthen your life. Unfortunately, those two numbers are about the same, However the quality of your life willbe different.” Ralph Paffenbarger.

      With regard to your specific question about driving, I would suggest that this is how we get ourselves in trouble. Without a feedback loop you wind up like JFK Jr. and spiral in, thinking you are on the level. A better question than one predicated on “too much driving” (which prejudices the issue, however correctly) might be”How do we adjust the taxes and subsidies across the entire transportation system such that we get the lowest total costs, for the most transportation considering the transportation costs, the external costs, and the government costs for all modes equally?”

      Good luck with that one.

      The important thing to remember is that as soon as you set a policy, then you HAVE monetized, or put a price on those imponderables. the best you can hope for is that some don’t benefit or pay a lot more than others. Why would you want to spend $100,000 to save a life under Policy A when Policy B can save one for a $100?.

      Remember when some movie star was catching criticism for adopting African babies? Well, if the fact is that it is less expensive to adopt African babies than American ones through an American agency, we can save more African babies with the same resources. Are American babies worth more?

      Some people are ncensed at such an insensitive question, but when it comes to environmental issues that kind of thing is the ethical heart of the problem, and it gets expressed in dollars, whatever policy you pick.

      Might as well try to get it right.


    • 0 Votes

      Very interesting. Thank you for your thoughtful response Hydra. It sounds like you feel utilitarian philosophy could be applied to environmental issues?

    • 0 Votes

      I’m not sure I know what a utilitarian philosophy is.

      Certainly every human effort has a cost and a value, and it would not be very utilitarian to spend more for a result than the result is worth. That is the easy part, we can take that as a basic proposition. Even a Cheetah has to make a kill pretty quick or give up to try again later.

      But the next part of the problem considers the matter of diminishing returns. It might be worthwhile to clean up half of a waste stream because the value is more than the cost, but to clean up the second half costs a lot more, so maybe that isn’t worth it.

      Finally you have the problem of competing tasks. You may decide it is worthwhile to clean up half of a waste stream, based on cost, but then discover that after you have cleaned up only 25% of it that some other waste stream buys you more benefit for the same cost in cleanup. In that case you would want to shift your focus away from yur original task and onto the secondary task in order to get the most value for your cleanup dollars and in order to not waste resources. After you get the easy cleanup on the second task, the costs may go up even faster than the first one, and you would have to shift focus back again.

      So, it is easy to say that there is a cost and a value for evey task, but there are many tasks, and the cost/benefit curves are not linear, so balancing all these changing priorities is a huge effort.

      Unfortunately, we have allowed advocating for differing priorities to become a competitive political effort instead of a science and economics effort.

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