Economics According to the EPA

The Dangerous Purveyors of Administrative Law

New EPA chief Gina McCarthy, appropriately dressed in red, plans to bequeath an unchanging climate to our descendants. Even if it costs an arm and a leg.

by Pater Tenebrarum

The climate is changing, as it has done for billions of years. Luckily, one might add, because if the climate had not changed, there would be no humans on planet Earth. Ever since Margaret Thatcher erroneously began to fund research into 'global warming' in order to muster scientific propaganda weaponry in her struggle against Arthur Scargill and his coal miners union, climate research has grown from a tiny, barely noticed scientific branch, into a major global gravy train funded unwittingly and quite involuntarily by tax payers. No other branch of science manages to generously feed so many researchers, bureaucrats, NGOs and other assorted hangers-on. The main prophets and chief bureaucrats involved travel from one conference to the next, giant retinues in tow, to think up new ways of appropriating even more funds and gaining more influence over the economy. The economic damage done by this perpetual circus has by now reached gargantuan proportions and is set to become far bigger if these people get their way.

Never mind that the original reason for the entire rigmarole, namely the fact that the planet's climate was warming ever so slightly between 1976 and 1998, no longer even exists: warming has stopped as of 1998 and is highly likely to go into reverse on account of the sunspot cycle having reached a minimum (admittedly the latter is just a hunch on our part, based on publicly available information. We don't claim to be climate scientists, we can only try to compare the various competing theories and try to interpret the known facts).

The EPA in the US has surely become one of the most intrusive and costly bureaucracies in the world under the Obama administration. It essentially makes it own laws and regulations – subsumed under the heading 'administrative law' – after being issued rough legal guidelines by the bodies that should actually make the laws, whose members however no longer have the time to even read what they vote on, due to the sheer size and complexity of the modern-day legal jungle. The bureaucrats then are supposed to worry about the details, by imposing regulations that have the force of law. There is no longer any meaningful democratic control over such bureaucracies; in practice, they are a law unto themselves.

Vintage Nonsense Courtesy of the Government

The president has just nominated a new EPA head, who is apparently a feisty bureaucrat, hell-bent on 'saving the planet', whether we like it or not. In order to deflect critics, the new EPA head honcho is inventing new economic theories and is revealing her economic ignorance in the process. A report by the AP entitled “New EPA chief: Climate controls will help economy” informs us briefly of her views. Naturally we were curious after reading this headline, since 'climate controls' don't sound like something that is likely to help economy. In fact, even most of today's statist Keynesian economists tend to admit that the costs of fighting the mythical danger of 'global warming' are absolutely staggering, even if we employ extremely generous assumptions. Let us look at the article step by step.

“President Barack Obama's top environmental official wasted no time Tuesday taking on opponents of the administration's plan to crack down on global warming pollution.”

Oh, so it is 'global warming pollution' now. This garbling of terms is probably intended to make it sound even more threatening. However, as noted above, there has been no warming in over 15 years. Even if one were to agree that global warming is a negative process (as far as we are concerned, a warmer climate is conducive to life and civilization), there is nothing to 'fight' anymore.

“In her first speech as the head of EPA, Gina McCarthy told an audience gathered at Harvard Law School in Cambridge, Mass., that curbing climate-altering pollution will spark business innovation, grow jobs and strengthen the economy. The message was classic Obama, who has long said that the environment and the economy aren't in conflict and has sold ambitious plans to reduce greenhouse gases as a means to jumpstart a clean energy economy.”

Here is it again: we were briefly wondering where the propaganda term 'climate altering pollution' was coming from when we remembered that CO2 has been declared a pollutant, and the EPA has been given the power to 'regulate' it. Presumably this is the first step in preparation of a tax on breathing, since all humans exhale CO2 and must therefore be considered dangerous polluters.

Government coercion in the form of taxes, regulations and subsidies may well 'spark' certain economic activities, but they will perforce consist of capital malinvestment. Since the capital directed toward these activities will no longer be available for employments consumers regard as more important (as evidenced by their voluntary preferences), it is absolutely certain that the entire slew of activity will amount to a colossal waste of scarce capital.

The new regulations cannot possibly 'strengthen' the economy. In a comment on the Waxman-Markey climate legislation published in 2009, Robert Murphy relates what Keynesian economist William Nordhaus reckoned to be the extent of the economic damage (i.e., this is what an economist who is sympathetic to all kinds of government intervention in the economy has concluded):

“For example, William Nordhaus is one of the pioneers in the field of climate-change economics, and he is no laissez-faire ideologue; Austrian readers may recognize Nordhaus as Samuelon's coauthor of a textbook that is sympathetic to "market failure," to say the least.

Yet according to Nordhaus's "DICE" model of the global climate and economy, if the whole world were to implement the stringent emissions caps (83% below 2005 levels by the year 2050) contained in Waxman-Markey, the net loss of the policy would be enormous. It's true, such stringent limits would reduce the amount of climate damage future generations would suffer, but the harms imposed on the economy (because of the emission caps) would more than outweigh these benefits. Indeed, Nordhaus's model says that the present discounted value of these different impacts (i.e., slowing climate change but also slowing economic growth) is somewhere in the range of negative $14 trillion to negative $21 trillion, measured in 2005 US dollars. (I give more details of this derivation here.)”

Elsewhere in his article Murphy mentions that e.g. the extremely generous assumption made by Paul Krugman, namely that the cost of this legislation to Americans would 'only' amount to 2% of GDP by 2050, actually conceals a 'fantastic amount of income' as Murphy puts it. Assuming average annual global GDP growth of 3.5%, the cost would be $5.8 trillion in 2007 dollars in the year 2050 alone. In other words, the annual cost by 2050 would be the equivalent of about 35% of today's entire US GDP. That is indeed a fantastic amount of income. Note that the alleged benefits for our descendants – even if one once again employs the most generous assumptions – would be utterly negligible. It will be consumption of scarce capital on an unimaginable scale for benefits you will have to search for with a microscope when the time comes – or rather a very precise thermometer.

We conclude therefore that the 'classic Obama' message pronounced by Mrs. McCarthy reveals both her and the president's economic ignorance. 'Ambitious plans to reduce greenhouse gases' are not going to 'jumpstart a clean energy economy'. The economy is not a car engine. It cannot be 'jumpstarted'. As regards the administration's subsidization of 'clean energy' projects, the economics of these incarnated invitations to crony capitalism are so atrocious that they quite frequently go bankrupt in spite of the huge subsidies they receive. The AP article continues:

“McCarthy signaled Tuesday that she was ready for the fight, saying that the agency would continue issuing new rules, regardless of claims by Republicans and industry groups that under Obama the EPA has been the most aggressive and overreaching since it was formed more than 40 years ago.

"Can we stop talking about environmental regulations killing jobs? Please, at least for today," said McCarthy, referring to one of the favorite talking points of Republicans and industry groups.

"Let's talk about this as an opportunity of a lifetime, because there are too many lifetimes at stake," she said of efforts to address global warming.”

Allow us to point out here that the article's entire tone is pure demagoguery.  No, we should not 'stop talking' about the loss of jobs, wealth and economic opportunity when an agency that is indeed at its 'most aggressive and overreaching' in the 40 years of its existence threatens to continue to 'issue new rules' in order to add to the impenetrable thicket of already existing ones. Note the attempt to belittle critics by labeling the criticism as the 'favorite talking points of Republicans and industry groups', the unsaid implication of which is: 'the only people who are against this selfless attempt to save the planet are a bunch of unscientific religious nutjobs and greedy corporations'. Meanwhile, lives are at stake unless we address global warming!

Of course, there are no lives are at stake due to climate change and there no longer is any warming anyway. In fact, as we have previously reported, even prominent AGW supporters within the scientific community are now admitting a few 'inconvenient truths'. For instance, the data of the past 15 year suggest that the probability that the currently favored climate models that describe the interaction between CO2 and global temperatures are correct has declined to a mere 2%. Another 5 years of no warming, and all of these models will have to be discarded. Their predictive value will then be zero. We conclude that one should not spend another red cent on 'global warming' prevention, since the science behind this agenda is obviously in grave danger of being utterly invalidated shortly.  Back to the AP article:

“McCarthy acknowledged the agency had been the most productive in its history. But she said Tuesday that "we are not just about rules and regulations, we are about getting environmental improvement." But improvement, she said, could be made "everywhere." That optimistic vision runs counter to claims by Republican lawmakers and some industry groups that more rules will kill jobs and fossil fuel industries.”

When a bureaucracy has been at its 'most productive in its history', it means it has unleashed a veritable flood of costly regulations. Regulations already cost the US economy more than $1.8 trillion per year (data as of 2012), or about $14,700 per family. Incidentally, this is more than half of the entire government budget, so the total burden of government on the economy amounts to a staggering $5.4 trillion per annum these days. Perhaps we should begin to look for a term that sounds bigger than 'Leviathan'.

What 'optimistic vision'? It is absolutely certain that more EPA rules will 'kill jobs and fossil fuel industries'. As we have previously pointed out, in a State that largely confines its predatory actions to wealth confiscation by means of taxation, citizens will as a rule produce far more wealth than in a State that in addition strangles the economy with a jungle of regulations, which produce no income for anyone – they only produce costs. There is thus no reason to look toward the EPA's unbridled activism with optimism. It will hasten the already well advanced downfall of the very economy and political area that once was the world's greatest hope for freedom and prosperity.

We should add that this does of course not mean that we would welcome unchecked pollution. However, the best protection against pollution are strong property rights in a free society. Pollution and other environmental problems (such as e.g. overfishing, to name a problem that is actually real, contrary to 'global warming') can ultimately always be traced back to 'tragedy of the commons' type situations.  The AP article concludes:

“The EPA under Obama has already put in place or proposed new rules to reduce carbon pollution from cars and trucks, large smokestacks, and new power plants – regulations that McCarthy helped to draft as head of the air pollution office. Next on its agenda is the nation's existing fleet of coal-fired power plants, the largest single source of carbon dioxide left. Obama in a June speech gave the agency until June 2014 to draft those regulations.

"It is not supposed to be easy. It is supposed to be hard," McCarthy said of the road ahead. "I don't think it is my job out of the gate to know what the path forward is. It is my obligation to let those voices be heard and listen to them."

A panel in the Republican-controlled House recently signed off on a plan to cut the agency's budget by a third and attached a series of measures that McCarthy said "do everything but say the EPA can't do anything."

Yet, last week, in a victory, a federal court dismissed challenges brought by Texas and power companies to EPA's plans to regulate the largest sources of heat-trapping gases. "Climate change will not be resolved overnight," she added. "But it will be engaged over the next three years – that I can promise you."

Killing off the US coal industry, which is what the plan amounts to, is a very bad idea. Although the market already provides the 'cleaner' fuel natural gas at extremely low prices due to fracking technology, a growing economy will require coal as well. Note here that the more capital is accumulated, the more likely it will become that the problem of obtaining 'clean' and abundant energy very cheaply will one day be solved once and for all.

Accumulating Wealth and Knowledge

One must think about it this way: the main method by which society discovers and transmits new information is the exercise of entrepreneurship. The fewer obstacles are put in the way of this process, the more wealth and knowledge will be accumulated. Knowledge is dispersed among billions of humans, in a kind of  'intellectual division of labor' as Mises put it.  The only limit to this is given by population growth (obviously, if the world's population were to stop growing or were to shrink, the world's store of practical individual knowledge would stop growing as well). It is human ingenuity that overcomes the problems posed by the scarcity of resources – these resources themselves do not impose an ultimate limit to progress. Energy is an excellent case in point, based on Einstein's famous equation. Energy is mass times the speed of light squared, which is to say that there is an endless abundance of energy that would be theoretically available to us if we were to acquire the necessary knowledge allowing us to tap it efficiently.

As to Mrs. McCarthy's zinger at the end: 'climate change' will not only not be 'resolved' overnight, it will never be 'resolved' by a bureaucracy. The climate has always changed and always will. It is not possible for us to create a static climate. So anything she might do over the next three years is certainly bound to impoverish us, but will not achieve anything with regard to making the climate more static – which is not necessarily desirable anyway (by the way, this desire to transform a dynamic world into a static one is a common thread found in misnamed 'progressive' policies since Marx).

Of course we can imagine that at some point in the far future, our descendants may actually be able to control earth's climate at will. The less government bureaucracies like the EPA interfere with the creation of wealth and knowledge, the more likely it is that such feats will one day be possible. Conversely, the more interference with the market there is, the more scarce capital will be consumed and the smaller the chance will be that our descendants will actually be able to successfully face potentially catastrophic dangers. This latter point is never addressed by environmentalists, but it strikes us as extremely important. If we truly worry about how large scale threats will be met in the far future, we should first and foremost strive to create as much wealth as possible, instead of imposing ever more taxes and regulations at horrendous costs with little or no provable benefits.