Thursday, March 01, 2012
Mercury Regulations
I read an article in The Economist concerning Obama’s
recent enforcement of the reduction of mercury emissions by power plants. The
majority of the article focuses on Obama’s justifications for the regulations,
which have little sound economic theory backing them. Although the article
attempts to explain the holes in Obama’s reasoning, it lacks economic terminology
and analysis, which are some of the components I intend to contribute. I will
also point out uses of government force that I feel are inappropriate and
unjustified.
To begin with, the article points out that the
health benefits associated with the reduction in mercury are instead almost
entirely attributed to the reduction in fine particles. This makes perfect
sense considering that only trace amounts of mercury are emitted from the
burning of coal. It seems entirely possible that Obama (and the EPA) used the “mercury
reduction” method as a scare tactic, because of the well-known effects the element
has on human health. This seems a pretty poor use of government force.
The primary focus of the article is the seemingly overstated
benefits associated with the regulations and where the inflated amount comes
from. Essentially, positive externalities are included in the benefit analysis,
which would not be a problem if it weren’t for the fact that a full two-thirds
of the benefits associated with the regulatory decrease in mercury emissions
are attributed to the positive externalities of reducing the emission of fine
particles. If such a high amount of the benefits are from reducing fine particles
emissions, why not design the regulation directly around that aspect? Again, it
seems to be a tactic centered on the fears associated with mercury.
The best example of violating economic principles
and exerting unjustifiable government force is Obama’s argument for the mercury
regulation, because of the private
benefits associated with it. Given that government regulation is only
justifiable in the event of a market failure, which only occurs with
externalities, the use of public goods, and monopoly market power, using
private sector benefits as an excuse for regulation is another example of a
poor use of government force. Private costs and benefits would be captured in a
market, and therefore, do not require government intervention.
Obama argues that the regulations will bring private
benefits in the form of reduced spending on fuel and electricity. Several
things are wrong with this argument, the first of which is the fact that consumers
bring about equilibrium within the market by demonstrating their own marginal
private benefits and marginal private costs through the consumer choices they
make. By forcing additional benefits into a market, equilibrium would be
distorted.
Another hole in Obama’s argument claiming that consumers
will spend less money on fuel and electricity, is that it is more likely that
the average consumer will spend the same amount as they previous did, yet
because of the rise in prices, will be forced to consume less OR will spend more
money than they previously had to in able to consume the same amount.
Obama also tries to defend his position of using
government force to essentially create
the equilibrium point of marginal private benefit and marginal private cost by
using some aspects of behavioral economics, namely the concept of irrationality
in consumer choices. Still, irrationality is not a source of market failure, as
all consumption choices, whether
rational or irrational, still represent consumer preferences. Trying to make
choices for consumers by basically telling them that they are too stupid to
choose for themselves is yet another example of the improper use of government
force.
*I
have researched several documents looking for information regarding how the regulations
will be implemented and have for some reason not been able to find what I’m
looking for. With that in mind, even though there are many aspects of the
mercury regulations that do not add up to sound economic practices, the best
way to correct the existence of the targeted externality(s) would be by using a
corrective tax.
