Thursday, September 29, 2011

Congratulations Chancellor Merkel

Today, Germany's parliament approved expanded authority for bailing out Eurozone countries in crisis (see here). It represents (a) a tremendous political victory for Chancellor Merkel, who proved that real leadership sometimes requires action against the weight of  public opinion, (b) a vital and substantial step toward ameliorating the sovereign debt crisis that has threatened the very existence of the European Union, and (c) an indirect boost to President Obama's reelection prospects, given the effects of European market instability on the US economy.

Another Self-Inflicted Wound At Obama's EPA

EPA's own Inspector General (IG) has published a report criticizing the process by which EPA made its endangerment finding for greenhouse gases (GHGs), which is a prerequisite for regulating GHGs under the Clean Air Act. The gist of the IG's complaint was that EPA's process for reviewing the climate science was procedurally flawed, even though EPA relied primarily on scientific findings of the National Academy of Sciences.

Some of the IG's complaints appear minor, even trivial, such as the fact that one person on the 12-member peer-review board of scientists was an EPA employee. But that hardly excuses the procedural shortcuts. When it comes to a hot-button political issue like regulating GHGs to mitigate climate change, failing to dot the i's and cross the t's is like handing a loaded gun to Senator James Inhofe, the Republican presidential candidates (excluding John Huntsman), and other climate-change ignoramuses, who will gladly use it to take pot shots at the agency.

EPA officials and environmental groups have been  quick to defend the endangerment finding on the merits, and no doubt that they are on solid ground (although the Clean Air Act remains a relatively poor vehicle for regulating GHGs). But that is beside the point. The agency has, by its procedural negligence, invited a political fight it did not need and might not win.

Wednesday, September 28, 2011

Steven Pinker on the Decline of Violence

A very interesting presentation, here, and a forthcoming book, here.

It Depends on Which Economist You Ask...

Bloomberg conducted a survey of economists from Sept. 2 to Sept. 7 to obtain their projections of economic growth, job growth, and unemployment for the next two years. See here. The table below summarizes the results.

============================================================
                        Table of Forecasts
============================================================
                 GDP     GDP     Jobs (thous)     UR Change
                2012    2013    2012    2013    2012    2013
============================================================
Median           0.6     0.2     275      13    -0.2    -0.1
Count             34      30      28      28      28      26
------------------------------------------------------------
Action Eco       0.0     0.0       0       0     0.0     0.0
AIG              0.7     0.1     250     100    -0.5    -0.2
Aletti           0.4     0.0     n/a     n/a     n/a     n/a
Anderson Eco     0.5     0.5     500     500    -0.5    n/a
BBVA             1.3     0.9     900     900    -0.8    -0.7
BNP Paribas      0.5    -0.3     500    -300     n/a     n/a
Clearview Eco    0.8     0.8     750     750    -0.5    -0.5
DB               0.0     0.0       0       0     0.0     0.0
Econoclast       0.0     0.0       0       0     0.0     0.0
Euler Hermes     0.0     0.0       0       0     0.0     0.0
Fact & Opinion   0.5     0.5     500   1,000    -0.1    -0.3
Faifield         n/a     n/a     300     200    -0.2    -0.3
Fannie Mae       0.7     0.0     500       0     0.0     0.0
Goldberg Inv     n/a     n/a     150     100     n/a     n/a
Goldman Sachs    1.5     n/a     n/a     n/a     n/a     n/a
Guerrilla        1.5    -1.0     200       0    -0.2     n/a
H. Johnson       0.2     0.3      25      45     0.2     0.2
JP Morgan        0.1     n/a     n/a     n/a     n/a     n/a
MacroEco         1.3     n/a     n/a     n/a     n/a     n/a
MacroFin         1.5     1.5   1,000   1,000    -1.0    -1.0
Manulife         1.5     0.5   2,000     700    -1.0    -0.3
Mizuho           0.2     0.0     n/a     n/a     n/a     n/a
Moodys           2.0     1.0   1,000       0    -1.0    -0.4
NFIB             0.0     0.0       0       0     0.0     0.0
Niagara          1.0     0.1     125       0     0.0     0.0
Nord             0.4     0.5     n/a     n/a    -0.2    -0.4
Parsanec         0.5     0.5   1,100     700    -1.0    -0.5
Pierpont         0.3     0.0      50       0    -0.2     0.0
Raymond James    0.3     0.2     350      25    -0.5    -0.1
SPSU             0.9     0.1     110       0     0.0     0.0
SocGen           1.7     0.8       1       1    -0.4    -0.2
State Street     1.2    -1.0     340    -370    -0.2     0.3
Standard Charter 1.0     0.5     600     300     0.0     0.0
Unicredit        2.0     n/a     n/a     n/a     n/a     n/a
W Hummer         0.2     0.2     150     200    -0.1    -0.1
J Forest         1.0     1.0     n/a     n/a    -1.0    -0.5
============================================================

The economic forecast obviously is not favorable for the country as a whole, unemployed workers, or President Obama's reelection prospects. But what I find most interesting about the survey is the wide spread of economic growth projections, ranging from zero to 2 percent. Expectations for job growth are similarly varied; some economists expect no net job growth, while others expect more than 2 million new jobs to be created in 2012. At least there seems to be some correlation between job-growth expectations and economic-growth projections. However, what are we to make of the wide variation in economists' projections of both? Does this survey tell us more about the unsatisfactory state of our macroeconomic models than it does about the state of the macroeconomy?

Monday, September 26, 2011

Congrats to Cav

The road course for the World Championship, held in Copenhagen this past weekend, was tailor-made for the sprinters, and Mark Cavendish is the dominant sprinter of the current era, which made him the prohibitive favorite to win the gold medal. And he did not disappoint. His Great Britain teammates kept up a vicious pace that was designed to deter attacks from the likes of Cancellara and Gilbert. And Cav out-sprinted Matt Goss and  Andrei Greipel for the win. The only "surprise" among the top finishers was fabulous Fabian Cancellara, a non-sprinter, who nearly pipped Greipel at the line for the bronze. But in this race only the top place on the podium matters. The winner will be conspicuous in the peloton throughout the next year wearing the World Champion's jersey in all (non-TT) road races.

Sunday, September 25, 2011

Common Pool Resources (CPRs) v. Common Property Regimes (CPRs)

In the social science literature, the abbreviation CPR stands for two related, but distinct, phrases that are too often conflated: common-pool resources and common-property regimes. Yesterday, at a conference at NYU Law School on "Convening Cultural Commons" (about which I previously posted here), a small and short debate arose between two scholars I greatly admire, Lin Ostrom and Carol Rose, about the two types of CPRs. Carol, if I understood her correctly, suggested that the distinction is insignificant because common-pool resources inevitably are defined as such within an institutional context. Lin responded that resource attributes such as relative subtractability and excludability, are not institutionally determined and play a crucial role in determining whether or not a resource is a commons.

Because the exchange was brief and, basically, an aside to other issues being addressed at the time, I hesitate to make too much of it. But I must say I find Carol's position baffling. An institutional structure - whether common-property, individual private-property, or some other management system - obviously affects rates of  extraction/resource-depletion. But it does not affect subtractability which depends exclusively on ecological circumstances.* Ecological circumstances can/should affect the applicable institutions, for reasons explained by Hardin (1968), Demsetz (1967) and many others. But institutions don't alter the fundamental ecological conditions. Put differently, a subtractable resource remains subtractable whether the current rate of demand, under prevailing institutional structures, is either zero or very high. (This is why Ostrom's social-ecological systems framework quite rightly pays as much attention to ecological conditions as to institutions.)

*Institutions can affect excludability, if only indirectly, by affecting incentives to innovate technologies that, themselves, can enhance excludability, at least with respect to some resources. Thus, the invention of barbed wire in the mid-19th century enhanced excludability of lands in the western US, where lack of timber had previously made enclosure too expensive (Anderson and Hill 1975). 

Friday, September 23, 2011

Wonderful Essay on Marie Sklodowska Curie

At Smithsonian.com, here, on the 100th anniversary of her second Nobel Prize.

Thursday, September 22, 2011

What Would Montaigne Say About Blogging?

In his essay on Vanity, Montaigne has the following to say about "foolish and impertinent scribblers," including himself, which might well apply to bloggers (present company included) today:
there should be some restraint of law against foolish and impertinent scribblers ...; which, if there were, both I and a hundred others would be banished from the reach of our people. I do not speak this in jest: scribbling seems to be a symptom of a disordered and licentious age. When did we write so much as since our troubles? When Romans so much, as upon the point of ruin? .... The corruption of the age is made up by the particular contribution of every individual man; some contribute treachery, others injustice, irreligion, tyranny, avarice, cruelty, according to their power; the weaker sort contribute folly, vanity, and idleness; of these I am one. 

Fairness v. Efficiency? Maybe Not.

An article in the new issue of the International Monetary Fund's publication Finance and Development raises interesting and important questions about the conventional wisdom (since Okun) that efforts to reduce inequality  necessarily reduce the efficiency of production (e.g., by reducing incentives to engage in productive activity). Andrew G.  Berg and Jonathan D. Ostry report on a couple of their own empirical studies finding that over a longer run, economic growth is not reduced by efforts to increase equality; to the contrary, they find that such may even constitute a precondition for long-run economic growth (e.g., by reducing social tensions associated with inequality that can interfere with productive activity).

My own intuition is that there is probably a possibly unknowable and probably shifting level of equality/inequality at which long-run economic growth would be maximized/optimized. Either too little or too much equality would likely lead to a reduction in production, raising the probably unanswerable question, how can we get it just right?

"Convening Cultural Commons"

I'm on my way this morning to NYC for a conference at NYU Law School on "Convening the Cultural Commons." The conference is focused on applications of commons governance tools and techniques in non-natural resource settings, such as informational, social, and cultural goods, ranging the pooling of scientific research to the provision of health care. For more information, see here. As someone who has dealt a good deal with common-pool natural resources, I find these extensions to the social goods quite interesting and expect to learn a lot at the conference.

Wednesday, September 21, 2011

Does Obama's Reelection Depend on His Ability to Raise Taxes?

Reading Michael Tomasky's column on GOP claims of "class warfare" in the The Daily Beast this morning, I was struck with by his claim that "this tax fight will be the great test of the Obama presidency." I think Tomasky might be right about this, although I cannot imagine any circumstances under which House Republicans would allow Obama to win the fight. Even more interesting to me, though, is the implication that Obama's chances for electoral success next fall may hinge on his ability to win a fight to raise taxes. That strikes me as deeply counterintuitive, but we are in strange political times.

Monday, September 19, 2011

Fat Tails and Climate Change

The new issue of the Review of Environmental Economics and Policy arrived today. It's chocked full of interesting and useful articles, prominently including a symposium on "Fat Tails and the Economics of Climate Change," with contributions from Marty Weitzman, William Nordhaus, and Robert Pindyck. The title refers to the "fat tails" of probability density functions of climate sensitivity models, in which low-probability, high-magnitude temperature changes reside. Because the probabilities are not trivially low, and the magnitude of harm, should they occur, would be potentially catastrophic, Marty has been advocating that society purchase "climate insurance" to protect against high-harm scenarios. In this piece, Marty ably defends his important insight that the uncertainties lingering in the fat tails should be driving current climate policy.

While still somewhat conservative in his approach to the incorporation of low-probability, high-magnitude catastrophes into  integrated assessment models of climate change, Professor Nordhaus seems to have come around (relative to earlier writings) to recognizing the significance of lingering and potentially dangerous uncertainties in our economic models. Pindyck, likewise, stresses the importance of extreme climate changes to climate policy design, while also pointing to the consequences of taking into account budget constraints and the potential for catastrophic social harms from sources other than climate change.

In addition to those three fine articles, the volume includes an interesting piece on long-run trends in energy prices, a cross-country comparison of water markets (with Gary Libecap among the co-authors), and a well done primer for economists and policy analysts on greenhouse gas regulation under the Clean Air Act.

Saturday, September 17, 2011

Studying Climate Change Impacts on Snowmelt-dependent Agricultural Systems in the Western US and Kenya

The NSF recently approved $1.2 million in funding for the project, on which I am a co-principal investigator, along with IU colleagues Elinor Ostrom and Tom Evans, plus Krister Andersson from Colorado and Kelly Caylor from Princeton. The IU News release on the award is here. I hope to learn a lot working with this terrific group of  natural and social scientists, and expect that our study will be valuable for thinking ahead about (re)structuring water allocation institutions in the face of changing environmental circumstances.

Fascinating Essay on the Evolving Meaning of Atheism

Here.

MLEA 2011

As I mentioned in my previous post, I'm attending the Midwest Law & Economics Association annual meeting here at IU, Bloomington. The conference has been really good this year. Very few of the papers (possibly including my own) have been duds; most have been really creative, interesting, and strongly argued. I'm especially impressed by some of the up and coming young scholars, who I think are likely to make major contributions to the field in the coming years. It speaks well of the organization (albeit one without any real hierarchy, but largely sustained by the work of my Maurer School colleague Jeff Stake) and its relatively informal and non-threatening culture that it attracts such talented young scholars.

The paper I presented, on the social cost of carbon, is at a fairly early stage, and I received some useful feedback, as I continue to work on it in the lead up to another presentation at the ABA Section on Environment, Energy and Resources next month in Indianapolis. I'll post an updated version of the (short) paper on this blog sometime in the next couple of weeks.

Blackburn 4 - Arsenal 3

I'm attending the Midwest Law & Economics Association conference this weekend in Bloomington, so I had to leave home at halftime, with Arsenal leading 2-1. Apparently, while I was actually making my presentation at the conference (on the social cost of carbon), Arsenal contrived to give up three second-half goals and lose 4-3. A very disappointing result, especially coming off a decent 1-1 draw at Dortmund in the Champion's League in mid-week. I probably wont' be far off the mark in guessing that Arsenal missed the presence of the again-injured Thomas Vermaelen in the center of defense. In the part of the game I actually saw, I must say that I thought Mikel Arteta looked a bit slow and indecisive on the ball (despite scoring Arsenal's second goal). On the other hand Gervinho and Alex Song were particularly impressive in the first half.

Wednesday, September 14, 2011

Joint Investigation Team Releases Final Report on the Causes of the Deepwater Horizon Disaster

Both volumes, as well as appendices, of the report can be found here, along with recommendations for averting such disasters in the future.

Tuesday, September 13, 2011

Practical Applications of Game Theory

An excellent article on that topic appears in the September 3 issue of The Economist, here.

Sunday, September 11, 2011

Peyton Manning for MVP

The Colts are in the process of proving (in case anyone needed more proof) of just how valuable Peyton Manning is. Not only is the offense sputtering and turning the ball over; the defense can't stop the Houston offense, and the Colts special teams are dreadful. How much of this is really attributable to the absence of the best player in football? Who can say. But it's hard to imagine a Manning-led team ever losing to anyone (let alone Houston) 34-0 at the half.

I'm not particularly upset at the score. After all, if the Colts are not going to compete for a Super Bowl this year - and they are not - then I rather have them win the Andrew Luck sweepstakes, than finish in the middle of the pack.

Back to the Flats

Coach Bob organized a really nice group training ride in Indianapolis this morning. Sixteen or seventeen cyclists, riding easy-to-moderate tempo pace for 42 miles. A lot of the guys (and gals) needed such a ride after riding "The Bear," a CIBA-sponsored 50+ mile ride in the hills down towards where I live, yesterday. It was good to see a bunch of my friends, as well as some new faces in the group. Makes me wish I could ride with them all more often.

Saturday, September 10, 2011

Arsenal 1 - Swansea 0

It was almost like the start of a new season, with a brand new team, at the Emirates Stadium this afternoon, as Arsenal hosted newly promoted side Swansea. Off an 8-2 drubbing at Man United, five new signings on the last day before the transfer window closed, and an international break, the Gunners needed a solid performance today to reassure themselves and their fretting fans. In a "normal" season, this was the kind of game in which Arsenal would destroy a lesser opponent. This year, Arsenal fans would be mollified, if not quite satisfied, by the 1-0 final scoreline, even if the only goal came from a fluky mental mistake by Swansea goalie Michel Worm.

To be fair, Swansea play some good football. Unlike many sides that, when they play at the Emirates, just sit back and try to soak up the pressure. And Swansea's defense is pretty solid. That said, the Gunners didn't look all that much better than the Swans. They had more possession and created a few more chances, but they only rarely threatened the Swansea goal (Robin van Persie's magnificent strike off the post a notable exception). Theo Walcott proved, once again, that he couldn't hit the side of a barn door with a cross. He also wasted a couple of half-chances in front of goal. Wojciech Szczesny was, once again, very strong in front of the Arsenal net.

As for Arsenal's new boys, they settled in well enough. Per Mertesaker in particular had a strong game in the center of defense; only once was he caught out of position. Mikel Arteta played the role of quarterback and made some good passes. However, Arsenal fans might hope for a bit more offensive aggressiveness from him in future matches; and he did disappear a bit from the game in the second half. Yossi Benayoun came on as a second half substitute. He showed some good pace, but also some rust. Needless to say, it's going to take more than a few practices and one or two games for everyone to gain a level of comfort playing with one another.
 
Arsenal fans will breath a sigh of relief that Arsenal were able to finally a win a game this season in the Premier League (on the fourth try). But it was hardly the kind of convincing victory we would normally expect at home over a side like Swansea. With critical players like Wilshire and Vermaelen out for another two months (or longer), we can only hope that the new additions settle quickly. The imminent return of Gervinho after serving his three-match ban for a red card should help to Gunners regain their cutting edge on offense.

Friday, September 9, 2011

SPEA Retreat

I spent all afternoon today at a retreat organized by the IU School of Public and Environmental Affairs (SPEA) Faculty Group on Governance and Management. More than two dozen members of the SPEA faculty, both junior and senior scholars, gave brief introductions to ourselves and our work. Every one of the presentations was fascinating. I was highly impressed at the caliber of my new SPEA colleagues, and am very excited to be working with them.

Here are my two favorite phrases from today's presentations:

     "empirically proven moral adjectives;" and

     "civicky things".

The retreat took place at the Stone Age Institute, north of Bloomington. It's a very interesting place in a bucolic setting. It seems to be a well-kept secret around Bloomington - I had never heard of it prior to the initial announcement of this retreat - but I look forward to returning for future events there.

Jens Is Not Done

Hot off the press: the great Jens Voigt has extended his contract for one more year (his 40th) with the newly merged Radio Shack and Leopard Trek squad.

Thursday, September 8, 2011

What I'm Reading

1. Lots of stuff on the social cost of carbon, in preparation for a conference presentation next month. Particularly useful are the articles collected in a special issue of Economics-EJournal here.








2. One of the great things about Kindle is the ability to almost costlessly download classic works of literature and philosophy. I'm currently reading Montaigne's Essays, which are immensely enjoyable. I've recently downloaded other "free" ebooks, including War and Peace, Holmes's The Path of the Law, a couple of volumes in P.G. Wodehouse's Jeeves and Wooster series, as well as works by Hume, Mill, and Boethius.





3. John G. Donahue and Richard J. Zeckhauser, Collaborative Governance: Private Roles for Public Goals in Turbulent Times (Princeton 2011). An interesting and useful, if somewhat chatty and breezy, treatment of mechanisms for improved provision of public goods. My sense is that this book is written not so much for academics as for politicians and corporate types, who don't want to be bothered with too much depth or detail.

Colts Officially Enter the Andrew Luck Sweepstakes

In a recent post, I asked whether the Colts should consider trading Peyton Manning at the end of this season in an effort to acquire the right to draft Stanford quarterback Andrew Luck, who will be the best QB to enter the draft since Manning himself.

Thanks to another neck surgery today, trading Manning is no longer a prerequisite to drafting Luck. Manning is officially out for at least the next two months and perhaps as long as the entire season. Consequently, the Colts might be able to earn the right to draft Luck simply based on their performance on the field.

The last thing I want to see this season is the Colts stumble and bumble their way to an 8-8 record. Better that they should actively compete for the worst record in the league, which would qualify them to draft Luck. What will it take? A 4-12 record? 3-13? I'm  not sure, but it won't be easy (unless Kerry Collins gets injured and Curtis Painter takes over) to compete with the likes of Cincinnati, which is truly among the worst teams I've ever since. But I have faith that the Colts can accomplish any goal they set for themselves. With the right kind of effort even 1-15 is possible.

Tuesday, September 6, 2011

Muller, Mendelsohn and Nordhaus on National Environmental Acounts

The new issue of the American Economic Review showed up in my mailbox this afternoon. It includes a fascinating article by Nicholas Z. Muller, Robert Mendelsohn and William Nordhaus on "Environmental Accounting for Pollution in the United States Economy." Here is the abstract:
This study presents a framework to include environmental externalities into a system of national accounts. The papers estimates the air pollution damages for each industry in the United States. An integrated-assessment model quantifies the marginal damages of air pollution emissions for the US which are multiplied times the quantity of emissions by industry to compute gross damages. Solid waste combustion, sewage treatment, stone quarrying, marinas, and oil and coal-fired power plants have air pollution damages larger than their value added. The largest industrial contributor to external costs is coal-fired electric generation, whose damages range from 0.8 to 5.6 times value added.
It should be noted that the fact that an industry's total air pollution damages exceeds its value added does not imply that the industry should not exist. As the authors duly note, if externalities were internalized, prices would change. However, damages in excess of value added does indicate that those industries are under-regulated; that is, at current levels of regulation, marginal damages from pollution emissions still exceed marginal abatement costs.

Several countries, including Japan and the UK, already incorporate environmental damage into their national accounts. It's about time the US did likewise. This article provides valuable insights into how the federal government might do so.

After Late Signings, Arsenal's Injury Woes Continue

A big sigh of relief were heard from Gunner fans, as Arsenal signed five new players just before the transfer window closed. But no sooner had Arsenal plugged some gaping holes in the squad, when new holes appeared  or grew larger. First, it was announced that young Jack Wilshire, who has yet to play this season because of an ankle injury, will not be returning to his midfield position for another two to three months. Then, just this morning, Arsenal announced that its best defender, Thomas Vermaelen, would be out two months with an Achilles injury. Vermaelen picked up an early season injury last year, which Arsenal (as is their tendency) initially downplayed; it knocked him out for the entire season.

Wilshire's injury underscores the wisdom of signing Benayoun on loan from Chelsea as insurance. He will not replace Jack Wilshire, but he will plug the hole better than any of the players already on the Arsenal roster. In defense, I suppose Koscielny will partner new signing Per Mertesacker in the center of defense.

If the Gunners are to mount a real challenge for a top four finish in the League (challenging Liverpool for a Champion's League spot), Wilshire and Vermaelen, arguably Arsenal's two best players, simply must be in the line-up by mid-season. Even then, it could be too late.

Saturday, September 3, 2011

Obama and Ozone

According to reports in the New York Times (here) and other sources, President Obama is forcing EPA to back down from proposed regulations that would tighten up national air quality standards for ground-level ozone, which is a precursor to smog, much to the consternation of environmentalists. The EPA already had tightened up the ozone standard in March 2008, during the waning days of the Bush Administration, from 0.084 parts per million (ppm) to 0.075 ppm. Shortly after taking office, the Obama Administration announced a reconsideration of the ozone standard based on its belief that the science supported an even more stringent standard than the one the Bush Administration adopted.

The legal basis for the Obama Administration's reconsideration of the Bush Administration's standard is clear. The Clean Air Act requires EPA to set national ambient air quality standards (NAAQSs) to protect the health of the most vulnerable sub-populations in the US, based solely on scientific evidence (Clean Air Act, sec. 109, 42 USC sec. 7409). It cannot consider cost. This understanding of the Clean Air Act's plain language has been consistent since 1970. The US Supreme Court reconfirmed it in Whitman v. American Trucking Assc., 541 US 457 (2001), despite an amicus brief filed by several prominent economists arguing that the agency should not be prohibited from considering costs in deciding whether to adopt or amend NAAQSs.

As a result of its reconsideration of the Bush Administration standard, the Obama EPA proposed (here) reducing the primary NAAQS from 0.075 ppm to somewhere between 0.060 ppm and 0.070 ppm (along with a separate secondary NAAQS based on seasonal fluctuations in emissions). One unusual feature of this proposed rule was its failure to specify a precise numeric target for the ozone NAAQS, which left substantial uncertainty about where on the range between 0.060 and 0.070 it would finally come down. Even if we take it as given that the science supports a reduction in ambient concentration levels, it is difficult to understand why the EPA could not settle on a single number in its proposed regulation.

As noted earlier, EPA is legally barred from considering costs in setting NAAQSs. Nevertheless, it is required both by statute (the 1995 Unfunded Mandates Reform Act) and several Executive Orders to undertake regulatory impact analyses (RIAs) of all major proposed regulations. Thus, the EPA has to prepare cost-benefit analyses for new and revised NAAQSs, even though it is supposed to ignore them when actually setting the standards.

As I argue in a working paper, which I am currently in the process of revising (an older version can be viewed here), it is ludicrous to suppose that EPA does not consider the cost calculations it is legally required to undertake in setting or revising NAAQSs. The Clean Air Act requires EPA to considering revising NAAQSs for all regulated ("criteria") pollutants, including Ozone, every 5 years. If EPA only relied on the best science, it would almost certainly increase the stringency of its regulations every five years. The fact that NAAQS revisions are the exception rather than the rule since 1970, indicates that cost does play a role, if only informally, in EPA's decision-making. (I take this to be a good thing, though many of my fellow environmental law professors would no doubt disagree. It would be even better, in my estimation, if Congress allowed EPA to consider costs formally.)

In the case of the reconsidered Bush Administration revisions to the NAAQSs for ozone, the Obama EPA's supplemental RIA estimates that the Bush Administration's rule, revising the ozone standard to 0.075 ppm, would yield median net social benefits of $3.1 billion, as compared with $1.4 billion for a standard of 0.070 ppm, $0.7 billion for 0.065 ppm, and -4.8 billion for 0.060 ppm (all discounted at a constant rate of 7%). The figure below (from page S1-8 of the RIA) shows the range of costs and benefits under alternative standards. The bottom line is that the Bush Administration's selection of a 0.075 ppm yields higher net social benefits than any of the alternative standards the Obama Administration was considering.

















The question that naturally arises, of course, is whether President Obama's decision to retreat from reconsideration of the Bush Administration's ozone standard is related at all (and, if so, to what extent) to the regulatory impact analysis. It would be naive to suppose that the decision had nothing to do with the cost-benefit analysis, especially given the political stakes. As the country approaches a presidential election year with a very shaky (to say the least) economy and high employment, President Obama would find it difficult and highly inconvenient to defend regulatory choices that are not significantly and obviously social-welfare maximizing. The EPA's RIA indicates that a shift from the Bush Administration's 0.075 ppm standard for ozone to a standard somewhere between 0.060 and 0.070 ppm would not significantly nor obviously enhance social welfare.

Of course, the Obama Administration cannot explicitly defend its decision to abandon its proposed tightening of the ozone NAAQs without violating the clear terms of the Clean Air Act (although Dan Farber, at Legal Planet, argues plausibly that the timing of the Obama proposal, prior to the next mandatory 5-year review in 2013, might exempt it from the Clean Air Act's prohibition on consideration of costs). However, if I am right that cost considerations, as well as practical politics, always play a role regardless of the letter of the law, then it seems much more likely than not that Obama's decision was substantially determined by EPA's RIA. Just as a positive cost-benefit analysis can insulate the EPA from negative political fall-out from new or revised regulations, so a negative cost-benefit analysis can create a political obstruction to regulation, even when costs are not supposed to count.

Between now and November 2012, we should not expect to see any new regulations emerging from the Obama Administration, including the EPA, that do not clearly and overwhelmingly pass a cost-benefit test, regardless of any legal constraints on the consideration of costs.

A FURTHER THOUGHT: The Obama Administration's withdrawal of the ozone NAAQSs from reconsideration opens the door for possible litigation, in which environmental plaintiffs would challenge the Bush Administration's decision to reset the primary NAAQS at 0.075 instead of some lower level. The scientific basis for that lawsuit would be the same as the scientific basis for the Obama Administration's reconsideration of the rule. If they prevail, the court would likely order the Obama Administration to re-open its reconsideration of the rule, which it could then do without having to take as much (if any) political heat for the results.

Indeed, this debacle over the ozone standards is yet another example of political ineptness by the Obama Administration. Lawsuits against the Bush standards already were filed when the Obama Administration took office. Instead of preempting those lawsuits by announcing that it would voluntarily reconsider the standards, the Administration probably should have let the lawsuits proceed before acting.