To many onlookers, economics traditionally has been a matter of trade-offs. There's free trade versus the risk of job loss here at home, tax revision versus a possible dampening of investment, and - until recently - unemployment versus inflation. None of these questions is simple, but as policy-makers have found, they're the controversial stuff of day-to-day decisions.
Now, a new issue is looming that already has become a knock-down, drag-out fight on its own: the impact of environmental regulations onthe economy. The facts are that the nation needs to do something to preserve the environment, and that it is going to be costly in terms of inflation and economic growth. The question is, how much should society be required to pay to accomplish that?
A hint of the issue's intensity cropped up last month when Robert Strauss, President Carter's new wage-price czar, included environmental regulations among three initial targets for attention in the administration's anti-inflation fight. (The others were wage settlements involving the postal workers and the Teamsters.)
Although Strauss didn't threaten any specific action mere mention of the issue all but brought the house down. Within hours, the White House was beseiged by protests from environmentalist around the nation. Strauss spent the next two weeks apologizing and backfilling. It was only in early May that he head his first real hours of peace.
There's no question among most policymakers today that the naions's environmental goals are important - and here to stay. Congress clearly has committed the government to setting - and enforcing - environmental standards. And planners have pointed to serious consequences from falling to follow them: added health hazards, a drain of key resources and a decay of the cities.
But the situation presents some problems because, like it or not, the environmental battle also is having an impact on the economy: The cost of the nation's pollution-control effort already is higher than had been imagined, and federal agencies have new regulations in the pipeline that will boost further in coming years. Clearly there are trade-offs to be decided.
For all the trouble Strauss' statement stirred up, neither he nor other top policymakers actually are urging any serious retrenchment in the anti-pollution fight. Instead. officials say they want only first to catalogue how how much it will cost the economy for the nation to meet these environmental regualtions and, second, to make sure the new rules are written and enforced sensibly.
Contrary to some of the initial reaction to Strauss' remarks, that doesn't imply any virtual emasculation of anti-pollution rules.But it doesn't mean giving the environmentalists free rein, either. What policymakers are hoping for is more of a balance - to hone regulations so they will accomplish the same goal without exacerbating inflation as badly. It is a difficult job.
How much the regulations contribute to higher business costs - and added price pressure - is a matter of controversy. While business complains the measures are costly, the Environmental Protection Agency cites a study by Chase Econometrics Associates Inc. estimating that the regulations add only 0.4 percent a year to the overall inflation rate - not much by most standards.
But White House economics find those figures flawed on two counts. First, the study is based on regulations in force in 1976, without taking account of the spate of costly new requirements due to take effect in the next few years. Second, the inflation figures represent an average that includes the impact as far back as 1970 - before most of today's regulations went into effect.
Administration economists estimate that applying Chase's own techniques to regulations from 1976 on shows that complying with antipollution requirements is adding between 0.7 and 1.1 percent to the inflation rate each year with the likelihood that even those figures are conservative.(EPA, never known for precise economics analysis, is seeking other opinions.)
Moreover, some economists fret that the same cost increases likely to produce higher inflatio also will result in slower growth. A new study by Edward Denison, the highly respected Brookings Institution economists, shows that antipollution regulations have a dramatic effect in slowing productivity - and are apt to limit the economy's growth rate decidedly.
One problem Denison cites is that spending money to meet antipollution requirements doesn't increase a firm's output or provide it with any economic return; it simply adds to the cost of doing business - and heightens price pressures. As a result, productivity is continuing to fall, threatening limit the economy to slower growth.
The Council on Wage and Price Stability estimates that meeting federal environmental requirements will cost American business several billion dollars a year in the next several years. The feeling of Strauss and Treasury Secretary W. Michael Blumenthai - who mentioned the environmetal issue in a speech two weeks ago - is that this cost should be held down as much as possible.
Officials say that does not mean it is not worth trying to preserve the environment. Rather, what policymakers hope will emerge is a more considered approach to environmental regulation that will seek to accomplish the same goals with less pain to the economy. It is the old trade-off game a little more flexibility on regulations, a little more ecnomic growth.
What the administration is trying to do is to figure accurately the cost of achieving its major environmental goals and to decide what it wants to accomplish first. Then policymakers want to make sure the regulations are setting requirements that will produce results at the lowest cost, avoiding unnecessarily expensive rules.
The EPA's initial regulations on dumping of pullutants by steel plants provide an example. They required a separate set standards for each part of the steel-making process, often at substantial expense. But critics say the goal could be met at a lower cost by establishing one standard for the entire plantand letting the company decide how to meet it. (The rules have been overturned by the courts for procedural reasons, but EPA is reported to be drafting similar regulations to replace them.)
On a boarder scope, White House inflation fighters are trying to prod regulators into setting up some sort of long-range plan on what priorities will be in establishing future requirements particularly in the area of toxic substances, which is the next big battle ground for federal antipollution rules - and how much growth will be alllowed.
Administration ecnomists complain that EPA has been parceling out permits on a first-come, first-serve basis - sometimes forcing a hardship on key industries. Strauss' staff wants the agency to consider a more flexible approach, such as auctioning off available permits, or allowing a new firm to take over the pollution "allowance of one that's closed down.
In perspective, none of these proposals seems very threatening to the governments's antipollution goals, expect to the hard-line - and vocal - environmentalists who have been protesting so loudly in recent weeks. One activist was quoted as branding Strauss' off-hand comments as something that's got to be so thoroughly smashed that there's no residue."
While that may be an extreme, to many onlookers it seems typical of the sort of policy myopia that often has backfired on other broad reform movements over the past few years. Excessive zeal among federal regulators in other already has led to sentiment for recalling many of the more stringent rules. * Analysis fret that could heppen to the environmentalistsas well.
Like other one-issue grups in today's society the environmentalist often seem super-sensitive whenever anyone raises question about how their effort is being caried out. But economists caution that, unless federal regulatiors pay attention to other consequences as well, the result could be a decidedly more troubled economy. And that's a painful trade-off, too.