Can America afford clean water?

• Author: Marxsen, Craig S.

The bill for complying with Environmental Protection Agency pollution control regulations runs almost $4,000 a year per household. However, the consequences of impure water must be balanced against these costs.

THE ENVIRONMENTAL Protection Agency (EPA) estimated U.S. water pollution control spending from 1972 through 1995 cumulatively exceeded $995,000,000,000 in 1995 dollars. That's about $9,950 per household for the 100,000,000 households of 1995. Most households never realize they suffer such a cost, though, because it came in the largely invisible form of higher prices for goods and services purchased and slightly smaller paychecks. Yet, the figure is significant and part of the explanation for why the standard of living for the average working family has stagnated during the last two decades.

A portion of real income that would have been received, in effect, was spent purchasing a cleaning of the water. Many of those households might have preferred spending some of that $9,950 on things other than what the Clean Water Act and related legislation bought them.

Of course, there is more to the cost of clean air and water than the expenditures incurred to comply with the relevant laws. Gross National Product (GNP) growth probably has been more than 0.191 percentage points per year smaller due to the effects of environmental regulation, according to a study by economists Dale W. Jorgenson and Peter J. Wilcoxen, who emphasized effects on investment and capital formation. The reduction in GNP passed 4.3% in 1995, if calculated like compound interest since 1973. In other words, Americans have suffered a reduction in income of about $2,514 per household, per year (4.3% of $5,848,000,000, the 1995 national income) in addition to the projected EPA estimated total pollution control compliance costs of about 2.4% of 1995 GNP. The implied combined annual expenditure per household is over 6.7% of national income, or about $3,918.

The EPA underestimates the true cost of the Clean Water and Clean Air Acts because it adds up only compliance figures--the capitalized cost of equipment purchased by business firms and municipalities, increased operating and maintenance expenses, etc. While the EPA estimated compliance cost totals 2.13% of GNP for 1990, a Journal of Political Economy report by Michael Hazilla and Raymond Kopp concludes that the true cost was close to six percent of GNP.

They find a larger cumulative effect than Jorgenson and Wilcoxen do...