More lessons from testifying: Must explain that one person’s income is another’s cost

I’ve written one blog post already about my testimony this week on the EPA’s new standards for power plants and about how repeating near-universally held views about the economy flummoxed many of the subcommittee members to whom I was testifying.

Here’s another one that puzzled them: my claim that “one person’s income is another’s cost.” This one really buffaloed Rep. Mike Pompeo (R-Kan.), who seemed to think it was an idiosyncratic belief taught only where I went to graduate school.

The context is that I noted that the EPA’s new standards (sometimes referred to as the “toxics rule”) would create some jobs because firms would have to install and purchase pollution abatement and control equipment (scrubbers for smokestacks, for example). I noted that the need to undertake this pollution abatement investment was a cost from the perspective of the power plants, but would end up as income in the hands of workers doing the building and installation of the equipment and owners of firms in the pollution abatement sector.

Pompeo went on a strange tear about setting money on fire (yeah, I didn’t really get it either), but, just to prove that my “one person’s income is another’s cost” formulation is not some liberals-only shibboleth, check out the third slide in this PowerPoint presentation, based on the textbook of Greg Mankiw, an economic official in George W. Bush’s administration. Or this blog post on Freakonomics. Or this, from self-described libertarian Arnold Kling:

“It means that one person’s spending is another person’s income. When I buy a meal at a restaurant, the money I spend ends up as income for restaurant owners, cooks, wholesale food distributers, farmers, and so on.”

Is basic economics really this hard to get?

Anyway, in case Pompeo would like an honest-to-goodness businessman to make the same case, check out this  from a story in Bloomberg Businessweek:

Meanwhile, Thermo Fisher Scientific in Waltham, Mass., is building emission monitors that power plants will need to measure toxins under the new rules. The regulations “could easily add $50 million to $100 million dollars in revenue in a year or two years,” says Chief Executive Officer Marc Casper, “which is significant for a company like ours.” The Institute of Clean Air Companies, a trade association representing businesses that make products to reduce industrial emissions, forecasts the industry will add 300,000 jobs a year through 2017 as a result of the EPA rules.

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  • http://www.facebook.com/mark.l.bail Mark L. Bail

    Economics this basic is hard to get when you don’t know economics. The average person just thinks about paying for something. He gives money and receives something in return. He doesn’t follow the money to the next person. It’s a matter of limited perspective.