To begin with, economics and business are not the same, although they share much of the same terminology, because the economics of business center on business, while the study of economics, at least in theory, encompasses all of society, and just not business, even though some business types have trouble comprehending that a nation’s economy consists of more than business, or more than government and business.
And no matter what they claim, most business people really don’t understand economics, or choose not to. Likewise, very few economists really understand business. Politicians, for the most part, understand neither, and most Americans understand even less than the politicians. This is, I submit, one of the fundamental problems facing the U.S. today.
Let’s just look at why in terms of fundamentals. Supposedly, the basis of economics and business rests on the interaction of supply and demand. In general terms, “supply” means the amount of a good sellers are willing to provide at a given price. Demand is what buyers will purchase at a given price. In a relatively free market [there are no totally free markets, and never can be, a point too many business types fail to acknowledge publicly], the going price of a good or service is set when supply and demand meet. If there is greater demand or a lesser supply, usually prices rise. If demand falls, or supply increases significantly, prices usually fall, again in a relatively free economy.
Of course, no economy is completely free because to have a working economy requires a working society, and human beings have yet to create a working society without government, and government, for various reasons, always imposes restrictions on the market. Some of those restrictions, given human nature, are necessary. Why? Because of the intersection of the way business operates and human nature.
As some have pointed out, the price of a good or service is not necessarily its cost plus remuneration to the supplier, but over time, price has to consist, at the least, of the amount necessary to cover costs of production plus enough above that to keep the supplier or business going. But the devil is in the details, and one of those details is how one defines “costs of production.”
There are all sorts of costs – fixed costs, marginal costs, operating costs, external diseconomies [otherwise known as negative externalities], etc. The cost that matters most to a business is whatever costs the business is required to pay by both the demands of the marketplace (i.e., supply and demand) and the government. If a business has to pay taxes, that’s a cost imposed by government. So are wage, benefit, safety, and environmental standards.
So… by what right, in a supposedly free market economy, is government imposing those costs on business?
The reason for government action is because: (1) the marketplace doesn’t include all the costs of production and (2) a totally “free” marketplace creates wage levels and working conditions virtually all western governments have declared unacceptable, and, therefore, governments have set minimum standards for wages, safety, and worker health conditions.
In addition, some of those government taxes provide for the highways and airways on which business goods are transported, for the national defense which protects business and everyone else from enemies from coming in and seizing businesses and properties and which allows U.S. businesses to conduct operations elsewhere in the world, for regulation and continuance of a stable banking system, for public safety, and so forth, all of which make the operation of businesses possible.
One of the reasons that, years ago, the Cuyahoga River next to the Republic steel mill in Cleveland caught fire was because the marketplace cost, and thus the price of a good, didn’t include costs passed on to others in society in the form of polluted air or water, and thus, any manufacturer who did restrict the emissions of pollutants incurred higher costs compared to producers who didn’t. Consequently, marketplace “discipline” effectively encouraged pollution, or at the very least, certainly didn’t discourage it. Costs inflicted on others are usually termed negative externalities [the older term is external diseconomies], but such terms tend to gloss over the fact that pollution and other degradation of the environment caused by manufacturing is not reflected in the cost of production unless government requires it.
So, when a manufacturer claims that environmental or worker safety regulations are stifling the economy, what that manufacturer really is saying is that he or she can’t compete with manufacturers in other countries that have fewer environmental regulations, and thus, often lower costs of production… and when that manufacturer demands less regulation, it is a demand to allow more pollution so that the manufacturer can make more money – or even stay in business.
Balancing economic output and worker and environmental health and safety is a trade-off. Although some regulations have been ill-thought-out, in general, stricter regulations result in a better environment for both workers and society, but if the rest of the world has lower levels, those U.S. industries competing in a global market will suffer higher costs, unless they have other cost advantages, such as better technology or far more productive workers. Because environmental control technology is expensive, most industries tend to oppose regulations requiring more technology.
In certain industries, workers, such as coal miners, often oppose environmental rules because those rules raise costs, and higher costs may result in the loss of their jobs. The question in such cases is whether continuing such jobs is worth the environmental and health damage, both to workers and to others. The Trump administration is working to remove an Obama administration rule that put stricter limits on how close to watercourses coal mining and chemical wastes could be placed, claiming that the rule will cost jobs, which it likely would to some degree. But the rule would also cut the number of coal and chemical industrial storage and waste disposal sites near rivers and streams in an effort to eliminate slurry and waste accidents such as the one along the Elk River in West Virginia in 2014 that fouled miles of streams and rivers, poisoned hundreds of people who drank the water unknowingly, and left more than 300,000 people without drinkable water for months.
History has shown, convincingly, for all who are willing to look at the facts, actual deaths, poisonings, and worse, that, without government regulations, a significant proportion, sometimes all, manufacturers in an industry will commit unspeakable wrongs in the search to maximize profit. Remember when the Ford Motor Company tried to cover up the faulty design of the gas tank in the Ford Pinto, deciding that it was cheaper to pay legal costs for deaths [which Ford estimated at $49 million] rather than produce a more expensive gas tank, which would have cost $113 million. Ford decided against the fix on a cost-benefit basis, then ended up paying out much more in legal settlements, in addition to a costly recall.
This kind of business cost-benefit analysis continues today, and that’s why the “business model” can’t be allowed without oversight and regulation. The question is not whether to regulate or not to regulate, but how much regulation is appropriate in what circumstances. Or put another way, is your business more important than my health? Except that business owners would say, an increase in regulations will kill my business and probably won’t measurably improve your health. Both are likely exaggerating, and that’s why verifiable science and facts – scientific, financial, and economic – are critical, and why political slogans and political pressure brought by outside interests have no place in determining whether a regulation is necessary, and if so, the degree of regulation required.