The Hidden Cost of Pollution

Everyone knows that pollution is bad. But new economics research now shows it’s even worse than we thought—pollution is making us sick and stupid!

Professor Alex Tabarrok overviews recent research that examines how pollution negatively affects employment, IQ, productivity, and health.

This also means that driving pollution down has even more benefits than we previously thought.

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Everyone knows that pollution is bad. The WHO estimates that air pollution alone kills about 6.5 million people a year. That's 10% of all deaths, and more than AIDS, malaria, and tuberculosis combined.

In recent years however, better more credible research from economists and others has taught us that pollution—it's even worse than we thought. I'm going to cover a few of the most interesting studies in this video.

Infants born in places with a lot of pollution—they tend to be born with worse health, more premature births, and lower birth weight, for example. But infants born in places with worse pollution—they also tend to be different in other ways. They're born to poorer families. So what's causing the health problems? Is it the pollution, or is it the poverty?

One way to tell would be to run an experiment, to randomly assign pregnant women—some to high pollution areas, others to low pollution areas—and then after some time, to compare the health of their infants. Probably not too many women would volunteer for that experiment.

The introduction of the E-ZPass in New Jersey and Pennsylvania around the year 2000, however, created an ingenious natural experiment. Now some of you might remember the old toll booths, where cars had to slow down, give their money to a toll booth worker, get change. That meant long delays, lots of congestion, and lots of pollution near toll booths.

That all changed with the introduction of electronic tolling, E-ZPass. Long lines at the toll booth were eliminated as cars zipped though fast lanes creating much less local pollution. The economists Janet Currie and Reed Walker—they collected information about the health of infants born near toll booths before and after the introduction of E-ZPass. Infants born near toll booths—they're the treatment group because these infants were exposed to much more pollution before E-ZPass than after E-ZPass. 

Other factors, however—they might be changing through time. So to control for these other factors Currie and Walker found a group of infants who were born more than 2 kilometers away from the toll booth, but less than 10 kilometers away, and within 3 kilometers of a major highway. Now these infants—they don't live near enough to the toll booth to be affected by the change in pollution, but they do live near enough to the toll booth and a major highway to form a good control group, a group that is likely to have similar dynamics to the treatment group. So this is called a difference in difference design because it compares the difference in infant health of the treatment group before and after E-ZPass to the difference in infant health of the control group before and after E-ZPass. If the control group has similar dynamics to the treatment group, this difference in difference method will produce a causal estimate of the impact of air pollution on infant health.

Using this method, Currie and Walker found that the introduction of E-ZPass reduced low birthweight babies by about 8.5%, and premature births by about 7.5% They also found that the effects were largest for the infants born closest to the toll booth, a dose-response effect.

These are big effects, especially as being born with low birthweight or being born premature—that can have effects such as lower IQ and worse health that last a lifetime.

Pollution, of course, doesn't just affect infants. Three economists measured pollution at a series  of chess tournaments in Germany. They compared each player's moves with the moves that the player should have made according to the world's greatest player of chess. Magnus Carlsen? No—the Stockfish 9 AI. And what they discovered is that the human players—they made more mistakes on days with higher pollution.

And other studies have found similar results. Call center workers in China—they're less productive on high pollution days. Even baseball umpires have been found to make more errors calling balls and strikes when pollution is high.

What we're learning from a wide variety of studies is that pollution reduces health, IQ, productivity, and employment. In other words, pollution is an attack on human capital, and human capital is the most important input to the economy. And what that means is that less pollution can mean more GDP. We may be on the wrong side of the pollution Laffer curve.

And if less pollution can mean more GDP even in a relatively low pollution society like the United States, then this is probably doubly and triply true in high pollution societies like China, and especially India.

In one sense, this news is bad. Pollution is making us sick and stupid. In another sense, the news is good. Pollution is so bad that reducing it can make us healthier and wealthier. And we have the technologies to reduce pollution, like using solar, nuclear, and natural gas. And now, new research shows that the benefits of reducing pollution—it could be much greater than we previously imagined.


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