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Posted by on Apr 22, 2013 in Politics | 3 comments

The Environmental Economist

Source: Shutterstock

Source: Shutterstock

All the different forms of environmental degradation (deforestation, global warming, soil erosion, extinction, air and water pollution) caused by the emerging anthropocene all arise from three core causes: misplaced incentives, rational ignorance, and shortsightedness. “Evil corporations” and “incompetent bureaucrats” aren’t the problem, rather they both simply function under defunct assumptions and that capitalism and globalization are both tools that have been radically misused.

One of the most important insights of modern economics is externalities. Externalities occur when the market-induced action of one individual creates a non-market effect for another individual. Since environmental goods are drastically underpriced (if priced at all by markets) many externalities involve market transactions. For example, if one consumer purchases a gallon of gasoline for $3.40 but drilling for that gasoline destroyed a pristine environment, refining that gasoline caused a small child to succumb to leukemia, and Republicans blaming Obama for the price of that gasoline to cause this author to violently grind his teeth, than the true price of the gallon of gasoline may well exceed $4.00. The solution to externalities is to internalize the externality. There are numerous ways to internalize the externality: privatizing the good, Pigovian taxes (or penalties), quotas, cap and trade, etc. All of these methods ensure that someone feels the pain associated with depleting or destroying precious resources.

It is increasingly popular to blame markets and capitalism for environmental degradation on the left. On the right, markets and capitalism have taken on salvific qualities, and are seen as ends within themselves. I believe that both visions are have some truth and some falsehood: the problem is markets being applied improperly and the solution is to use markets as means to an end: human flourishing. To put an empirical face on the question, I’ll examine two examples: tuna fishing and the local movement.

When fishing for tuna, dolphins are often caught in the nets, resulting in what is called “bycatch.” Because dolphins do not have gills, they usually die. After the problem gained widespread recognition, a labeling process was born, whereby fisheries that met certain standards could earn the right to place a “dolphin-free” label on their tuna. The problem with such a process is twofold. First, although not most important is the wide variance in labeling standards, which deceive customers into an unwarranted sense of complacency. Second, and more importantly, dolphin-free tuna is significantly more expensive than the less sustainably caught variety. This is wrongheaded, after all, consumers who are making the decision with less externality should pay less, not more for products. The best solution is to internalize, making it expensive to kill dolphins, and thereby disincentivizing the activity.

Another misguided trend is the extreme localism movement. While there is certainly something to be said for supporting farmers within the community, the wider aims of some more extreme localists: anti-globalization and anti-corporatism are more dubious. Most estimates of the local food movement find that it accounts for about .4 percent of agricultural purchases, so as a means of wider social change, it is likely to be ineffectual. Further, many corporations, like Wal-Mart, are embracing the movement, and using their stores to sell locally grown food. But the larger problem is that the geographic location wherein the food was produced says nothing about the sustainability of the food. In fact, taking the the movement to its fullest extent would be largely counterproductive, since farmers couldn’t make use of variance in soils for producing crops or economies of scale. Further, removing markets from poor farmers doesn’t make them better off, but worse off. The aims of the local movement (other than building community rapport) would be better served by regulations and treaties preventing U.S. multinationals from profiting unfairly from the precious natural resources and labor in third-world countries, rather than simply depriving ourselves of those natural resources and labor.

It is important to remember that markets are ultimately a tool – a means to engender human flourishing. Markets, like any tool can be abused, can be manipulated, can be deficient. Many environmental problems today are not due to the prevalence of markets, but the absence of them. Until we value dolphins enough to put a price on them, they are not priceless, they are worthless, subject to the capricious whims of those goods and services which do participate in markets. Until poor countries are brought to trade on equal terms, their people and environment will be degraded. The goal is not to end trade, but to do it properly, ethically. Our goal is not to maximize profits, because those are merely figments of imagination, but to maximize the well-being of people, and allow them to flourish.

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