Environmentalists and economists share a common interest in the use of scarce resources. However, environmentalism all too often lapses into primitivism, which is the instinct that humans should revert to prehistoric lifestyles.
For example, consider an ethic of leaving nature exactly as you found it. For a hunter-gatherer, this is a reasonable ethic. If you deplete one of your sources of food, that’s it.
As humanity discovered cultivation, industrialization, and digitization, we have transcended the limits of what we can hunt and gather. As Paul Romer points out, we obey the laws of physics. Our activities neither create nor destroy matter. What we do is transform matter into different forms that are more useful to us.
In this modern world, where we better ourselves by transforming matter, the price system is our guide to making the best use of resources. Environmentalists tend to be hostile to the price system, and instead they tend to want to impose their own rules for using resources.
One way to reconcile environmentalism with economics and the price system is to use the theory of externalities to propose ways for government to fine-tune prices, using taxes and subsidies. However, government technocrats will only imperfectly calculate externalities. These technical flaws do not preclude government intervention, but even an enlightened benevolent despot would be conservative about intervening because of the calculation problem.
An even bigger concern is that we do not have enlightened, benevolent despots. Instead, we have rent-seeking interest groups. And we have demagogues who appeal to primitivism.
I wish that economists would do more to expose the problems with primitivism. I cringe when I see college campuses espousing primitivist ideology under the guise of “sustainability” while their economics professors remain silent.
I have an extensive treatment of this issue in the forthcoming Specialization and Trade, where I include more facts and less rhetoric.
“Aurora is an amazing fit for Swarthmore because she comes to sustainability from a social justice lens,” says St. Clair.
The jokes practically write themselves at this point.
The very concept of ‘valuable waste’ that no business wants to buy from you is fraught with conceptual problems.
I am yet to see a coherent paper that deals with global environmental externalities (doesn’t mean it does not exist). The scale (across geography and time) of the tragedy of the commons may be too grand for existing political institutions to be able to address. So the environmentalists, clueless as they may seem from Econ 101 framework, are trying to change the culture – something that supersedes institutions which can only address small scale externalities here and there.
The scale may be too grand even where there are institutions with the sufficiently broad mandate.The point on rent-seeking interest groups is spot on. Gasoline tax addresses pollution externalities perfectly, yet it’s a non-starter.
Econ 101? You need to keep up. Didn’t you read what Krugman wrote about Econ 101. It might be interesting. It might be right. But even if it is, it probably does not matter.
“I wish that economists would do more to expose the problems with primitivism.”
If someone is a rational economic actor, why would they stand up to SJWs? The cost to them is perhaps high, but the benefits are diffused over society.
It’s all a catch 22.
Strangely facts do not seem to have as much impact as rhetoric.
More rhetoric.
“However, government technocrats will only imperfectly calculate externalities. These technical flaws do not preclude government intervention, but even an enlightened benevolent despot would be conservative about intervening because of the calculation problem.”
Does this follow? For example, if you are uncertain about the dollar value of the externalities associated with a ton of CO2 emissions, it doesn’t seem like that uncertainty should make you set an effective price of zero by not imposing a carbon tax. Rather, it seems like you should go with your best estimate of the price that minimizes the expected losses from being wrong, given the available information. There’s no particular reason that that should be zero, although it might be the case that the reduced expected benefit from uncertainty makes the policy, overall, less worth enacting (as weighed against the fixed costs of concocting and administering it).
Don’t you think it is closer to zero than what “sustainability” would suggest?
My proposal is that the taxes are held in some sort of escrow mechanism. If the damage never materializes they are refunded.
But what are govt does is the opposite of sustainable. Every dollar we spend effectively produces more than a dollar in future liabilities.
…fixed costs of concocting and administering it…
Thousands of years of history should be enough to demonstrate that these costs are not fixed. Indeed, pull William Nordhaus’s book off the shelf, look at the difference in NPV between a century of optimal carbon tax and a century of doing nothing, and try as hard as you can to imagine that these new government powers won’t cost more than that.
Also realize that the very best proposals of a global harmonized carbon tax still require that even the Robert Mugabes of the world collect and administer it.
Nothing sustainable ever lasts. It’s only unsustainable things that keep going for ever, because they keep on changing.
Rent seeking groups cuts both ways though as there is often even more money in opposing than proposing and those rents already exist.
There is a problem with “taxing pollution” in general, called Pigou taxes. These taxes don’t make sense to me, as actually justified and applied by governments.
Say I manufacture things. Government employees calling themselves economists decide that I am harming my fellow citizens at the rate of $80 per ton of the CO2 I produce. So, I pay that tax, increase my prices 10% and sell 10% less each year than I could at the lower price. Say I produce 10,000 tons of CO2 and pay $800,000 in CO2 tax yearly.
I am causing harm to people who are not my customers. One can think of it as my customers paying $800K yearly to the government through my company, for permission to harm others, because my customers benefit sufficiently from buying my product.
The government collects this tax and spends it on bureaucracy and other value-losing, socially negative projects, as usual.
The tax has only assured that my customers are getting at least as much value from my products as the cost to produce them plus the CO2 tax. So, the manufacture of my products is overall socially beneficial in the sense that my customers are willing to pay for the negative side effects of producing my product, its externalities. I am not able to sell to the 10% of customers who don’t value my product at its now higher cost.
The big issue. The government should be using the tax revenue to directly offset the harm to others, say by lowering the taxes they pay. If not, then I am merely paying the government for permission to harm others. They are still harmed. I am licensed to harm one group (or everyone) as long as I sufficiently benefit my customers. The government happily runs what amounts to a protection racket, protecting me from those harmed as long as I pay enough to the government. The level of the CO2 tax is irrelevant, but is conveniently tied to the noble computation of harm from CO2 emmisions.
One might propose that the CO2 tax will be used to lighten the tax burden on others. But, we observe that this isn’t how taxes are used, and wouldn’t compensate for the individual harms brought to others, say the harm to people who now pay no tax. And, what about the harm to foreigners?
So, if one believes that CO2 causes extra death, drought, hunger, displacement from rising oceans, bees dying, expanding deserts, and such, then a Pigou tax is not nearly enough and is not paid to the proper people. (I don’t believe that CO2 is a problem at all, by the way.)
Instead, such taxes are “Bootlegger and Babtist” constructions. The climate alarmists (the Babtists) propose a noble purpose, and the politicians (the Bootleggers) celibrate their increased ablity to collect more tax and fund more family-run schemes to save the environment.
How can one justify Pigou taxes that in practice merely fund politicians rather than pay the people supposedly harmed?
A totally efficient tax. If they were all only so. But some users will economize, some more efficient technology will be created and adopted, less pollution will be emitted, people will die less in heat waves, live longer lives, not see crops fail as often or pay higher prices when they do, not miss as many species going extinct, not have their homes destroyed in the next hurricane, not be flooded out and have to move to higher ground. Those are other people.
But that is how taxes are used and why government as a portion of gdp hasn’t grown systematically. Politicians love tax cuts so much they phase them just so they can do them again. They will rise in the future due to an aging population so we will need them though, and much better from this source than others. Fundamentally though, it is about reducing future harm, though much is already baked into the cake, and the real reason is because we will be poorer without it.