Hillel’s version of environmental economics

 

From an email to a friend:

Whichever way you cut it, the climate policy nexus is seriously broken, worldwide. By the time it gets abandoned, it will have cost hundreds of billions of dollars stretching into the future, including lots of death and suffering. Every new freeze or heat wave will be a challenge for the electric grid. 

Concerning “we are damaging the environment”. It helps to understand the essence of all so-called environmental problems. As briefly as I can.

All life, all human life, all human economic life (which is basically all human life in one way or another) involves using natural resources. There is no such thing as human endeavor without using natural resources. Humans are the only species that have mastered the craft of engineering (transforming) natural resources to any great extent. Beavers build dams, ants build colonies, is about the level reached by animals. So the “environment” is inevitably changed. The policy question appears to be whether the changes are good or bad, valuable or harmful. But actually that is not the fundamental question. The fundamental question is “who should decide whether any resource use is good or bad?” 

When the resources are privately owned, we pretty much agree that the question is answered in favor of the owners. They decide what to do with the resources they own. They are motivated and guided by the value put on the results, the products produced with the resources, by consumers who buy them. So, indirectly, consumers decide how resources should be used. So, if I paint my house red, you may hate it, but unless there is a homeowner association agreement against it, it is my legitimate choice. Similarly, a stretch of beach may be owned by a large estate who sells it to a hotel chain to build a vacation resort that the environmentalist don’t like. They have a right to their opinions, but its not their decision to make. The only other way to do it is by some external committee. 

There is, of course, as you will be bursting to point out, one big caveat. When private resource usage has “external” effects, imposing costs on third parties, that is a true environmental “problem”, like air pollution, like smoke or noise (an airport). This is like a trespass or an intrusion. It occurs always, without exception, because property rights cannot or will not be defined. The air cannot be privately owned – that is the best, and maybe the only, perfect example. So air pollution is the canonical environmental problem. Water pollution is a close second. Property rights in water are difficult and sometimes impossible to define and enforce. But, where the problem is localized and involves a small number of parties, it can and should be decided by the common law. I sue the airport. The judge must decide who is plausibly the rightful property owner of the noise-space. One important fact is who was their first? If the airport, then the homeowner likely bought the land at a discount. If the airport came after then the homeowners my be entitled by law to assume the absence of noise pollution and receive compensation. The “problem” is internalized. Mostly such problems are handled by negotiation and agreement. Like the waterboards of the early frontier in the USA. And, as a side implication, the way resources are used will mostly not depend upon who is awarded the right, though, of course, the relative earnings positions will be affected. 

When negotiation and small party legal adjudication is not possible, because there are masses affected, one has to resort to government regulation. This is extremely rare. One important case is the banning of leaded gasoline. One law, one time, unchanging, with no discretion or side payments, removed an agreed unnecessary pollutant that we were all omitting and all consuming. Rarely is such a case to be found. Another potential problem is the overuse of resources in the oceans, or pollution by dumping into the oceans, etc. This occurs because no one owns the oceans. Other examples involve “public property” like national parks, etc. The solution is clearly to privatize them – or contract them out to private parties. Wild life game parks in South Africa are great examples. They are the only effective way to preserve certain wildlife species if that is one of the objectives. Kruger is run as private concessions. 

So, in general, is it true that we are spoiling the environment. Actually, no. Not in any objective or general way. Spoilage of the Amazon is a matter of private exploitation of land previously owned, still owned, by tribal folks. Basically stolen. And government officials benefit in the corruption. But, even so, there are more trees in the world than there have ever been. Many acres of swampland have been cleared and beautified. The advance of civilization has destroyed or damaged some ecosystems or certain species. Is this bad? There is no objective way to decide this. Classical liberal thinking would say it depends on who owns the land with the ecosystems, and, if you think it is bad, buy the land and preserve it. And if you cannot persuade enough people to back you financially to do this, then if you resort to government compulsion, to force, you are violating the property rights of the owners.  Every so-called environmental problem is this kind of thing. But, as for the natural environment of the world, unless we are talking taste, beauty, ugliness, this is a non-question. Resources have value only insofar as they are valued by humans. 

The question of climate change can be cast as an environmental problem, a special one. The allegation is that CO2 emissions are causing an existential threat to humanity (this claim, though repeated often by the news media, is actually not a very common scientific claim at all). So, they have argued, it is an extreme form of air pollution. It is not a very good claim at all. It is pretty definitely not an existential threat, and the proposed solutions are neither proved effective, are likely not effective, and are extremely costly and damaging to existing energy arrangements and economic development. 

That is Hillel’s version of environmental economics.