think green

"Once students were attracted by seeing the urgency of economic problems and by a sense of their mission to solve them. Now the best come to economics for the opportunity it provides to exercise arcane mathematical skills."

J.K. Galbraith (1969)

Is the environmental "problem" really an economic problem? Is it, fundamentally, something that economics can tackle and provide a "solution" to?

Well, first things first: there's no doubt that it has been economic production and the lifestyle associated with it that has been (and is) at least a part of the problem. Secondly, economics as a discipline hasn't really helped in providing any way out (some might argue: how could it since it has, for years, been justifying more production and consumption: growth, precisely).

So, what could economists say: that the basic problem is that the externalities produced by economic activity are not 'internalized' (i.e that the costs are not taken into account). From this it follows that appropriate taxation on polluters will lead to an efficient level of pollution (or, alternatively, if property rights are well defined then the people who cause the pollution and those who are affected by it can trade so that one pays the other off for the privilege of polluting or having clean air/water etc.. Who pays who depends on how the property rights are assigned).

Of course, that's all crap.

1. It's not clear that when it comes to pollution everyone knows the exact extent to which particular activities affect which particular people and in what specific ways. Distinct from that, it is not clear that anyone can know how increased pollution will have an impact on human beings or the environment: there may simply be things we don't know we don't know: fat tails.

2. But let's say information or knowledge wasn't a problem. Also, assume away problems associated with property rights (do you have the right to clean air and what if an industrialist producing in country X has an impact on the quality of your health/life?). Even then:

3. How would all of those trades come about? Isn't there a free-rider problem here? I know that you're willing to pay to prevent pollution and since I would benefit from that as well I might be tempted to say: why should I even bother paying for it? But if I think like that, so will you, and we might end up where no-one pays for the reduction in pollution.

4. Or: if you're very poor (P), you might say, since money is more valuable to you than ill-health, I'll accept a payment in return for allowing the industrialist to pollute. P could be a poor country. Who is anyone else to say that this is a non-voluntary transaction or that P doesn't fully understand the full ramifications of the transaction? That smacks of paternalism, and seems to go against the dominant idea that tastes/preferences are given, indisputable. To talk about 'the good', in an objective sense, really means, or so it is argued, sometimes going against freedom-and that's paramount.

5. But why should the costs be 'internalized' in the first place? One example of this is as follows: our actions now will have an impact on future generations (on people who are not even alive now [can they be called 'people'?]). So, why should I cut back on my consumption just so Z can live a better life? What is the economic argument for that? Not sure if there is.

6. Economists will say: well, if you think of society as one infinitely lived individual then this problem disappears. But that's really a mathematical solution-and not based on any ethical foundations. And of course, if you assume that then distributional concerns become less pressing. What else would you expect! Less pressing, but not eliminated.

7. a) So, if society is one individual (a "representative agent") then, obviously, if he pollutes he's really affecting himself. Therefore: pollute less. [aside: you may have noticed that the only considerations here are of a particular type: consequentalist and human-centred. To say that we have obligations to non-human beings is really to take a step in another direction]

b) but there are still questions about how to weigh up costs and benefits over time (the inter-temporal distribution problem). Typically, economists will think: the benefits to "me" (remember, there is only infinitely lived me) in some future time period (t -125, say) are of less value (importance) than benefits to me now in the overall stream of benefits (as seen by "me at t-0...i.e "now")

But why is that? Is there an economic rationale for that? Think about what's actually been done here: effectively, what we're saying is that the welfare of someone in 125 years is not as important (it is "discounted") as the welfare of someone (which conveniently happens to be me) now. That itself is an ethical issue (as explicitly recognized by Stern in his influential report).