I had a few more thoughts to continue our little discussion on environmental economics. Having thought more about this issue over the past couple weeks and having just read the excellent article by Jonathan Rowe that Amir recommended in an earlier post, I am increasingly struck by the bizarre assumptions underlying the market economy. Some of these notions – that all people make decisions based on complete knowledge of all economic information, that they base all of their decisions solely on personal economic gain, and that there is perfect competition between all companies – are so contrary to everyday experience that one really wonders how our society bought into this concept so heavily in the first place.
Moreover, for my generation that has grown up in the last couple decades in the United States, it is too easy to forget that there was a time in very recent US history where the market was not a god, and where it was perfectly acceptable and even desirable for the government to intervene in the market. Indeed, most of our landmark environmental laws – the Clean Air Act, the Clean Water Act, and the National Environmental Policy Act – were passed as a result of citizen pressure demanding government action. The “command and control” approach to environmental and social policy embodied in these laws is still much more acceptable in Europe, although there are signs (such as the EU carbon emissions trading scheme) that they are moving more towards market approaches to environmental problems.
I see nothing wrong, in principle, with using market instruments for environmental policy. In some cases they work remarkably well and at much less cost than regulatory approaches – the classic case study being the sulfur dioxide emissions reductions from US power plants in the 1990s as a result of a sulfur emissions trading scheme. But the danger is to assume that market instruments are therefore the best solution to any problem. My fear is that this is becoming the fashionable attitude among some environmentalist circles. As we have discussed in previous posts, perhaps attempts to treat environmental problems as economic externalities and to develop ways to integrate them into the current capitalistic system are serving to prop up the very system that caused many of these problems to begin with.
Fundamentally I do not think that environmental protection needs to be justified on the grounds of economic efficiency. Indeed, to do so would imply the environmental and economic variables deserve equal weight. Yet given that the economy cannot exist without a reasonably healthy environment (and the environment would exist just fine without an economy!), I cannot accept this argument. Although attempts to quantify the economic damage of climate change (e.g. the Stern report), for example, can serve a useful purpose, we should recognize that the sole goal of government is not to promote economic efficiency. In social policy, redistribution of wealth through social security and other programs has generally been accepted even though it reduces economic efficiency, because it is seen as a higher goal of society to care for citizens who are less well-off. Similarly, I would argue that environmental groups should be less afraid to abandon the arguments of economics and be more willing to advocate for government regulation on the grounds of morality and inter-generational equity.