Thursday, November 5, 2009

Free Market Environmentalism

This train of thought stems from a recent presentation I gave in my environmental ethics class. I didn't do a very good job outlining free market environmentalism, mostly because I forgot I was presenting to non-economists. Oh well. I'd like to explore free market environmentalism a little further, though, and contrast it with government regulation as the solution to our environmental problems.

One essential factor of the market is its propensity to spur dynamic innovation. Thus, we replaced horses with cars to clean up the pollution in New York City. We solved overfishing by offering every fisherman quotas, which changes their incentive structure and prevents them from depleting fisheries beyond sustainable levels. My conclusion from the recent presentation: "You cannot know in advance what solutions might be brought about by the market. (If you could, you'd be a venture capitalist or entrepreneur, or at the very least you'd sell your ideas to those people). Supporting free market environmentalism, then, isn't supporting any specific solution - including geoengineering (Levitt and Dubner, are you listening?). Rather, it is supporting market principles, based on strong historical evidence that the market has provided the best solutions to problems and will continue to provide the best solutions in the future."

The counterpart of the market is the government, at least in the current post-Cold War era. Government, in general, is not designed to spur innovation, although it does fund much of the research and development into new technologies. The whole point of government is to choose the winning technological development in advance, then alter the regulatory structure to ensure that solution is the one pursued by a majority of citizens. Government is also less dynamic in its response to problems - regulation essentially exists to slow or stop change. In the case of the environment, this is not necessarily always bad, as we may need to slow or stop emissions of CO2. If you support government regulation of the environment, then you probably disagree with the last line of my conclusion, that the market will continue to provide the best solutions. Either that, or you're intelligent enough to recognize that our "market" isn't close enough to the ideal to spur the necessary innovations.

One other thought I had while preparing for my presentation: in a liberal critique of FME, Ernest Partridge tried to claim that libertarians in general would have to outlaw cars and electric power plants, because these CO2 emissions were imposing on everyone's rights to "life, liberty, and property." The truth is, if we outlawed these, or announced that in five years they would be outlawed, I can offer a prediction of the results. Wind and solar power plants would spring up across the country. The electric car that GM has supposedly been developing would hit the road in fewer than five years. Tons of resources would be directed into making these technologies better and cheaper, and many more resources would be spent deploying them as quickly as possible. The engine of progress wouldn't shut down entirely - though it's an interesting question whether this would jolt us out of the recession or create a bubble that would pop once the regulations took effect. I think Partridge, in trying to extend an argument ad absurdum, misunderstands the dynamic nature of the market. I'm also not sure this would be the worst solution to our environmental and economic problems, though I am sure it's not politically feasible.

This post is already too long and wonky for its own good, but it has me feeling better about free market environmentalism than I have in a long time.

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Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant. ~Fredrich Hayek in The Constitution of Liberty