"Get The Market To Tell The Ecological Truth"
The sky really might be falling.
Greg Ross of American Scientist interviews environmental analyst Lester Brown, who sees signs global development has exceeded our supply of natural resources -- a situation which toppled prior civilizations. Brown says:
The key to building a global economy that can sustain economic progress is the creation of an honest market, one that tells the ecological truth. The market is an incredible institution, allocating resources with an efficiency that no central planning body can match. It easily balances supply and demand, and it sets prices that readily reflect both scarcity and abundance.The market does, however, have some fundamental weaknesses. It does not incorporate into prices the indirect costs of providing goods or services, it does not value nature's services properly, and it does not respect the sustainable-yield thresholds of natural systems. It also favors the near term over the long term, showing little concern for future generations.
Accounting systems that do not tell the truth can be costly. Faulty corporate accounting systems that leave costs off the books have driven some of the world's largest corporations into bankruptcy. Unfortunately, our faulty global economic accounting system has potentially far more serious consequences. Our modern economic prosperity is achieved in part by running up ecological deficits, costs that do not show up on the books, but costs that someone will eventually pay.
The first step is to calculate the indirect costs of the various goods and services we buy. Since we are all economic decision-makers as consumers, corporate planners, government policymakers and investment bankers, we rely on market prices to guide our decision-making. The problem is the market is giving us bad information. The result is bad decision-making.
He used the cost of cigarette smoking (from a CDC study, which included the costs of treating smoking-related illnesses and loss of productivity) to illustrate his point:
They concluded that the cost to society of smoking a pack of cigarettes was $7.18. If we assume that the cost of growing the tobacco and manufacturing the cigarettes is roughly $2 a pack, then the price of cigarettes should be roughly $9 per pack. This not only justifies raising taxes on cigarettes, which claim 4.9 million lives per year worldwide, but it also provides guidelines for how much to raise them.If the cost to society of smoking a pack of cigarettes is $7.18, how much is the cost to society of burning a gallon of gasoline? Fortunately, the International Center for Technology Assessment has done a detailed analysis, entitled "The Real Price of Gasoline." The group calculates several indirect costs, including oil industry tax breaks, oil supply protection costs, oil industry subsidies and health care costs of treating auto exhaust-related respiratory illnesses. The total of these indirect costs centers around $9 per gallon, somewhat higher than the social cost of smoking a pack of cigarettes. Add this external or social cost to the roughly $2 per gallon average price of gasoline in the United States in early 2005, and gas would cost $11 a gallon. These costs are real. Someone bears them. Now that these costs have been calculated, they can be used to set tax rates on gasoline, just as the CDC analysis is being used to raise taxes on cigarettes.
He continues with an example of the record flooding in the Yangtze River basin, which caused $30 billion in damage. At first, the government attributed it to nature. Weeks later, the government acknowledged a human contribution -- deforestation -- and took an unusual step: Banning the cutting of trees in forests throughout China.
Officials justified this action by pointing out that the value of trees standing was three times that of those cut. What they were recognizing was that the flood control services provided by forests were three times as valuable as the timber in those forests. In the scientific world, this is known as an "aha" moment. The Chinese government was recognizing the ecological truth in the market. It is, in a sense, what the entire world needs to do across the board with all goods and services.
His words echo those of the late English economist A.C. Pigou, written about by Paul Hawken in his book, The Ecology Of Commerce:
Pigou argued that competitive marketplaces would not work if producers did not bear the full costs of production, including whatever pollution, sickness, or environmental damage they caused. Pigou's solution was to impose a "tax to correct maladjustments" on producers, a tax that would be comparable to the avoided cost or unborne expense. Pigou cited prematurely peeling paint on a house near a cole-fired mill as an example of an external cost that should be paid by the producer. He theorized that when the producer was forced to bear full costs, it would have incentives to reduce its negative impact, thus lowering those costs.
The full text from my earlier blog item on that is here.
How many angels dance on the head of a pin? Who knows what a cigarette is worth? How was the pleasure of a smoke factored into the formula? Care to wager that it didn't figure in at all?
> it does not value nature's
> services properly
Says WHO? You got some better figures, by all means offer them. But let's never imagine that our own personal reckoning is the gold standard.... Markets are all about the understanding that others know more than we do both collectively and as individuals.
A few months ago Dennis Miller or Bill Maher or someone did a wonderful routine pointing out that our great-grandfathers and great-great-great-grandfathers probably didn't have us in mind in any meaningful way... They had their problems, we have ours. Imagining that you can do the heaviest lifting for generations unborn carries control freakery to a whole new level.
Besides, we so often get things wrong:
http://tinyurl.com/sxkue
Amy, I think you'd rather believe in reason than in the people who do reasoning, and that's just not the planet we live on. There's no better agency than humanity to work with logic... Unless you're some kinda BELIEVER or sumthin'.....
Crid at April 11, 2006 2:36 AM
Interesting article. I agree tax breaks or subsidies to oil alters the supply and demand unnaturally. All government subsidies and excessive taxes do this (including taxes on cigarettes, only in the other way).
The fault with this Ross' logic come after he says "These costs are real. Someone bears them." Yes, the lost productivity due to smoking and deforestation are losses, but no one bears that loss more than the individual. Forcing costs of society on the individual is always a slippery slope. What about chocolate, or Vermont chedder cheese? Obesity is the highest cause of health related problems.
We live in a society that (at least in theory) prizes individual decisions, not government planning. The ideas in this article might be totally wrong, but the title, however is right. There is always a need to keep markets informed of all the costs, including long term and ecological costs, of their actions. There has been remarkable progress in this in the US in the last decade, with corporations cutting their ecological impact more than government mandates ever did. Lets keep constructively working to give corporations the knowledge that will ensure that tragedies, like the one in China, don't happen again.
Mike at April 11, 2006 4:49 AM
Why stop at having experts instead of the market decided the prices of cigarettes and a gallon of gas?
Shouldn't the price of candy, Big Macs, cars, disposable diapers, etc. be determined by "experts" instead of the market?
WJ at April 11, 2006 6:24 AM
I'm a capitalist, and it's ethical capitalism to expect producers of goods to pay the full cost of the goods they market, not pass the costs onto us while keeping artificially inflated profits for themselves. Read the Pigou thing - it's right on. I'm reminded of a Spanish proverb: "Take what you need, but pay for it."
Interesting article, Crid, on global warming, but there are many, many climatologists who say otherwise. How do we know who's correct? Certainly, pollution from all the SUVs and factories has been shown to be, shall we say, a negative?
Amy Alkon at April 11, 2006 6:55 AM
Lester Brown is at it again, playing the externalities accounting game. The problem with these kinds of studies is that you can get whatever outcome you want- just jigger the details- select times, factors considered, add a bit of subjective judgement for the places where there are no data, etc., and voila, you have "proof" of whatever you want. Lester is apparently not embarrassed by the Club of Rome debacle (where he and Dennis have been wrong about most things for 40 years), so now he is working for $5 a gallon gas taxes.
I am a runner. I have never smoked. I hate cigarettes- in fact, I have asthma and take steroids daily to control it. That said, the stuff about externalities costs of smoking is nonsense, as the CRS reported (the report link is to some sort of "pro-smoking" site, but the report is accurate): http://www.forces.org/evidence/files/crs_97-1053.htm
Now, about gasoline. We already know that every measure of air quality has improved over the last 30 years, despite the growth of oil use. If gas is priced at $7 a gallon, what about productivity cost of people spending 4 hours per day on buses commuting? The capital cost of new rail lines? The disposal cost of every car? The capital cost of building new highrises in the city so everyone can walk everywhere? The job loss costs for the entire auto and aftermarket industries? I am willing to bet that you can do a "study" at least as supportable as Lester Brown's inflated numbers that makes gas look cheaper than alternatives.
I wouldn't trust either one. But I would trust the religious "sustainable growth" zealots like Brown and McKibben a lot less.
Duane at April 11, 2006 8:15 AM
> Certainly, pollution from all
> the SUVs and factories has
> been shown to be, shall we
> say, a negative?
Yes! But that doesn't mean cars are a negative, jsut that cars have costs which we've not correctly valued. It's wrong to cheerily presume that there's some dispassionate, precise price that can be put on stuff if only we take the judgment of the people out of the equation. People are where this math lives, and who it was created to serve.
Mike says:
> Forcing costs of society on
> the individual is always a
> slippery slope
Yes, yes.
I think this global warming chatter is the egotism of sleepwalkers. "Man controls EVERYTHING! Man controls THE WEATHER! Mankind controls its own DESTINY, damn you!"
It's the bourgeoise grownup's version of a child's fantasy about how Mom & Dad, if they tried hard enough, could make everything wrong in the world go right. (You've demonstrated elsewhere on this blog that the natural world stands defenseless against runaway fantasy.)
And it's a misplaced, backhanded, cowardly feint of humility from the most coddled, fattened, richly-rewarded generations in history. These are cranky little people who know in the back of their minds that they have a lot to be grateful for, but don't like to think about it out loud because they still want to bitch about stuff.
See episode 10 at www.tikibartv.com, wherein the gamine proclaims: "It's an automatic robot... Based on SCIENCE!"
NOTES:
1. I apologize for the use of the word 'bourgeoise'. It won't happen again.
2. Lala is the *next* Mrs. Crid.
Crid at April 11, 2006 8:24 AM
Also, Duanne's right about McKibben... He's a dorkasaures.
Crid at April 11, 2006 8:26 AM
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