A common belief is that economists don’t care much about the environment because they are preoccupied with money, markets, and material wealth. And when economists do consider ways to protect the environment, they emphasise benefits and costs, trying to express all values in terms of cash. This view is angrily expressed by mountaineer-philosopher Jack Turner, who decries the economists’ approach to the environment as “[reeking] of cynicism—as though having failed to persuade and woo your love you suddenly switch to cash. [Economists] think they are being rational; I think they treat Mother Nature as a whorehouse.”1 While Turner’s comment is harsher than most, it is representative of many statements that can be found claiming that economists are environmentally callused.
In truth, economists are just as concerned about environmental quality as most people, maybe more so. All sensible people value the quality of the natural environment, and would like to maintain and improve that quality. Also, economists have thought a lot more than most about the source of our environmental problems and have developed important insights into the best ways to solve them. Unfortunately, it is easy for non-economists to misunderstand the economic approach to protecting the environment, causing them to underestimate the effectiveness of that approach and the genuine environmental concern that economists have.
The typical reactions to pollution are to blame it on the greed of those who put profits ahead of protecting the environment and to have someone in authority stop it. The perspective of economists is different. They do not automatically conclude that pollution is always a problem that demands a solution. When they do conclude that pollution is a problem that should be addressed, they seldom suggest having government demand that the pollution be stopped altogether. Finally, economists see blaming pollution on self-interest as unproductive, if not downright silly.
Because of scarcity, attempting to eliminate all harm caused by pollution makes no sense. Sure, it would be nice to eliminate pollution, but reducing pollution always requires doing less of something else that is desirable, and long before we reduced pollution harm to zero, the marginal benefit would be less than the marginal cost. Of course, in many situations it is desirable to reduce pollution. While people may seldom agree on how much to reduce, they should agree that any reduction ought to be achieved as cheaply as possible—at the least possible sacrifice of value. But having a government agency command polluters to reduce pollution is the most costly way to protect the environment. And economists see no advantage in blaming self-interest for pollution because that leads to inefficient pollution reduction. Indeed, the cheapest way to reduce pollution is by taking advantage of self-interest.
In this column I shall begin a discussion of how the concepts of scarcity and marginalism provide important insights into the problem of pollution and how best to address it.
Environmental protection versus environmental protection
Few things are more aggravating to those professing great concern for the environment than economists’ insisting on considering the cost of reducing pollution. The environment is seen as too important to be thought of as just another commodity, so costs simply aren’t relevant. Pollution harms the environment and should be reduced drastically regardless of the cost. Economists find these comments either hilarious or depressing, depending on their mood. The environment is important, but we get silly environmental policies when we ignore the costs of environmental protection. This would be true even if environmental quality were all we cared about, since protecting the environment in some ways requires sacrificing it in others. Consider some examples.
Environmentalists want to protect and expand wetlands, which are the habitat for a wide variety of flora and fauna. They are also concerned about global warming, which is supposedly resulting from the emission of greenhouse gases. But wetlands are one of the biggest sources of methane, a major greenhouse gas. So a cost of expanding wetlands is the release of more greenhouse gas. Is this a cost environmentalists think we should ignore?
Environmentalists also want to save forestland and eliminate the use of chemical pesticides and fertilisers in agriculture. Preventing starvation in poor countries without using chemical pesticides and fertilisers would require clear-cutting millions of acres of trees for agricultural use. So fewer trees are one of the costs of reducing chemical pesticides and fertilisers. Finally, and more generally, since waste products have to go somewhere, one cost of reducing water pollution is an increase in either air pollution or waste-disposal sites.
These costs are the direct result of scarcity and require facing up to some tough questions. Is protecting wetlands more important than preventing global warming? Is protecting rivers, lakes, and oceans against the runoff of chemical fertiliser more important than maintaining our forests (which absorb carbon dioxide, another greenhouse gas)? Which is more valuable, clean air or clean water? Environmentalists like to argue that environmental concerns are more important than anything else, but they can’t argue that every environmental concern is more important than every other environmental concern.
There is a way around these questions by accepting some insights from economics.
The only sensible way to determine whether clean air is more or less valuable than clean water is by making the comparison at the margin. If the water is extremely dirty (dysentery in every drop) and the air is extremely clean, then the marginal value of clean water (the value of an incremental increase in water quality) is greater than the marginal value of clean air (the value of an incremental increase in air quality). In this case, it is sensible to improve water quality even though the cost is reduced air quality. And the improvement in water quality should continue as long as the marginal value of clean water is greater than the marginal cost of dirtier air.2
Those who read my January column will recognise this as an example of equating at the margin: doing the best we can by not doing anything as well as we possibly could. Only by accepting this marginal principle can we deal sensibly with the tradeoffs that scarcity forces us to confront. As I will discuss next month, the implications of equating at the margin for environmental policy are too sensible for some environmentalists to feel comfortable with.
- See Jack Turner, “Economic Nature,” in Deborah Clow and Donald Snow, eds., Northern Lights: A Selection of New Writing from the American West (New York, Vintage Books, 1994), p. 121.
- This assumes that the only cost of improving water quality is reduced air quality. More accurately, water quality should be improved until the marginal value of doing so equals the marginal cost, where cost reflects all sacrificed value, not just the sacrificed value of air quality.