As Earth Day approaches I think that it is important to revisit the concept of private property rights, since it plays a seminal role in determining the type of environmental policy that a society is likely to adopt.
The following was penned 3 years ago but is still vey timely. Obviously the ideas in this article are essentially coloured by a very "conservative" view.
There is an Earth Day poster in the elevator down the hall from my office that says: "Someone Is Killing the Earth."
Underneath this caption, my friend and colleague Mike Hammock wrote, "It was Art Carden!"
This inspired me to think hard about the relationship between economics and the environment, and I wrote a short essay entitled "Economic Calculation in the Environmentalist Commonwealth."
That essay inspired the article you're now reading. I consider myself an "anthropocentric environmentalist," which is a fancy way of saying that I care about environmental issues because I care about human flourishing.
This doesn't come at the expense of economic reasoning, though, and economics leads us to surprising and often counterintuitive conclusions. Economics shows how appearances can be deceiving, and I find a lot of environmental initiatives are like rotten Granny Smith apples: They're green on the outside, but they're brown on the inside. Here's how and why.
Private property is essential to a well-functioning social system because it allows that system to generate prices. Prices provide the crucial information people need to make rational decisions, but prices do not mediate all environmental conflicts because some things are not owned. When resources are not owned and therefore outside the price system, the information we would need to evaluate the costs and benefits of different environmental initiatives literally does not exist.
I stress that it is not just that environmental issues are difficult or complex. The problem is that--given the absence of prices, profits and losses--we do not have the information we need to articulate what responsible environmental stewardship would mean, much less exercise it.
Endless debates about land use illustrate this principle. Development is opposed by people saying that we owe it to our children to conserve our precious natural resources, but University of Rochester economist Steven Landsburg asks the right question. Who are we to say that our children will prefer an old-growth forest to the income produced by a parking lot or high rise?
Without private property rights, the information we would need to make a judgment cannot exist. If it is more profitable to build a high rise, then we can reasonably infer that our children, on net, would prefer the income from a high rise. If virgin wilderness is more profitable, we can reasonably infer that our children would prefer the income from a forest.
Even if we're repulsed by this reasoning, who are we to substitute our judgment for that of our friends and neighbors? I borrow an insight from Sheldon Richman at the Foundation for Economic Education: If we don't think others can be trusted with liberty, on what basis do we expect them to trust us with power?
Land-use restrictions also have unintended consequences that have to be considered. Harvard economist Ed Glaeser cites California as an example. Restrictions on land use in California drive up the price of housing there, causing people to move to less energy-efficient places--Houston's suburbs, for example.
A great irony of land-use restrictions is that they encourage people to take land that is much more wisely used for housing and grow crops on it--and vice versa, inducing people to take land used to grow crops and build housing on it. Ironically, probably the "greenest" thing we could do is totally eliminate building restrictions.
We can also reevaluate what we think about recycling. If there's a problem, it's that something valuable exists but isn't owned or priced. A quick Google ( GOOG - news - people ) search turns up endless debates about the merits and demerits of recycling, and it is an argument that will never be resolved as long as it is outside the price system.
Where recycling is worthwhile, people earn profits doing it. Just because it is unprofitable now does not mean that it is not worthwhile, but the information we would need to evaluate recycling literally does not exist because the act of recycling is mediated by politics rather than prices.
The Energy Information Administration reports that using recycled aluminum uses 95% less energy than mining aluminum from raw bauxite. The fact that firms aren't falling over themselves to use recycled aluminum suggests that something in the accounting is incomplete. After all, what greedy capitalist wouldn't jump at the chance to save 95% on a key input? It may be that using recycled aluminum uses less energy but is more expensive on other margins.
We recycle because we assume we will run out of our finite resources if we don't--but the problem isn't that our planet isn't made up of a finite number of atoms. The problem is that a lot of those atoms are not owned by anyone. Therefore, we have no incentive to use them wisely. People have incentives to conserve that which is privately owned, and rising prices that result give people incentives to develop substitutes.
Just because it's been thrown away doesn't mean it is lost forever. Non-biodegradability can be a virtue: disposable plastics sequester carbon for centuries and may even someday provide a source of energy. My friend and co-blogger Michael Munger hypothesizes that, someday, people will be mining old landfills for petroleum products that can be turned into fuel. We aren't yet there technologically. But if you're looking for earth-friendly ways to use your time, finding ways to turn garbage into energy is probably more effective than badgering your friends about whether they are using too many napkins.
Private property rights also allow us to solve problems of environmental justice. To use another example, environmental amenities are capitalized into real estate prices. Harm can be identified--and blame can be assigned--when rights are clearly defined.
Finally, when measuring costs and benefits, we must always ask, "Compared to what?" It is true that smog is noxious, but it's a great improvement over the pulverized horse manure that filled city air just a few generations ago.
Economic analysis is indispensable to sensible environmental policy. It shows that a lot of what we think is "green" really isn't. We have the opportunity to better the world for ourselves, our friends and our neighbors by seriously considering what careful economic analysis can teach us about the importance of private property rights and prices.
Art Carden is an assistant professor of economics and business at Rhodes College in Memphis, Tenn., and an adjunct fellow with the Oakland, Calif.-based Independent Institute. He is a regular contributor to Mises.org, Lifehack.org and Division of Labour.
12 comments:
It is quite ironic that we put most "things" at a price but necessary services we disregard. By things, I mean materialistic products; homes, cars, electronics. But when it comes to, clean water, animals, and recycling, we just leave it be, like it is not worth anything. Since these important necessities for life are not put at a price, we disregard them to a large extent because nobody owns them especially not us. We buy all of these things and go beyond our limits to protect them, but when our environment is in danger, we don't even take a second look? Its unfortunate that we only care about what we own and nothing else. We don't even have a sense of what these resources are worth since they have never been valued and given a price. Recycling for example is only available because it helps the environment and that is why only a select amount of people actually recycle. There is no profit from it currently because there is no price for it. Only in the long run, when recycling is worthwhile and beneficial economically, will people begin to value it like all other "things". When that time comes, the same may then and hopefully will hold true for clean water, air and a healthy living environment.
This article supports the concept of Hardin’s “Tragedy of the Commons”. When a resource is not privately owned people are going to take advantage of it. The author makes a good point that prices afford people the opportunity to make rational decisions. Without allocating a price to nature, it is difficult to determine the price of environmental stewardship. However, it seems just good sense to want to preserve nature for future generations. It would be a shame to have our children grow up without ever seeing an old growth forest, or animals that might go extinct due to the destruction on their habitat. The author’s perspective on land use restrictions was also intriguing, and I agree with him to an extent. But land use restrictions are not always a nuisance; zoning laws and land use restrictions definitely help plan cities and towns so that they are comfortable and efficient.
In this article, when the author says “If it is more profitable to build a high rise, then we can reasonably infer that our children, on net, would prefer the income from a high rise. If virgin wilderness is more profitable, we can reasonably infer that our children would prefer the income from a forest.” It just goes to show how society has stopped thinking in the sense that the environment is there to sustain us rather that nature exists to meet our needs. We have adopted a planetary management worldview in which we are only looking at how much income and profit we can make from our environment instead of simply appreciating it, understanding that we are destroying it and making plans to better improve it. We need a paradigm shift to view the world in a way that shows us that we are apart of nature and need to promote more environmentally beneficial forms of economic growth. If we are so concerned about what our children would prefer, then maybe we should start by making sure that we leave them a sustainable planet to begin with.
Georgie Goulding...
Everything in our society has a price, whether it be the value of a high rise apartment complex over an old growth forest, it is all described in terms of value; what we consider to be less value is generally cast aside. This premise is evident when a property developer considers the economic profit from a apartment complex more value to him than a ecosystem. There is no profit for an ecosystem or an old growth forest as there is no obvious cash value for it, which leads to the abuse of such resources, commonly referred to as "Tragedy of the Commons."
I found this blog post interesting in that it argued that how do we know what future generations want, and what they would want us to conserve. For example, might they appreciate the economic surplus from a high rise development, compared to the protection of an old growth forest? We assume that future generations want us to act like we live on a finite planet (which we do) and live in a way that reflect that. However, what if they are exactly like us, and view the pursuit of economic growth worth it, no matter the cost to things considered to have no economic value like an ecosystem.
When I read this article it helped support the ideas behind a free rider, also known as Open Access. When something is open for all it will be abused. I do believe in privatizing some resources Earth provides, because if not done so, they will be used and abused until they no longer exist. One sentence that really upset me was when the writer stated, “Who are we to say that our children will prefer an old-growth forest to the income produced by a parking lot.” r This is part of the problem with society as a whole only seeing the worth of nature through its capital gain. Nature is constantly overlooked and the true value of nature needs to be promoted. The article also suggested reasons why big companies choose to produce more, over reusing goods and that’s because it costs less to produce than to reuse. There is no incentive to reuse. I think the world could make a change towards a more sustainable future if the cost of recycling was lessened and the incentive to recycle was greatly increased.
I agree with this article when it states that private property is essential to a well-functioning social system. If there is an open resource then people will exploit that and the resource will no longer be there. It is important to factor the environment into economics because the environment affects it. If we don't consider the resources that we are using then it will be depleted. With the current economic system that we have setup, we are setting ourselves up for failure because when the environment changes, it affects businesses but because we don't have it in the model, we didn't forecast the economic changes based on the change in the environment and then there would be market crashes. The environmental issues are difficult and complex but they are real and we can't ignore them.
I found this article really interesting. The idea of privatizing resources or giving them value seems to make sense, but it is hard to put an actual dollar price on the environment. In my opinion the value of a forest is not necessarily monetary but we can value the environment for its scenery which if preserved could last for various generations. The idea of privatizing land will help with maintaining resources while being efficient rather than wasteful. It is sad that most people do not take something as simple as recycling seriously since there is no monetary gain or any real profit from it. At the end of the article the author made some good points about our future. If people one day will find recycling both “worthwhile” {which it is) and profitable then they will begin to recycle.
I agree with the topic of private property discussed in this article. I truly believe like our observation with the bay and the fish, that private property is essential to a long functioning economy. If we look at the example of the fish in the bay, the fish become extinct in a relatively short period of time because it is an open access. Same idea applies to the highway and how people abuse it because it is free. If we apply the thinking of private property or first come first serve, it allows our resources to be used more efficiently and without excessive waste. This topic needs to be at the forefront of economic and environmental concerns, because the way we are using our natural resources is spiraling out of hand from fracking the earth to drilling holes without the thought of wasting any of it. The third law of thermodynamics says that matter cannot be created nor destroyed, however it cannot be used as its purpose once altered, such as coal. We need to create ways that make our resources regulated so that the waste and usage is limited so that in the future our children can have both the high rise and the wooded forest as we are able to have both.
Nicholas Brodeur
Pace University Pleasantville
I'm just going to come out and say that I am not a big environmentalist and I wholeheartedly agree with not knowing what the future generations want.
It could be possible that they want to grow up in a profitable world which could be created by tearing down land. HOWEVER, those who say that our kids should grow up with trees and land are "pricing" this value on a personal level which varies from person to person. One person can have great memories of the outdoors and rally for preservation and someone else can focus on the money potential and tear it all down.
So one thing we have to focus on is who we are letting in power because they will have the final say.
It's easy to say yay or nay when it comes to our land but the article agrees, there is too much say that all cannot be accounted for.
This article suggests that privatizing property is one of the only real ways to get people to care about the environment. I think what is sad about this idea is how true it is. It is troubling that a majority of the people in this planet don't feel the need to preserve the environment because they inherently care for and appreciate it. Everything circles around humans and their interests and needs. We have to price our natural resources so that we can make rational decisions, and this will give people an incentive to protect the environment. It is unfortunate that we have this type of mentality. We need to stop thinking of the environment as a source of economic profit so that future generations can grow up in a world that isn't full of environmental degradation. Yes, we can't know for sure what our future children or grandchildren will want, but we can infer, from our own interests, that they wouldn't want to live in a polluted environment that isn't aesthetically pleasing and is harmful to them.
It is somewhat sad the way we treat the things we need in life compared to all of our wants. We place higher value to items that are luxurious, but the things that are necessary to survive are glanced over. I don't think this is a bad thing however. The repercussions of not taking care of the things that are important to us are far worse than not. I'm currently in a broadcast news writing class, where we were given an exercise to rank the order of the news at the top of the hour. Based on this, we came to the conclusion that people will rank the stories based on how important the story is to that specific. I was astonished to think that some people put the market report near the end, even when the market drops by nearly 50 points. This is because they believe that it does not pertain to them, but in fact it does, it affects all of us. People feel the same way about the environment. They just assume that not recycling, or caring about wild animals is not going to affect them in the near future. But the opposite holds true; if we do not care about our environment or the impact we have on it, our generation along with those that come after us are going to suffer. As much as people don't like to admit it, everyone is a businessperson to a certain degree. here is no profit to these resources so they disregard it. however, there is profit, maybe not monetary, but natural capital is far more important.
I was very impressed by Steven Landsburg who asked, "Who are we to say that our children will prefer an old-growth forest to the income produced by a parking lot or high rise? " I had never thought of this question from that angle. Ultimately in order to live in this world we must inevitable use our natural capital to grow as a society but as we do we potentially ruin the environment. It will be up to the future generations to determine if we were the heroes or villains.
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