How do monopolies fit into this?
Yes, but conservation easements, at least in my opinion, are not enough. That was what I was trying to point out with my straw army.
Buying and protecting a large piece of land is not enough. Water and air entering the land can cary pollutants. Species that migrate in and out of the conservation easement can be killed elsewhere. Man-made environmental changes (global warming, desertification, temperature changes like those in Florida due to draining the swamps, and even cloud seeding by particulate pollution like those around cities) can have huge and detrimental effects that can effectivly destroy the ecosystem that the easment is trying to save.
Well, I disagree with that last bit; the market optimizes monetary value (resulting in profit), where money is an abstract that stands in for arbitrary commodities. It is a wonderful tool for allocating resources, for instance, because if an entity allocates their resources badly, they will lose money and hence not be able to continue to participate in the market. However, by narrowing what it is that is being optimized to a single specific thing, money is no longer an abstract intermediary. In other words, to be the best tool for protecting the environment, there can be no assignment of monetary value that considers anything but protection of the environment.
OK, so let me try to restate what you said before that last bit, as it’s different than what I posted earlier. “The market is the best tool for protecting the environment” should actually read “The market is the best tool for balancing the protection of the environment with other (unspecified) factors”. Which would be fine by me, if it weren’t so blatantly obvious to me that, in practice, other factors take precedence (i.e., yield higher profit).
And that makes the original statement of being “best for X” patently untrue.
That’s complicated. Monopolies are not bad by nature. At&T, for example, wasn’t broken up AFAIK because of any popular pressure, and what replaced it is arguably worse, if somewhat more innovation friendly. Monopolies that start forcing the market to obey them cause and run into problems. If the competition is inefficient or ignorant, its entirely possible for one company to dominate.
It’s also possible for them to occasionally make a power grab. This applies proimarily to horizontal monoplies (the kind you’re thinking of; vertical monopolies also exist but they’re not the same).
In any case, monopolies are not invincible unless they serve the public interest as much as possible. Any hole they leave open (AT&T invested heavily in R&D, which is why they lasted so long) is a niche somebody else can fill. Monopolies historically don’t last; there’s just too many people pushing. In general, an industry needs to be fairly static and free of outside influence. That often takes government cooperation and regulation.
Pollution is a variation of the ‘free rider’ problem. Polluters are moving a cost onto other people, and gaining benefit from it. The reason this constitutes a market failure is because there are no good market mechanisms for transferring this cost back to the polluter in many cases. The classic example is smokestack emissions. Let’s say I open a plant that pumps out emissions that cause acid rain 300 miles away. I am damaging the people who live in that area. But unfortunatley, my smokestack emissions are, by this time, just one part of a whole host of reasons for that acid rain, including the smokestack emissions from thousands of other factories. Therefore, the people being damaged have no way to seek compensation for their damage. And as a polluter, I am deferring part of my cost of manufacturing from my product to a third party who has not agreed to accept these costs.
Libertarians should oppose this, because it is coercion. The polluter is forcing a third party to accept his costs without the third party’s consent. A violation of the Libertarian social contract.
So how do we stop it? First, we have to recognize that some level of pollution is inevitable. There are very few perfectly clean industries. So who decides how much is enough? I’ve wrestled with this issue, and come to the conclusion that this is one area where some government involvement is necessary.
Now, if we accept that some involvement from the government is necessary, the next question is what form does it take? The ‘command’ approach would be to simply go from factory to factory issuing fines or closure orders if factories don’t set their pollution limits to some acceptable level. That’s the traditional regulatory approach. This suffers from the problem of other arbitrary regulatory decisions - inefficiency. Let’s say we need to lower a certain level of pollutant by 10%. We can go around and demand that every factory lower its emissions by 10%, but this penalizes those factories that are already very clean, because an additional 10% may be very expensive. On the other hand, factories that are very dirty might be able to reduce by 10% easily, and still be quite dirty.
Or, we can set absolute limits for each factory. You may only emit X amount of particulate Y. This is a common approach, but it also suffers from problems - some industries may be able to do MUCH better than that quite inexpensively, but since there’s no reason to, they won’t. Other industries may be destroyed because reaching that level is hideously expensive.
So why not allow the market to work? That’s the rationale behind pollution credits. Create a marketplace for pollution. The credits are currency, and factories have to buy credits equal to what they emit. By setting the quantity of the credits, you control how much absolute pollution is created in the nation. Then you let producers buy and sell credits from each other. Let’s say I create 10 units of pollution. Pollution credits cost 1 million dollars per year each. But hey, if I can cut my pollution down to 8 units, I’ll have two surplus credits to sell. If I can reduce my pollution by a unit at a cost of less than a million dollars a year, I now have a market incentive to do so.
Or, I’m a pretty dirty factory, and I produce 20 units of pollution. But maybe this is intrinsic to the product I make, and it would cost me a hell of a lot more than a milliion dollars a unit to reduce it. So, instead of reducing my pollution, I buy pollution credits on the market to keep me legal.
In this way, the market exhanges information about the relative costs of reducing pollution throughout the marketplace, and ensures that those who can reduce the easiest have an incentive to do so.
That’s just one example of a market-based solution. But sometimes there is no market failure at all, and the market is indeed the best answer to environmental issues. All you have to do is look at the relative environmental records of capitalist countries compared to communist countries, and it becomes obvious. The fact is, people like a clean environment, and they’re willing to pay for it. And when people own property, they tend to take care of it. Look a a public housing project and compare it to a neighborhood full of privately owned homes, and you can see this. Farmers have an incentive to maintain the health of their fields, so they plant Alfalfa and they leave their fields fallow in some years.
Here’s another example; When Buffalo ran wild on public lands, no one had a vested interest in conserving them. They almost went extinct. But private Buffalo farms brought them back. Public waters off the coastlines are heavily overfished, but private fish farms are well maintained. Elephants are being hunted to extinction by poachers on public lands. Why not create tusk farms? Bring the power of ownership and capital into the problem, and let people manage resources out of their own self-interest.
I still fail to see any free market incentive for preservation of the environment. I don’t see any free market incentive for a factory not to dump its waste water into the river without the expense of cleaning it up first.
A free market incentive for businesses/corporations/factories to preserve the environment can exist – like, say, if a vast majority of consumers will firmly refuse to do business with a firm known to pollute.
Unfortunately, such an incentive does not currently exist. Hence the (current) uselessness of trying to use free market principles to preserve the environment.
Sam Stone, thanks for responding. First, I want to ask how you define “protecting the environment”. From your post, it seems to me that in your view, it is a secondary issue (at best; most likely tertiary or lower) and that development (manufacturing, production, what-have-you) has primacy. Which, right there is a show-stopper when applying the tail end of your phrase “best tool for protecting the environment”. It isn’t and cannot be the best, so long as it’s not primary. Unless, as I said in earlier posts, the phrase “market is the best tool” is either incomplete or an overstatement. Which I can accept as a rationale if explicitly acknowledged, although it never is and as far as I can tell is not what is meant.
Extending that, is limiting pollution the sum total of protecting the environment? I’d think not; surely conservation or preservation – that is, appropriate use (or even disallowing use) of environmental resources – is a different class of issue, even if, in many cases, pollution is a result. For instance, national parks or wildlife refuges are off limits to preserve them; granted, limiting pollution may play a role, but I think the primary reason they exist is to prevent development, which isn’t really pollution. Do free market advocates consider this aspect at all? Evidently, you do, as you say “I’ve wrestled with this issue, and come to the conclusion that this is one area where some government involvement is necessary.” Which is great, but again, as far as I can tell, is not a part of free market advocates’ stated position. A dirty little secret, if you will, that if acknowledged would undermine their position.
But, in a lot of instances (perhaps the majority?), this is just crap. The cherry-picked example of homeownership, buffalo farms, fishing, and elephants may very well be legitimate, but it’s also limiting the scope of “free market” to such a degree that you either make it useless as a general statement regarding “best tool” or ignore objections to market mechanisms in the first place. In the first case, for instance, the fact that homeowners maintain their property really says nothing about protecting the environment, as it’s not the primary source of environmentalists’ concern, ignoring by-products of manufacturing, destruction of habitats, and misuse of resources. An example: I grew up in NJ a couple blocks from a SuperFund site. Those angels of the free market, WR Grace, poisoned the land with thorium (as a by-product of manufacturing, I think; IIRC, cancer rates in my 10-block neighborhood are 20% higher than other areas of town), then simply up and left. While they owned the land, it certainly did not keep them from abusing it in secret. In fact, I’d think it made it easier for them to contaminate it. It is only through government regulation that it could’ve been prevented before it occurred.
In the second case, while there may very well be a supply/demand point that is self-regulating, it seems to me that having just enough of a resource for consumption falls far short of “protecting the environment”. But even beyond that, the market is only self-regulating if there is some sales value attached to a resource. For instance, does preservation of an almost extinct species of owl find any expression in a free market system?
Furthermore, your distinction between capitalist and communist has little to do with anything, IMO, ignoring actual cause/effect relations and substituting correlations. The fact is, it is the government’s regulation of the market (you can read that as regulating production) that might help. The debate as to the effectiveness of capitalist vs. communist government is a red-herring – either way, we’re talking about regulation. Just because communist governments were less successful at imposing proper regulation does not mean that a capitalist system is better in this regard.
So, from this, I can only surmise that the phrase “the market is the best tool for protecting the environment” is false taken at face value or should actually be interpreted as saying “a market with some government regulation is the best tool for balancing the development of natural resources with other concerns”.
Great. Yippee. A not very earth-shattering position that I think few people would disagree with and is certainly not implied by free marketeers.
I think that this method has some merit and also some serious drawbacks.
Last things first. The method doesn’t provide an economic incentive to reduce pollution. It merely provides a method of redistributing a fixed amount of pollution.
And that leads to the second thing which is your statement “Or, I’m a pretty dirty factory, and I produce 20 units of pollution. But maybe this is intrinsic to the product I make …” I don’t believe that the system provides and economic incentive to find out whether or not the pollution from your dirty factory is really “intrinsic to the product” or is merely maintaining the status quo because pollution credits can be bought to paper over the problem with cosmetics.
Yes, it’s ultimately devolves to the governments to decide whether the overall policy should be a reduction in pollution and how much.
Why would pollution credits not give an incentive to clean your act? If fixing your problem is cheaper than buying more pollution credits, why wouldn’t you do it? And if fixing your problem is more expensive than buying credits, then that’s a fairly good argument for it being “intrinsic” .
It seems to me that, where policy is concerned, “protecting the environment” necessarily means “balancing the protection of the environment with other factors.” Would you mind elaborating on the differences between these two statements, if you feel there are differences?
There are incentives to reduce pollution: pollution credits are taxed too (Sam’s example number was $1 million/year). Companies could set the price they’re willing to sell the credits for (a one time fee) to other companies, or they could sell them back the government (at the official government sell-back price). The government would sit on them for some period of time, after which, if they’re not bought, they’re destroyed.
Otherwise, the government could decree periodically that the stock of pollution credits will go down by X% over the next Y years. This would also have the effect of reducing the net amount of pollution created.
Environmental concerns are independent of economic systems, and most certainly independent of such fevered illusions as the “free market”. No such thing has, nor ever will, exist. The market is money, money is power, and power does not wander about aimlessly.
Our best laboratory for ecological stress might very well be the State Formerly Known as the Soviet Union. Stalin’s brutal march to industrialization and the subsequent exploitation of Russia’s vast gifts present a case study that even the most rapacious capitalist would find hard to equal.
(Digression: I worked in a foundation for a while. We would get importuning letters from Russian scientists begging for money to fund ecological research. One guy I’ll never forget was testing for cadmium (nasty heavy metal) in the Volga River. He had obtained some used equipment from the USA but he had calibration problems: the EPA equipment he used maxed out around one tenth of the cadmium level he was trying to measure.)
Whether we abuse the environment for the “free market”, for Lenin or for Jesus, it makes no appreciable difference, it don’t mean shit to a tree. Us, our neighbor, or our grandchildren, somebody will pay for it.
Hmmm. You are correct that I’ve been treating “protecting the environment” as an absolute. Doing so derives from use of the word “best” and exclusion of other factors (by not stating them). Of course, public policy is exactly the balance of various factors; perhaps I’m being too literal.
At the same time, I think that there is an important difference, which can be characterized as a set/subset relation. The set would be “all factors”, while the subset is “protecting the environment”. The magic of the market is abstraction; in the case of factors, it doesn’t matter what any single participant considers, as their choices get lost in the medium of money. But that is different than saying the market is the best tool for any one particular thing (outside of maximizing profit), which may or may not be a consideration at all.
In the same vein, as others have pointed out, is that there is rarely any incentive to consider “protecting the environment” as a factor. Leave out environmental concerns and there is no balance. Include them artificially and there is no free market.
Here’s another criticism of the market that just occurs to me, not concerned with your question, but I want to get it down anyway. The market is self-correcting, which means that it can only be reactive, but not pro-active. Using Sam Stone’s buffalo example, the market corrected (to some extent; I’d raise the issue of maintaining just enough supply to meet market demand). What about the case of the dodo bird? The use of DDT? What about clear-cutting and strip-mining? Wetland preservation? And, even more damning in my opinion, the market can only be concerned with the short-term and can have no foresight. When talking about “protecting the environment”, we’re often using a long-term timeframe. Really, what economic incentive is there to not screw the next generation over?
So how do you think we should protect the enviroment? I assume your intelligent enough to not want us to go live naked among the trees in some sort of hippie paradise. Obviously, there needs to be compromise. What do you feel the best mechanism is to determine where and how to compromise?
I think your first two sentences are the gist of the argument. I think that is the point of such credits. Provide a system that forces the polluter to decide whether to fix things or to pay for the right to pollute.
As to your statement that if fixing the problem is more expensive than buying credits being a good argument for the problem being intrinsic, I’m not sure that follows. How are the prices for credits set? By a figure established by some government agency or by the market? If the former then there might well be no relation at all between how hard the pollution is to reduce and the price of a credit. If by the market there might be a relationship if the seller of the credit knows how hard it would be to fix the other guy’s pollution.
You really don’t know if a difficulty is intrinsically uneconomic, or impossible, until after you make a good faith effort to fix it and are unable to do so.
There is another drawback that occurs to me. If Factory A is a heavy polluter and Factory B in another state clear across country sells A some credits the people who are being polluted on are left out. They suffer the increased pollution while Factory B takes the money and pays it to is executives, shareholders and workers maybe clear across the country. It would seem to me that the people in the area of Factory A ought to get a little help with their added health care costs or whatever damage the pollution is doing to them. And the pollution has to be doing some damage or it wouldn’t be pollution.
The whole point of using a market system—in any area—is that the seller of something does not need to know how much the buyer values it, or vice versa. They need simply negotiate a price. If the seller values the item more than the buyer does, there will be no price to which they could both agree, hence the sale will not go through. Thus in a market economy commodities are only transferred from people who value them less to people who value them more, in financial terms. People don’t need to know exactly how much things are worth to others. To the extent that they do need to know how much things are worth to other people, because they need to know something to decide whether a transaction might even be worth attempting, they have a direct and selfish financial incentive to find out.
In a system of centralized government regulation, on the other hand, a regulating body must decide who gets how much of some commodity—that commodity being the right to emit a certain amount of pollution, in this case. The regulators will not have any strong motivation to find out exactly how much that commodity would be worth to each potential beneficiary. If they simply ask, people will lie—they’ll say that its value to them is the highest amount they can possibly get away with, because they want the government to give it to them rather than to their competitors. As a result, the assignment will be determined largely by political factors. The inefficient result will be that some firms will be required to reduce pollution while others, which could reduce pollution by the same amount for a lower cost, will not be required to do so. Distributing the right to pollute through a market-based mechanism could solve this problem.
Think about it: what do people mean by an “intrinsic” problem with pollution? What they mean is a problem that cannot be solved for an “acceptable” cost, whatever that cost is. If the government puts a specific monetary value on that cost and sells credits to polluters at that price, then only firms that cannot stop polluting more cheaply will buy credits. Firms that can pollute less for an acceptable cost will save money by doing so. If, alternately, the government decides that some specific total level of pollution is acceptable and distributes that many credits in some fashion, whoever initially receives those credits will sell them to those willing to pay the most for them—which will be exactly those who cannot reduce their level of pollution without paying the highest cost. Moreover, the price set by the market will tell the government the actual cost of reducing pollution output below this specified level for those who can reduce it most cheaply—knowledge that would be very difficult to obtain if the market did not exist.
Imagine firm A emits 20 units of pollution, but could reduce that to 10 units for $10K. Firm B also emits 20 units of pollution, but would need to pay $100K to use more resource- and labor-intensive manufacturing methods that would reduce that to 10 units. If the government gives 15 pollution credits to each firm, then firm A will sell 5 credits to firm B for some price between $10K and $100K—the exact price doesn’t matter for the sake of economic efficiency—and keep 10 credits for itself. Firm A will benefit because the sale makes it more money than it costs to reduce its pollution output, and firm B will benefit because the purchase costs it less money than it would take to reduce its pollution output. In a more complex situation, the same logic applies. Those who can reduce their output of pollution most cheaply will do so.
You appear to be arguing that some firms will buy credits even if they could reduce pollution more cheaply. That presupposes irrationality on the part of the firms—why would they spend more than they need to? Individual people sometimes make irrational decisions, but companies that regularly make irrational decisions, for whatever reason, won’t last long in a competitive market.
In the example, there is an obvious economic incentive (the cost of buying the extra pollution credits) to reevaluate your operation and see if you can find a way to reduce emissions.
The total amount of pollution can be reduced by anyone who wants to buy up some credits and use them as wallpaper.
Would you cite my post that says this? If I wrote what you claim I wrote then I retract it because I don’t believe it.
And no one has addressed the question of why a firm in one local should profit from continuing to pollute that area without some compensation to the populace of the area. All of this buying and selling and money making goes on over the heads of the pollutees.
I was thinking about your earlier statement:
I see you were saying something slightly different from how I first read it, and I apologize for that. This was in reply to a post by Sam Stone:
In context, it appears to me that you were saying that companies would simply “paper over the problem with cosmetics” by buying pollution credits without even bothering to try to find out how much it would cost them to reduce pollution compared to the price of the credits—not, as I had carelessly first read it, that they would paper over it by buying credits even if they could fix the problem more cheaply.
Even so, I don’t think any extra incentive to explicitly encourage research into these costs is necessary: the option of polluting less is out there, and reasonable companies will examine that option to see if it might work better than the alternative (buying pollution credits) because, if it would, they would save money. There might be situations where, for whatever reason, the cost of simply researching the issue would be prohibitive, but such costs must always be balanced against the potential gain from the research. A pollution-credits-market policy puts companies in a position where they have an incentive to efficiently balance such costs, and that is generally the best we can hope for.
I started out on this pollution credits market idea by saying that it had some merit. I have talked myself out of that.
What happens in this case seems to me to be that an industry is allowed to pollute heavily in one location because someone is not polluting in another location. However, say the pollution is pollution of the water supply. In order to use the water for domestic, agriculture or other industries it has to be specially treated to mitigate the pollution. And that is just another form of externalizing the costs that should be assumed by the beneficiaries of the industry doing the polluting.
I thought one market principle is that the users of a product should pay the cost of the product and not shift part of the cost onto others.
And, of course, the method makes the profitability of the polluting industry the sole determinant. If it is better for the industry’s profit to buy credits than it is to clean up the pollution then that’s what is allowed.
And as to “intrinsic” pollution. Nonsense. It is difficult for me to believe than anything is impossible that doesn’t violate some physical law.