Slight Reading

The knowledge problem.

For some time the more extreme wing of the environmental movement has been annoyed by economists who raise sticky questions about the costs – as well as the benefits – of specific environmental policies. To economists, it is not enough that a proposed law or regulation is intended to reduce pollution. We have the audacity to ask if the new policy will actually work and, even if it will, whether there is a better way of achieving a given environmental goal.

If anything, economists have grown accustomed to brickbats. We understand that few people like to have holes in their arguments pointed out. Until recently, these counter-criticisms have been quite harmless, mainly labeling economists as green-eyeshade types. We have learned to live with that.

However, a new effort to discredit economists cannot be ignored. It is a shrill attack on the mainstream of the economics profession, and it is being launched by one of the media’s favorite environmental groups, the Worldwatch Institute. In the September-October 1990 issue of its magazine, World Watch, the institute’s vice president for research minces no words: There is a fundamental flaw in economics. It is “an almost complete lack of regard for the environment.” That is a very serious charge. How well is it documented?

Now comes the unpleasant surprise. The total evidence for that blistering charge is an examination of “the indexes of three leading macroeconomic textbooks.” Apparently, a perusal of those indexes yielded no entries for “pollution,” “environment,” “natural resources,” or “depletion.

The reader of environmental magazines may have grown accustomed to such small samples-three out of the hundreds of economics textbooks published each year-but it raises a caution flag for us green-eyeshade types. In this case, caution is, indeed, justified. Ignoring the shortcomings of indexes of books, the sample is fundamentally flawed.

The unwary reader of World Watch may not recall that macroeconomics is the branch of economics which deals with such aggregate factors as inflation and unemployment, recessions and expansions in the national economy. It is microeconomics which deals with the specific questions involving the environment and its pollution. No microeconomic textbooks were included in the small sample.

In any event, only advanced students take specific courses for which macro or micro texts are assigned. Most students enroll in an introductory course or two, usually called “principles of economics.” Such courses typically cover both “micro” and “macro.”

Under the circumstances, it would be useful to examine the textbooks that are used for these introductory courses. In fact, let’s not limit our sample to the 1990 editions, so we can see if the environmental interests of economists are more than a passing fad.

The accompanying table contains the results of my little survey of the textbooks on the principles of economics that I found in the offices of the Center for the Study of American Business. I apologize to the authors of the fine textbooks omitted from the list (their publishes apparently did not send us any desk copies). The sample size is small, but 10 books is more than the times the sample used in the World Watch article.

As the reader can see, the interest in the environment ranges from five pages in the 1961 edition of Paul Samuelson’s widely used principles text to 26 pages in the brand-new 1990 edition of the introductory economics textbook by James E Ragan, Jr., and Lloyd B. Thomas, Jr.

With one exception, each of the economics textbooks listed in the table discusses environmental pollution and resource issues at some length. It is intriguing to note that Samuelson’s 1980 coverage of the environment drew on the work of economists A. C. Pigou and Allyn Young, who wrote on the subject approximately 70 years ago. That is the same Pigou who. focused attention so long ago on the problem of factory smoke that adversely affects innocent bystanders. Clearly, economists have had a longstanding interest in the subject of environmental pollution.

Serious concern with the environment is far more than a mere matter of counting the number of pages cited in the index of a book, however. It is the substance of the writing that is worthy of attention. Since the days of Pigou, economists have been wrestling with the problem of responding to the burdens (“externalities” such as pollution) that some people impose on others.

Being interested in the motivation for human action, economists ask why people pollute. Surely the problem does not arise because any great number of our fellow citizens enjoy messing up the environment. Most polluters-be they companies, municipalities, state and federal agencies, or you and I-pollute simply because it is easier or cheaper or both.

After even a few moments of thought on the subject, it becomes quickly apparent that there are many ways of dealing with the problem. To begin with, we can redefine property rights, so that people cannot use the nation’s air, water or surface as a free dump. How many of the people who litter or damage public parks do the same thing when they are visiting with their neighbors out on their lawns?

Another approach is to use the price system on which we rely generally to allocate resources efficiently. For example, levying a tax on leaded gasoline would raise its price in relation to unleaded gas, encouraging many motorists to shift to unleaded fuel, if their cars could use both.

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