We Are Here to Save the Erf: E-R-F!

Julian Sanchez | April 22, 2005

Taking the much-discussed essay "The Death of Environmentalism" as a springboard, an editorial in this week's Economist argues that actually, environmentalism's not dead, it's merely resting—and Adam Smith could be the Prince Charming needed to wake it with a kiss.

Comments

|4.22.05 @ 2:46PM|#

Funny, because I was just thinking about this...

Taken as a whole, the environmenal movement has a lot of market power. Further goverment regulation is not really required, if people "vote" with their dollars: Boycott from companies that have bad environmental practices, and buy from those who do. Consider the demand for the Toyota Prius and other hybrids.

|4.22.05 @ 3:10PM|#

Or they could, (for example), privately buy the acres of the Brazilian rainforest that is being "devastated every day".

digamma|4.22.05 @ 3:10PM|#

Now THAT title is an obscure reference.

|4.22.05 @ 3:20PM|#

What everyone needs to accept is that some amount of pollution is inevitable and the only appropriate societal goal should be to achieve the correct balance between the benefits of production and the environmental costs imposed from the by-products of production. The foolish dogmatism of environmentalism is based on the notion that there are no tradeoffs between the amount pollution and the benefits that come with a robust commercial society. The notion that there is a socially desirable level of pollution is total anathema to the environmentally insane. If appropriate measures are taken to internalize the costs that polluters impose on the society, then the optimal amount of pollution can be reasonably approximated.

|4.22.05 @ 3:42PM|#

was, I agree with this in part. For example, it's hypocritical to complain about the amount of dioxin in the ground and the water where you live when you're putting a half cup of bleach in every load of whites.

I'm not sure I understand that last sentence, though, and I have a college degree, dammit. By whom should the costs be internalized? I think there should be more corporate responsibility for those costs, but the latest "clear skies" initiative just allows them more leeway.

|4.22.05 @ 3:44PM|#

So Julian is never gonna come back down?

|4.22.05 @ 3:46PM|#

Huzzah, was!

Many libertarians are anti green only because of the insistence that: A) Greens stipulate that they have a right to an 'unaltered' environment, and not one that is merely unharmful; and B) Costs don't matter.

|4.22.05 @ 4:28PM|#

I'm definitely one of those, Jason. I'm in favor of protecting the environment much more than we do now, in many ways, and consider myself pro-environment; but I wouldn't call myself an 'environmentalist' or a 'green' because the assumptions of the movement and most people who are in it rather scare me.

|4.22.05 @ 4:38PM|#

free form:

When individuals or corporations pollute they impose a cost on the rest of society(a less desirable environment). Also, unlike most costs of production, these individuals or corporations do not pay for these pollution costs that they impose on society. Thus, pollution is over-produced since the producers do not bear the costs of it(the costs of polluting are not internal). Pesumably, some kind of government intervention would be needed to make polluters bear the cost of pollution(to internalize the costs). For example, a simple pollution tax could make a corporation bear the pollution costs that they would otherwise impose on society. Other than a tax, a market where rights to pollute are traded would assist in reaching the socially optimal amount of pollution. I think the important point is that the level of pollution is merely a question of tradeoffs and

|4.22.05 @ 4:46PM|#

OK, was, I'm hip. Thanks! My thoughts, but stated academically.

|4.22.05 @ 4:47PM|#

was:

I read an article by Milton Friedman who proposed just such an "effluent tax". There is a legitimate interest in using government to make sure that polluters bear the cost of the pollution that they cause.

|4.22.05 @ 4:48PM|#

Jason,

To be completely honest, I think you have to include C) Libertarians don't want to think there's a serious problem with the world that can only be fixed by massive government interference instead of free markets.

Well, I guess you could fix it by privatizing the atmosphere and all of the biosphere. But that's pressing up against the limits of plausibility.

|4.22.05 @ 4:54PM|#

phocion:

If you include C as a separate reason, you will have changed my population from 'many libertarians' to 'all libertarians'. I don't know that the A & B types are necessarily A & B & C types, as well.

Jonathan Dingel|4.22.05 @ 8:47PM|#

This just in from Instapundit: Charisse!

|4.22.05 @ 8:48PM|#

phocion,

Just because a problem requires government involvement does not mean that it requires meddling in the market. If a corporation is imposing a quantifiable cost on a group of people, those people are indeed entitled to an appropriate payment. If I dump a toxic chemical into the water, I have liability to the people who use that water. You don't need "massive government regulation" to handle that sort of problem.

The kind of "environmentalism" that libertarians object to is the kind that imposes costs or regulations to prevent something that causes no quantifiable harm to human beings or their property -- preventing global warming, protecting species from extinction, preserving most wetlands, drilling for oil in rural Alaska, etc.

Libertarians accept that the government can act to prevent widespread harm to the people it governs. People who don't accept that are called "anarchists". :)

Jonathan|4.22.05 @ 8:49PM|#

Ironchef -- like the Nature Conservancy?


http://www.natureconservancy.org/aboutus/howwework/

The libertarian in me loves that part of this company - buying the lands they want to preserve. Talk about putting your money where your mouth is.

Or to put it to the enviros out there - kwitcherbitchin and raise the funds to purchase the lands you want preserved, then shoot/prosecute the idiots who trespass. And by shooting, I mean with arrows made from deadwood fletched with hemp and found feathers. And bows made from, ummm... a yew that fell while still green (lightning?)

timekeeper|4.22.05 @ 9:22PM|#

The problem with the Nature Conservancy (and the reason I stopped contributing to them after almost 10 years of doing so) is their involvement in EarthShare, and the fact that they are sharing their funds with bottom feeders such as Environmental Defense, Friends of the Earth, Union of Concerned Scientists, and Natural Resources Defense Council, among others. The way they have structured their finances, contributions through the Combined Federal Campaign (CFC, the federal government's once-a-year charitable giving drive)or similar fundraising clearinghouses to any EarthShare member group is divided up equally amongst all member groups. NRDC won't ever get one red cent from me, so TNC got cut off as well.

|4.22.05 @ 9:24PM|#

Robert Heinlein suggested that factories should be required to place their water intakes immediately downstream of their waste water outfalls.

Cheers
JMH

|4.22.05 @ 11:19PM|#

It's sad to see environmentalists being discouraged, because they have a worthy goal. The way I see their problem is that environmentalists most often identify themselves as progressives, which is not the mainstream of this country. They can regard the majority in this country as right wing extremists all they want, but they won't win any votes until they adjust their perceptions. Their choices are to keep loosing or else drop the progressive agenda, and start talking consistently and genuinely about revenue neutral tax changes instead of new taxes. There would be strong support for such changes if people could see that advocates for enviromental policy changes were as concerned about how government money is spent as most taxpayers are.

|4.23.05 @ 5:10AM|#

Like timekeeper, I have a beef with TNC. In my state, they've taken to raising money to buy land, then donating it to the @%#*! state! This gives the state bureaucracy an excuse to increase their budget to "manage wilderness areas". Yuck.

Kevin

Tim Worstall|4.23.05 @ 8:25AM|#

Internalize externalities, yes, solve the Tragedy of the Commons via property rights....there is a libertarian version of green and I�m all for it.
We need to take a step back from the idea that all govt intervention is bad and think for a moment. Markets operate within certain rules, be they societal, legal, regulation or whatever. They are constructs. We need to make similar constructs for environmental services (as the Economist piece points out), commons and all the areas where we are having problems. Very green, but in another way anti-green movement, because we would be making the costs and trade offs specific. Which is why it would work, of course.

|4.23.05 @ 8:41AM|#

Privatization and a market for pollution rights would not exactly be a leap into the unknown. We already know how badly the environment was managed under total public 'ownership' in the Soviet system. But we also know how the move from communally held land to land as private property went over the last thousand years or so in the West, vastly increasing overall productivity. Hernando da Soto argues the same move would work in the developing world. But perhaps a better example is the ocean fishery. In the last twenty years, an analagous move has been initiated for fish stocks, particularly in New Zealand and Iceland, which is also working out well. When fishermen own the stock, they have an incentive not to fish it out. Preserving the fish stock preserves their property and their income. See this link for a review by Birgir Runolfsson: http://www.cato.org/pubs/regulation/reg20n3f.html

In Canada, meanwhile, incompetent government management and the incentive for fishermen to get as much as they can as fast as they can have devastated the east coast fishery. Why would pollution rights be different from land and fish stocks?

|4.23.05 @ 9:36AM|#

How do you teach people about accepting pollution?

How do you teach people that a certain amount of pollution will be inevitable & probably ugly (though not necessarily harmful)...but if they don't accept it the jobs they supposedly want to keep will be shipped overseas? (Where the pollution will be less regulated and MORE dangerous).

|4.23.05 @ 9:56AM|#

I have not seen a comment to the effect that the environmental movement is a victim of its own success. Forty years ago, business argued that it was "jobs or the environment". Many people argued for jobs. Who is doing that today in the USA?

Like MADD, which has succeeded in increasing the drinking age to 21 everywhere and lowering legal blood alcohol limits in most places and is now moving on to outright prohibition, the environmental movement takes yes for an answer and then asks for more.

So like MADD, which has moved from temperance to prohibition, the greens have moved from temperate policy to extreme policy. So, as a young person, I would have been considered sympathetic to the environmental movement. As a 50 year old, no longer. AND MY VIEWS HAVE NOT CHANGED (very much)!

|4.23.05 @ 12:33PM|#

The only problem I have with an 'effluent tax' is that consumers pay taxes, not corporations.

Sorry, but I have to get off on this tangent for a moment. I routinely come across people on this forum saying that all corporate taxes are passed on to consumers, and I used to make the same assumption myself until an economics professor took me to the woodshed.

There are 2 factors to consider. The first is competition. Say that a tax amounts to $1 per widget. It could be a direct tax on widgets, it could be a direct tax on an input material, or it could be a corporate income tax that just happens to amount to $1 per widget produced. Whatever.

In any case, United Widget Corp's first instinct might be to raise the price of a widget by $1. But Consolidated Widgets might decide to only raise the price per widget by $0.90 and take a $0.10 bite into their profits. Why? Because they can lure customers away from United Widget Corp. So then United Widget Corp might retaliate by absorbing even more of the tax. And so forth until they reach an equilibrium. The exact equilibrium depends on how much of the tax the companies can afford to pay and still make a profit, and how likely customers are to change suppliers. If switching suppliers means lots of transition costs then customers might just accept a certain level of taxation.

The result is that some of the tax is paid by the consumer and some is paid by the supplier.

Competition isn't the only factor. Even a monopoly might pay some of a tax. Why? Say that a monopoly makes a profit of $5.00 per unit and a tax amounts to $1.00 per unit. If the company tries to pass on the entire $1.00 of taxes, there will be consumers no longer buy. The company is losing $5.00 that they could have gotten from each of those consumers, just to avoid a $1.00 tax on each of those units. But the company won't pay the entire tax, because they'd get $4.00 net benefit from each of those consumers who would have dropped out while losing $1.00 on each consumer who would have bought even at the higher price.

So even a monopoly will absorb at least some of a tax. The exact amount that they'll absorb depends on how price-sensitive consumers are.

Now, you might be thinking "What about sales taxes? They're shown explicitly on my bill. Surely I'm paying 100% of sales tax!" Not necessarily. An economist would observe that if there was no sales tax a company might charge you a higher price. Maybe not the full sales tax, but definitely some of it.

The fact is that a tax ostensibly levied on the company (e.g. a corporate income tax) might be paid in part by consumers, and a tax ostensibly levied on the consumer (e.g. a sales tax) might be paid in part by the company. The incidence of a tax depends on the degree of competition and the price sensitivity of consumers.

Sorry, but I get peeved about this point.

David Gillies|4.23.05 @ 12:48PM|#

Carolynn: "How do you teach people about accepting pollution?

How do you teach people that a certain amount of pollution will be inevitable & probably ugly?"

Coase theory: polluter pays the polluted. Right now we have polluter pays the government, so the victims of pollution are uncompensated.

|4.23.05 @ 1:55PM|#

"How do you teach people about accepting pollution?

How do you teach people that a certain amount of pollution will be inevitable & probably ugly?"

Make them live in los angeles?

|4.23.05 @ 2:40PM|#

Mad Skillz

|4.23.05 @ 6:31PM|#

Shellenberger's and Nordhaus's essay (and Peter Teague's foward) is an eloquent argument for change; however, its "core issue" (global warming)is a poster child for the scientific and doctrinal problems besetting the environmental movement right now.

No one started yelling about global warming after the Florida hurricanes, because most people have figured out that one year's extreme weather events mean absolutely nothing when it comes to predicting long-term climatalogical trends. Environmentalists who've prognosticated utter catastrophe from every dry summer or severe winter have cost the movement a lot of credibility. Climatology is a fearfully complex topic, and it's notable that those who know the most about the topic are the least certain as to what the long-term effects of current warming trends will be. There is also a reluctance to admit that there are serious problems with the existing global warming models, and rather than address them, the environmental movement tends to dismiss any criticism of these models as "right-wing" or special-interest-inspired.

At this point, we're not even sure what the relative contributions of man-created and natural causes of global warming are - the planet's been warming ever since the end of the Little Ice Age in the late 18th Century, and human-sourced emmissions could only have been a signifcant component in the last 70 or 80 years. The fact that "environmental leaders" all agree that emmissions have to be decreased immediately by 70% doesn't mean much to me - do we actually have solid data to indicate that this will halt or even significantly impact current warming trends, or is this simply based on linear projections from simplistic computer models?

One thing that I would like to see more of within the environmental movement is genuine debate - the recent H&R thread on nuclear power, urbanization, etc. is a great example of exactly the kinds of discussion that should be taking place. If the environmental movement wants to establish a new vitality and role for itself, it needs to overhaul more than its tactics and "vision" - it needs to be weilling to question and challenge some of its fundamental assumptions, or it will find itself more and more isolated from the political and social mainstream

|4.24.05 @ 12:51AM|#

I used to make the same assumption myself until an economics professor took me to the woodshed.

There is your first problem -- You talked to a professor and not to a business person.
A company must bases its prices on its costs adjusted for its competition. The less competetion the greater it can mark up on its costs.
If it can't get its prices higher than its costs it loses money or goes out of business or stops making the product it is losing money on. It will pass ANY cost it can on to its customers. It might not be able to do it immediately but over time ALL costs MUST be integrated into the calculus of the PRICE.

Your professor needs to go back to the woodshed or start a business so he can see how the real world works.

|4.24.05 @ 1:32AM|#

thedaddy-

Obviously the price of a product must include all of the costs and taxes that the businessperson faces. Otherwise the business will go broke. So in that sense you could say that all costs and taxes are passed on to consumers.

The point my professor was making is that taxes can bite into profits: If a new tax amounts to $1 per widget, competition might make it impossible to raise prices by $1 per widget. So the business might only raise prices by, say, $0.85 per widget, and pay the other $0.15 of taxes out of what would have otherwise been profit.

When the introduction of a tax causes a price increase that is smaller than the new tax then economists would say that part of the tax is being paid by the consumer and the rest is being paid by the business. Sure, the sale price includes the tax, but if the price increase is less than the tax increase then the tax is biting into the business owner's profits.

Do you really want to argue that taxes don't cut into a business's profits? Really? Because all my professor was trying to argue is that taxes hurt businesses as well as consumers. I never thought that somebody on a libertarian forum would argue against that point. But you learn something every day.

And, FWIW, when I took econ classes the vast majority of my professors were big on the free market.

|4.24.05 @ 1:38AM|#

Maybe the shorter version of my statement would be that when taxes go up the prices go up and the profits go down. So the business and the consumer are both losing money due to the new tax.

Does anybody want to dispute that point?

|4.24.05 @ 1:46AM|#

Ooh, one more way of looking at this:

If the buyers pay the taxes rather than the sellers, then you (the supplier of your labor) don't pay your taxes, your employer (the buyer of your labor) does. Except that your employer just passes it on to the consumers.

So everybody else pays your taxes, and you pay everybody else's taxes. Not very reasonable.

The economists' way of looking at it (measure the effect of a tax by asking how much it cuts into profits and how much it increases prices) is much more reasonable than just asserting that everybody passes it on.

|4.24.05 @ 3:26AM|#

Sure, thoreau, that's one way of looking at it. Yet another way to look at it is that the more money the gov't takes in taxes the less money people have in their wallets. It's coming out of SOMEONE's pocket no matter how you slice it.

Whether it's those who pay the tax when they buy the product, those who take a pay cut to protect the corporation from losing profits, or the shareholders who don't get as much return on their investment because the taxes come out of the profits that pay dividends on their stock.

So regardless of whatever hinky accounting you use to figure it, yes, the taxes get paid to the gov't - and definitely DON'T go into the pockets of the people who produce the goods or services being taxed.

No matter how your professor tries to shell-game who actually pays for it, ANY taxes are screwing people out of the money they earned and handing it over to an entity that didn't earn it. Which is why tax hikes are usually bad for the economy and tax breaks are good. (The old analogy of the more fuel for the engine, the better it runs. The more fuel that gets diverted away from the engine the worse it runs.)

Taxes are often poured into non-productive venues (since much of gov't "activity" falls into this category) with no means to hold anyone accountable for its wastefulness.

The cost does get passed on to SOMEONE. I would argue that in your scenario of slashed profits (rather than costs being passed to the consumer) the resulting lower return on investmentwould directly lead to and less investment and re-investment by those getting screwed out of their just profits.

|4.24.05 @ 4:04AM|#

rob-

Nobody is trying to shell-game anything. If we only look at this on a moral level then we could simply say that the gov't stole the money and that's wrong and we're done.

But if you want to know more about who gets screwed and how much so you can have a better understanding of what's going on, then you have to start analyzing the effects on spending and prices and investment and whatnot.

It's all well and good to say that a policy is bad on general principles and that's that. But some people want to understand the effects on a more detailed level for all sorts of reasons:


-A business owner might want to think about the effects of competition and price elasticity of demand so he can predict (rather than find out the hard way) whether he can pass on most of the cost to consumers or whether he'll have to take most of the hit in his lower profits.

-An investment analys might want to know which businesses will take the biggest profit losses on a tax policy so he can make recommendations for clients.

-The purchasing manager for a large company might want to get an idea of how a change in tax policy will affect the price that he pays so he can plan ahead.

-A libertarian campaigner or activist might want to figure out who's getting screwed and how much so he can figure out who will be most receptive to arguments for tax cuts.

-A policy-maker might want to know the results of a policy...or at least know which constituencies will be most upset with him.

-A lobbyist for an industry might be more interested in devoting his energies to those tax policies that will have the largest impact on profits.

-A poster on Hit and Run (Scott) wanted to say that effluent taxes are passed on to consumers rather than paid by corporations. He was discussing the possible environmental consequences of a certain tax policy. (If you want to argue with that take it up with him.)


So, basically, there are plenty of reasons why somebody in the real world might want to understand the results of tax policy on a level that goes beyond "Taxes bad, mmkay?"

Mind you, I'm not defending taxes. I'm just saying that it's sometimes worth understanding the detailed (and often unexpected) consequences of tax policy. Is that so bad?

And, once again, I want to emphasize that most of the economics professors that I studied under were not trying to play statist shell games. Most of them were free marketeers who wanted to get a better understanding of the economy than just "Taxes bad, mmmkay?"

Geez, I never thought I'd get in so much trouble on this forum for arguing that taxes might hurt corporations and not just consumers.

|4.24.05 @ 4:13AM|#

Oh, and FWIW, the professor in question had owned several small businesses. The matter came up when I tried to claim that a certain tax would just be passed on to consumers and wouldn't have any effect on the actions of an industry. He wanted to disabuse me of the notion that a business owner could pass on a tax to the customers without feeling any effect on the bottom line. His argument was that a loss of profits as a result of a tax is tantamount to paying the tax.

I really can't figure out why this is so controversial on this forum.

|4.24.05 @ 1:48PM|#

thoreau - I wasn't accusing you of shell games. But accounting often DOES strike me as a shell game. I realize that you are saying that there are various harms rather than just the straightforward "short-hand" argument libertarians use when people talk about taxing corporations. And I'm with you, for the most part, that often it's not JUST the consumer buying the product who gets hurt by the tax.

The real question in taxing something should be whether the taxes taken in and spent by the gov't create a greater good than a greater bad. I would say that for national defense, it's a greater good. For subsidies to NPR, for example, it's not. (Merely my opinions, of course.)

Sure, it's a good argument that the tax hike doesn't always go straight to the price of the product and that the harm can be spread in a couple of different directions. (My previous post had several examples that jibed with your statements.) But I would guess that most frequently the tax hike DOES get spread out among those who purchase the product sooner or later - it just doesn't make sense to take a hit in the bottom line forever.

But market effects of taxes do seem to be pretty bad, based on my understanding they can't help they can only hurt. So the question is how much hurt to the market can be withstood to achieve a certain gov't role. (National defense is pretty much the only good one I can come up with...)

|4.25.05 @ 2:56PM|#

Sorry, but I have to get off on this tangent for a moment. I routinely come across people on this forum saying that all corporate taxes are passed on to consumers, and I used to make the same assumption myself until an economics professor took me to the woodshed.

All corporate taxes are passed on to:

1) Consumers (higher prices)
2) Employees (lower wages)
3) Investors (lower returns)

How it is passed on to these groups is determined by the economic circumstances.

In this day and age, investors likely includes you and me and the little old lady down the street, via our 401ks (well, the little old lady down the street is probably sucking off the public tit via Social Security).

|4.25.05 @ 3:01PM|#

The economists' way of looking at it (measure the effect of a tax by asking how much it cuts into profits and how much it increases prices) is much more reasonable than just asserting that everybody passes it on.

It can also impact wages and other compensation.

The bottom line is that only people pay taxes; corporations don't. Profit either goes to investors (people), or is reinvested into the company via profit sharing (people) or investment in capital equipment (paying people's wages at other companies, etc).

|4.25.05 @ 3:06PM|#

The bottom line, thoreau, is that all taxes are passed on to people. Of course, some of those people are nasty company owners or investors, the brutish bastards. How sick is it to invest money into some risky buisness that might provide employement and may some day produce something that people will want? And to expect a profit!

|4.25.05 @ 3:26PM|#

All corporate taxes are passed on to:

1) Consumers (higher prices)
2) Employees (lower wages)
3) Investors (lower returns)

How it is passed on to these groups is determined by the economic circumstances.

That was my point exactly.

The bottom line, thoreau, is that all taxes are passed on to people. Of course, some of those people are nasty company owners or investors, the brutish bastards. How sick is it to invest money into some risky buisness that might provide employement and may some day produce something that people will want? And to expect a profit!

Don, I never implied that it was somehow "OK" to pass on taxes to business owners but not consumers. Look, here's what happened:

Another poster implied that a certain type of tax would affect consumer behavior but not business owners. I said that predicting the effects of the tax is actually somewhat more complicated than that. That's all.

Let me repeat that again: All I said is that the precise effects of a tax can be difficult to predict. Yes, yes, we all know that the effects will be bad and will take money away from those who earned it and give it to the government. But if you want to know exactly who will bear the greatest brunt (so you know how to invest, so you can plan business strategy, so you can figure out who will be receptive to a tax cut, so you can predict which voters will be angriest, whatever), you can't just assume that consumers alone will bear the entirety of the cost. Yes, yes, people will bear the cost (obviously) but which party to the transaction bears the biggest cost depends on economic circumstances, and any social engineer who thinks he can easily predict which party will bear the greatest cost is fooling himself. Sometimes the buyer will bear the greatest cost, other times the seller (who pass on that cost to employees via lower wages

That's all. Why is everybody jumping all over me? Would you have been happier if I had asserted that the consequences of taxes are easy to predict and hence social engineering via the tax code is a simple matter? I'd rather not say that, but maybe we could get joe to say it.

Geez, all I say is that some taxes have a greater impact on producers than consumers and everybody jumps all over me.

|4.25.05 @ 6:48PM|#

thoreau - I'm not jumping on you dude. I was mostly AGREEING with you. (Just to keep the record straight and cut off that sneaking sensation that EVERYONE is out to get ya!)

|4.25.05 @ 11:05PM|#

sucker enviromentalists get stopped by a single finger. say hallelujah, oh yes!