Chapter 6: Natural Resources and the Environment
I. Economics
In college, I was able to get into the meat of some of the issues that most interested me. I carried with me the idea that most of problems concerning how to make the world better were economics problems. Finding the answer required studying economics.
A widespread misconception about economics is that it only concerns value insofar as it can be expressed in terms of money, and has nothing to say about other types of value.
This is simply not the case. Economics is the study of choice, and all of the factors that go into choosing one thing over another. Money is nothing more than a convenient tool for comparing values. Economists use money the same way that physicists use yardsticks and balance scales.
On the other hand, economics does not concern itself with moral value. You can draw supply and demand graphs for political corruption, hit-men, and slaves just as easily as you can for food, clothing, and shelter. The virtuous person does not always profit from his virtue; and the person who profits is not always good.
However, economics does have the power to make suggestions about how to reach moral objectives. We cannot use economics alone to evaluate the morality of increasing the minimum wage. However, we can use economics to determine what those effects are likely to be, and then plug that information in to the moral equation to get a result.
Because of my interest in these matters, when I returned to college at Montana State University, I continued to take economics classes. In doing so, I took a number of courses from the team of Dr. P.J. Hill and Dr. Terry Anderson. These were among the most influential.
These professors did not give economics lectures. They gave economics demonstrations. They put their economics to use to show us how it can be used to explain and predict actual human choices. They used us, their students, as the subjects.
To me, this was ideal. Abstract ideas in a book are a poor substitute for an actual physical demonstration that says, “See, this is how things actually work in the real world.”
II. A Demonstration of Privatization
In one demonstration, Dr. Anderson had the students arrange their desks in a circle, to clear an area in the middle of the room. Into this cleared area, he spilled a small container of dry beans onto the floor. I think that there was about twenty of them.
Then he pulled out a pocket full of change and said that, after he signaled the start, students would have one minute to harvest beans. At the end of one minute, he would blow his whistle and stop the harvest. Then, he would pay 25 cents for each bean harvested. Then, he would blow his whistle again to begin the second harvest. For the second harvest, he would pay 50 cents for each bean.
He announced all of these rules in advance, so every student knew that they could get 50 cents for a second-round bean. These beans represented a non-renewable resource. Once they were harvested, they were gone. They would spoil if a person were to try harvesting them during the first round and sell them after the second round. Or, alternatively, we could hypothesize that there was a way preserving the beans from one round to the next, but the preservation system would cost 50 cents per bean.
To ensure the integrity of this model, Dr. Anderson would count the beans at the end of each round, to make sure that none of them were being stored from one harvest to the next.
After making sure everybody understood the rules, Dr. Anderson signaled the start of the first harvest. Even though the students knew that they would get more money if they were to leave some beans behind to harvest during the second round, they immediately dove into the middle of the room and harvested every last bean. There were no beans left for the second harvest. Dr. Anderson purchased his twenty beans back for a total of $5.00.
We can think of these beans as bison roaming the American Great Plains in the 1800s, whales or fish swimming in the ocean, the ocean itself, groundwater, naturally flowing rivers and streams, the air that we breathe, the global climate, or any of a number of things that have value and which sit out there, unclaimed. We can exclaim all we want that these resources will be worth more in the future — that we should not harvest them into extinction or destruction today. However, as Dr. Anderson demonstrated, we should not expect people to listen.
In short, this demonstration showed that, in a communal or common-property system, these types of resources will be harvested immediately. Future generations would likely have to learn how to do without these goods. Since they include such things as the global climate, food from the ocean, and clean air, it will not be at all easy for future generations to deal with this loss.
Dr. Anderson then asked us to imagine what would have happened if, after spilling the beans, he had assigned one bean to each of student. What he would do is point to a bean, and then point to a student and say “that was is yours.” We could imagine each student branding his or her bean for easier identification. Nobody could harvest a bean but the student to whom it was assigned. Anybody who tried to take another person’s bean and harvest it as his own would be punished. Then, he asked us to imagine what we would do if he offered the same deal. He would pay 25 cents for each bean harvested during the first round, and 50 cents for each bean harvested in the second round.
He did not actually demonstrate the results of this experiment. I assume he did not want to give up another $10.00, because that is certainly what it would have cost him. Secure in the knowledge that nobody else is going to take the bean, the student will see no reason to harvest it during the first round. Each student was better off waiting and selling his bean during the second harvest.
The result, this time, would be that the beans were not all taken for the benefit of the present, but remained out there for the future. This second system is the private property-capitalist system. The first system is the public-property socialist system. This experiment demonstrated the fact that privatization is the best way to make sure that the interests of future generations are considered in decisions that people make today.
If you look at all of the areas where we are suffering alarming rates of depletion or destruction, from groundwater to ocean food to clean air to the global climate, these are all places where the communal “public property” method of distribution are still being used. These are the areas that we have not privatized.
A. Privatization
Privatization is a nasty four-letter word among those who claim to care about the environment and who claim to be in favor of ‘sustainable use’ of our natural resources. Yet, this classroom demonstration suggested that ‘privatization’ was the best way to preserve resources for future generations and promote sustainable use.
Remember the thought that started this journey? It was a concern that I not become like the Confederate soldier, confident that I was doing the right thing while I devoted my time, my skills, and perhaps even my life to a cause that ought not to be defended. I think that many environmentalists fit that description. They are engineering the destruction of the very things they claim they want to protect by putting it in a system better geared for its destruction, then its preservation.
The concerned environmentalist would be quick to point out that I have simplified the issue and left out a number of important complications.
I will agree that I have focused only on the basics. However, what we see here should give people reason to be suspicious about plans to preserve resources and protect the interests of future generations by declaring those resources public (communal) property.
The classroom demonstration came from a broader set of economic principles put together in an essay, “The Tragedy of the Commons” by Garrett Hardin.
Hardin used the example of a community-owned plot of land on which all citizens were allowed to graze their cattle, and none could keep anybody else off. As each villager added another cow to the pasture, he gained all of the benefit from the cow — all of its meat or milk when they are harvested, or all of the income when it is sold. However, he suffered almost none of the cost. If it was not his cow in the commons eating the grass, then somebody else would be doing it, and they would be getting the profit.
The grass in the commons served the same function as the beans on the floor during Dr. Anderson’s first demonstration.
Unfortunately, the result of this is that all of the villagers harvest the grass from the commons the same way that all of the students harvested the beans from the center of the floor. The commons ends up being over-grazed, and ruined. Future generations are forced to do without.
If we want to make the village self-sustaining over time, and preserve the commons for future generations, we need an economic system that forces each person putting a cow on the commons to consider the costs, as well as the benefits.
Dr. Anderson ended his demonstration of the tragedy of the commons by assigning each student a bean that he or she could harvest and sell when the price was best. Garrett Hardin’s hypothetical villagers could preserve grazing fields for future generations by privatizing the commons, giving each villager a plot of land that they could use now, or in the future.
We can apply these same principles to the slaughter and near extinction of the American bison, the harvesting of whales and fish from the open ocean, the use of groundwater in the central plains of the United States, the use of the atmosphere as a dumping ground for pollutants, and the effects of human activity on the global climate. As long as each of these goods is held in commons, we can expect a tragedy of the commons. We can expect people to use up these resources in the present, and we can expect that future generations will have to suffer the effects of these goods being consumed or damaged.
If we want to preserve these goods for future generations, the best action to take is to assign property rights to these goods, as Dr. Anderson assigned property rights to the beans.
III. The “Is” Of Value
Terry Anderson’s demonstration did more than show a strong prima facie defense of the merit of privatization. I found an important lesson relevant to my questions about the relationship between ‘fact’ and ‘value’.
Dr. Anderson was able to use values to explain, predict, and influence events in the real world — the world of ‘is’, the world of ‘fact’. For all practical purposes, Dr. Anderson used value theory the same way that a chemist would use atomic theory. He operated on a theory that said that entities holding particular values would behave in certain predictable ways in certain laboratory (classroom) conditions, and than ran an experiment to verify his hypothesis. This is no different from a chemist operating on a theory that said that entities made up of particular atoms would behave in certain predictable ways in certain laboratory conditions, and creating an experiment to verify that hypothesis.
I once sought to explain Hume’s fact/value distinction as a comparison between apples and oranges, and came up with a surprising result. I wrote that an argument that contains premises that talk only about apples cannot end up with a conclusion about oranges — not without some premise somewhere in the argument that relates apple-propositions to orange-propositions.
Now, let’s take this applies/oranges dichotomy, and define the word ‘is’ to mean ‘anything having to do with anything but oranges’. Under this assumption, it follows that no set of ‘is’ premises would yield a conclusion about oranges — because, by definition, no premise that has anything to do with oranges is allowed in the set of what we call ‘is’ premises. We would have an ‘is/orange’ dualism that pretty much matches Hume’s ‘is/ought’ dualism.
However, this observation does not present a particularly profound observation. It would be rash, at best, to think that, 300 years later, philosophers would still be citing the discovery of the great ‘is/orange’ dichotomy — the assertion that you cannot derive conclusions about oranges from ‘is’ premises where those ‘is’ premises are asserted to be premises having nothing to do with oranges.
This suggests a way out of the is/ought problem. However, the route still had a significant obstacle. To make my way, I still had to answer the question, “What, in the world of ‘is’, is a value?”
That answer would not come for a few more years, so I will need to leave this thread hanging for a while. In the mean time, I continued my study of economics and the ways that values actually influence events in the real world.
IV: The Principles of Freedom
One set of value propositions that is very useful in explaining and predicting events in the real world also provides a foundation for expanding the case in favor of free-market solutions to social problems.
These principles apply to answering the question, “Of all of the people in the world, who is most likely to make sure that the actions produce results of value to the person whom I will name ‘Agent’?”
In asking this question, we are not asking how to guarantee that these results are valuable to Agent. We simply need to know what the route with the greatest probability of success.
There are four reasons to expect that most of the time, Agent himself is the most reliable guardian of Agent’s interests:
(1) Agent is generally the person with the best knowledge as to what has value to Agent.
(2) Agent is generally the person with the most experience in bringing about that which has value to Agent.
(3) Agent is generally the person with the strongest incentive to make sure that the job is done correctly
(4) Agent is generally the person was the least possibility of being corrupted into sacrificing what has value to Agent for some other cause.
So, the job of advancing Agent’s interests should, to whatever degree is possible, go to Agent.
There are times when these are false. Individuals who lack the capacity to understand the consequences of their actions are not reliable guardians of even their own interests. In these circumstances, it is better to trust their welfare to somebody else whom I will name ‘Other’. However, even the most benign guardian will never be free of the problems that will be caused by his lack of knowledge of, experience in, or incentives for promoting the well being of his charge; as well as the occasional sacrifice of his charge’s interests for his own.
In Chapter 2, I argued against the thesis that everybody is necessarily selfish in everything that they do. Consequently, I think it is clearly possible that Other can have a genuine interest in the welfare of Agent. Yet, insofar as Other is human, his interest in Agent’s well-being will be one interest among many. Other will have a large number of desires that will sometimes weigh against the interest in Agent’s well being. Other may want to spend some time with his own children, which will sometimes distract him from pursuing Agent’s interests. Other will never be purely devoted to Agent’s welfare and will, from time to time, sacrifice Agent’s welfare for his own. This is a simple fact of being human.
To the degree that we have government regulation, to that degree the job of managing Agent’s life for Agent’s benefit is given over to an Other even further removed than a family member. In this case, Other is even more lacking in immediate knowledge of what has value to Agent, and probably has little or no experience promoting Agent’s interests. Other has, at best, mixed incentives to do the job well, and can easily be corrupted into sacrificing Agent’s interests to promote his own. The cards, in this case, are so heavily stacked against Other that it should never be considered the first option in terms of taking care of Agent.
Even this only argues for a presumption against government bureaucracy as a way of helping people. Like all presumptions — like the presumption of innocence in criminal cases — it can be outweighed by sufficient evidence. However, the burden of proof rests with those who wish to override the presumption.
This suggests that if the objective is to promote each person’s interests, then the best way to do so is within a social system that trusts each individual with the direction of their own lives, rather than one that makes them subject to the will of another.
V. The Economics of Democracy
Dr. Hill added to Dr. Anderson’s demonstration with another argument in which values have an impact in explaining the real world. Dr. Anderson’s demonstration had compared the communal ‘public ownership’ economic system with privatization, and showed the benefits of privatization. Dr. Hill looked at the political option — having the resource owned and controlled by the government, itself supposedly controlled by the will of the people.
He drew a typical bell curve on the blackboard where the X-axis represented different beliefs about the future value of a resource — the price that people would be willing to pay at some future time T. The Y-axis represented the popularity of that belief. Those few who had radically low estimates of a resource’s future value were on the left side of the bell curve. The high middle portion represented the common or consensus view of the commodity’s future value. Then, the curve dropped again on the right, representing a few people with uncommonly high estimates as to the resource’s future value.
The bell curve suggested that most people believed that a future generation will pay a price of X, with a few extremists arguing that future generations would pay a lot less than X (X-), and a different extreme view suggesting that they would pay a lot more (X+).
He then drew a line through the bell graph, at a value that represented today’s market price for that resource, be it timber, oil, or beaver skins, just to the right of the center of the graph. At this point, a minority believed that the future value was higher, and a small majority believed that the future value would be lower.
In a democratic system, that resource would be preserved for future generations only if a majority of the people believed that the future value was greater than the present value. As soon as 50% + 1 believed that the present value was greater, then the resource would be used. Future generations would not have that resource.
However, a free market system behaves differently. Even if 50% + 1 of the people believe that the present value of a resource is higher than its future value, the resource could still be held for future generations. Those who believed that the future value would be higher would simply purchase it from those who did not, in the hopes of capturing that future value.
Fundamentally, the economic power of future generations on present decision-making is higher than their political power. Future generations have no vote. Even younger people alive today are banned from the ballot box. In the political arena, they are entirely at the mercy of today’s voters. Though some present-day voters may decide to sacrifice their own welfare in the political arena in order to protect future generations, this is still a sacrifice, and is only possible if the desire to consider future generations sufficiently outweighs their other desires.
Though they lack political power (thus making governments poor institutions for ensuring their welfare), they wield a great degree of economic power because of their future willingness to pay. More importantly, their welfare in the economic arena does not depend on the gracious sacrifice of people in the present. Quite the opposite is true. Their welfare is placed in the hands of people who can benefit themselves through actions that consider the interests of future generations — the speculators. Future generations will see to it that those who do the best job of conserving resources that future generations will actually need will be rewarded for their efforts, and will offer nothing to those who neglect their (future) interests or who fail in their efforts to determine what those interests will be.
Free market theorists have a ready answer to alarmists who believe that we are soon going to run out of oil or some other natural resource. Those who scream for conservation can easily make money on that prediction by buying the resource now, then selling it in the future when the resource is scarce and prices are higher.
A. An Important Exception
As an important exception to this claim, that those who fear the depletion of a natural resource can make money preserving some of it for the future, exists where governments control the market. If, for example, the government opens up a wilderness area to oil companies to harvest the oil underneath, that oil cannot be left in the ground for future generations. It goes on the market today, because that is the government’s requirement for harvesting it. If it goes to the market today, it drives down today’s prices, resulting in over consumption. More importantly, if the speculator feels that the government will enact a price freeze in the future, to prevent him from gaining those benefits, he has less of an incentive to preserve present resources for future generations. Both of these types of government activity — or even threats of these types of government activity, help to ensure that future generations will suffer shortages of vital materials.
B. A Demonstration
In my own mind, I tried to translate Dr. Hill’s points into one of Dr. Anderson’s demonstrations. In this hypothetical demonstration, Dr. Anderson pours his container of beans into the middle of the floor. The class is then given the following choice: “You have to vote on this and decide what to do as a class. The majority vote wins. The options are, either you can harvest some of the beans now and sell them to me for twenty-five cents each, or you can leave them on the floor for the next class to harvest, and they can sell them to me for fifty cents each.”
If this is all that is said, we can expect the class to usually vote to harvest the beans right away, just as before.
For the next demonstration, our hypothetical Dr. Anderson could change this description by offering a speculator. A speculator could purchase the right to harvest the bean at a future time from the present owners. Dr. Anderson is willing to pay 25 cents now and 50 cents in the future. The speculator could purchase the right to harvest the student’s bean in the future for, say, 40 cents, then sells the beans to the next class for 50 cents. He makes a 10 cent profit. The effect of this is to make the beans available to future classroom generations.
In the political arena, future generations have nothing that they can give us in the present for considering their interests. In the economic arena, future generations can reward us for considering their interests. All things considered, capitalist systems do a better job of holding scarce resources for future generations than democracies.
(a) Deficit Spending
Because future generations do not have a vote in today’s elections, current politicians have no reason to consider their interests. Since future generations do not vote, they cannot vote against higher taxes, or against those who raise the public debt that future generations must pay back. The politician with the best chance of getting elected is the one who buys presents for future generations using a credit card that future generations that do not vote must pay.
Here, we can see how those who sacrifice their vote for the sake of future generations truly do perform an act of self-sacrifice. Consider the fate of a politician who promises to take money from those who cannot vote against him (future generations) to give to those who can vote for him (present generations). The people who support this politician will become wealthier as a result, enjoying the fruits of things purchased on a credit card that future generations must pay. Those who support the politician who refuses to rob future generations to pay the present suffer the poverty that this route takes. With the additional wealth, the first group can grow their political influence, while having less resources diminishes the influence of those who are politically concerned with future generations.
Those willing to rob from future generations thereby gain wealth and political power, those who do not rob from future generations lose wealth and political power. As those willing to rob future generations gain political and economic power, we can only expect them to further increase the amount of plunder they are willing to take from future generations.
So the cycle goes.
(b) Government Resources
Another application of this principle concerns the debate over the disposition of government-controlled resources, such as oil reserves under government property. Where those resources are controlled by the government, there is an incentive to form a coalition of businessmen and politicians that will “invest” (in terms of political campaign contributions and other forms of assistance) in candidates who will then hand the government resources over to these people.
All it takes is a brief span in human history where this coalition has this power; a brief span in which resources are taken from future generation and handed over to people in the present, and those resources are forever lost. Again, the people in the present willing to take from future generations gain profit and power. Those unwilling to take from future generations become poorer and weaker.
Look at all of the money, time, and labor that gets ‘invested’ in keeping the government from handing these resources over to favored special interest groups. The expense is huge, continually draining the bank accounts and robbing those who support these efforts of time that could have been spent on other matters. The battle is continuous, which means the expense continues year after year. One misstep, and the resources are gone.
That day will eventually come. Like a boxer who intends only to block his opponents’ blows and never strike back, those defending government-owned resources for future generations will eventually get hit, again and again, and will eventually lose.
(c) Price Gouging
Let us assume that there is some catastrophic event that leads to a serious cutback in the supply of oil. Immediately, gas prices shoot up by a significant percentage. This is inevitably followed by a hue and cry that the energy companies are exploiting the situation in order to rob the consumer, using the crisis as an excuse for economic plunder.
Pundits will fill the airwaves claiming, “When the company bought the oil that they use to make today’s gasoline, they paid a lower rate. Now, they drive up the price, and they pocket the difference. This is profiteering, and there ought to be a law against it!”
Actually, the fact that prices increase immediately is one of the ways that markets work to protect people in the future from the foolish selfishness of people in the present. This is the market saying, “You know, we just got news that suggests we may not have as much of this stuff in the future as we thought we were going to. If we do not start saving now, then future generations are really going to suffer. We need people to start cutting back on their consumption right away, and investing in other alternatives. The worst thing we can do is wait until we use up our existing stockpiles before we start protecting what we have left and investing in alaternatives.”
Imagine a group of people living on the banks of the Nile River 10,000 years ago. Harvests have been good, and the village granary is well stocked. However, this year, a cloud of locusts go through the village destroying the harvest. All that is left is the food that was stored in the granary. That food has to last until the next harvest.
Immediately, those who control the granary start to ration food. However, a charismatic villager steps up to and starts to protest. “The food in the granary was collected during times of plenty, not during times of famine. It was harvested at a time when rationing was unnecessary. We should not start to ration our food until after we have used up that which was harvested during times of plenty.”
It is a foolish policy to adopt. It’s a policy that helps the people today by dooming the people tomorrow. However, this is the policy that is preached every time somebody stands up before the nation and complains about a company engaged in price gouging. They are saying nothing less than, “We should not start rationing this commodity until after we have used up resources acquired during times of plenty.”
(d) A Significant Adantage
These examples also identify a significant advantage that markets have over political processes. The political processes take time. The delay from the point at which an unexpected news event identifies a crisis until political steps are taken to respond to it could be significant. Markets, on the other hand, respond within seconds, particularly in the information age. The very instant a news event suggests a future shortage — a pipeline gets blown up, or civil unrest threatens an oil field — the market takes steps to prepare society for the potential shortage to come. It makes sure that people start conserving that resource immediately.
Yes, it is true that those who do the best job of conserving the right resources make themselves wealthier and more powerful. However, this must be contrasted to the political process where wealth and power go instead to those who are the most willling to bribe those who cast their votes today by sacrificing future generations that have not votes to cast.
D. Summary
How would I make the world better than it would have otherwise been? The answer seemed to be to promote market solutions over political solutions. This was one of the lessons my classes seemed to be teaching me. However, I was still skeptical. What about all of those intelligent people who disagreed with this conclusion? Could I really say that they were wrong just yet?
At the same time, I was drawing another lesson from these classes. I learned that value claims were being used to explain and predict events in the real world. They were being used to explain and predict the behavior of people just as the claims of chemists were being used to explain the behavior of atoms. If values could be used to explain and predict observable phenomenon, value terms had to be referring to something real.
Somewhere, out there, there had to be an “is” of value.
VI: Public Goods and the Limits of Free Markets
Markets have their limits. The most important limit lies in the area of public goods.
Public goods are goods that cannot be divided up and held by people individually. A paradigm example of a public good is national defense. The government cannot collect voluntary dues from its people, and plan its defense strategy around the idea, “We will defend this house because its owner’s contract is paid up, but not the house next to it because its owner is not one of our customers.” To a large extent, the government must protect all of the property, or none of it.
One of the most important problems with public goods is known as the problem of free-ridership. If a person can obtain a benefit without paying any dues, then there will be people who will not pay their dues. These people are seeking a ‘free ride’ from those who faithfully pay up. The economic consequences of free-ridership is that certain goods and services will be grossly underfunded, as many of the beneficiaries decide to keep their money.
To solve this problem, we make public goods available to everybody, but require that everybody pay (through taxes) a contribution to their upkeep.
The concept of public goods does not apply just to military defense. It applies to any good that cannot be broken into individual chunks and privatized. This includes the global climate, air quality, the oceans, and migratory birds and any resource in the oceans.
The list of public goods also includes some things not often thought of in this way, such as:
(1) A beautiful sunset, which enhances the day for a great many people who can enjoy it without buying a ticket.
(2) A well educated citizenry, because an educated citizen provides benefits to more people than just the educated citizen himself and his employer.
(3) Flood control, because it is hard to say “you paid for the dam so we will prevent you from being flooded, but your neighbor did not so the dam does not protect his land.”
(4) Emergency care, because, “Yes, it is true that we can sit back and do nothing while a person who has not paid his dues dies in a fire or some other catastrophe, but being human we cannot be expected to actually rescue only those who pay.”
These are all public goods, and as such they all identify goods that markets cannot manage efficiently. They would be under-funded in a pure free market economy.
Recognition of this fact does not mean that all of the problems that political systems have with considering the interests of future generations have vanished. We can still expect political systems to redistribute wealth from future generations that cannot vote to the present generation that controls the election. It is a poor system, but in the area of public goods it may be the best system we have.
A. An Example: Markets and Greenhouse Gasses
The climate is a public good. It would be nice if we could find a way where those who do harm through changing the climate only harmed themselves. Unfortunately, we cannot. The global climate will forever be a commons.
If Garrett Hardin is correct, we can expect a tragedy in these commons just as we can expect it in any other commons. In this case, such a tragedy of the commons can inflict suffering on the population of a whole planet.
We see, in the politics of global warming, not only another example of the tragedy of the commons, but the tendency of political institutions to sacrifice those who cannot vote (future generations) to bribe those who can vote (present generations). We see politicians — even economically conservative politicians who elsewhere hold up the Tragedy of the Commons as inviolable law — who are all too eager to deny the effects of global warming. In doing so rob future generations of well being in order to enrich — in terms of both money and power — their political allies; a textbook case of harming those who do not vote to profit those who do.
(a) Emissions Rights as Property
If we wanted to give future generations a voice in our present policy, the best way to do so would be to set up a system where entrepreneurs in the market can make a profit by saving future generations from the costs of global warming. We may not be able to turn the climate into private property. However, we can turn emissions allowances into private property, and give future generations a voice in the cost of those allowances.
It is the same system that economic conservatives tend to argue for with respect to other forms of pollution — create an emissions market and let the ‘invisible hand’ of capitalism set the price.
Such a system works by creating a certain allowance for greenhouse gas emissions. Those who wanted to emit greenhouse gasses would be able to do so if they owned enough emissions allowances.
Under such a system, companies would have an incentive to find ways to reduce their greenhouse gas emissions. Those who do so can save themselves the cost of purchasing emissions allowances, or can profit by selling the allowances they already purchased. Reductions in greenhouse gas emissions would not need to wait for government hearings and back-room political deals that will inevitably discount the welfare of those who cannot vote. Rather, the market would instantly and automatically establish rewards for those who reduced emissions. Those industries that cannot efficiently reduce their emissions have no power to lobby the market to change the price; their only option is to purchase the emissions made available by the savings created elsewhere else.
Such a system would also allow those who create carbon sinks, or who maintain carbon sinks that already exist, to ‘create’ emission allowances that they can then sell to others. This provides countries like Brazil and Indonesia with an economic incentive to keep their rainforests intact. In fact, it would provide an economic incentive for reforestation.
A company that builds a plant that removes as much carbon dioxide from the air as it emits would not need to purchase emission allowances. In fact, some businesses may spring up that sell sequestering services to other companies. “Pay us to sequester CO2 equal to your emissions; it will be less expensive than purchasing emission allowances.”
Of course, lower demand for emission allowances means that their price will drop as well. As some greenhouse gas sources cut back, other business prospects become economically viable.
Finally, a fair and just market must allow all people to represent their peaceful values through their pocketbook. Individuals and organizations who want less greenhouse gas must be permitted to purchase emissions allowances as well, then put those allowances in a desk drawer. This is no different than an environmental organization buying up wetlands or other natural habitat and holding it off the market.
(b) Covering the Costs
In creating and offering these allowances, justice requires that one of the aims be to cover the costs of global warming. Those costs include such things as building seawalls to protect coastal property or compensating the owners of that property for what is lost due to rising sea levels, providing relief from heat stress and security from disease that may spread into new regions as they get warmer, offering relief from increased flooding and catastrophic weather, and helping agriculture and tourist industries adapt to new climate conditions.
Recall that the very problem of ‘free riders’ is a problem of people being permitted to collect the benefits of an action while passing the costs onto others. It is like using a stolen credit card where one gets the goods and services and somebody else gets the bill. If a country wishes to be responsible for 25% of the greenhouse gas emissions but is unwilling to pay 25% of the cost, then that country is no better than a common thief — or, given the magnitude of their wrong, no better than a huge organized crime syndicate.
I want to stress this point. Capitalist theory itself holds that actions such as credit card theft are wrong. In presenting this concept, I am not holding capitalism up to some competing system and finding capitalism to be wanting in some way. Instead, I am holding capitalism up against any system that says that it is permissible for a person to harvest the benefits of some action and send the bill on to somebody else, and I am saying that capitalism is the better system.
However, those who deny the effects of global warming, and who refuse to curtail greenhouse emissions on the grounds that paying its full costs would be harmful to our economy are not capitalists. They are people willing to profit by policies that deny the rights to life, liberty, and property of those harmed by global warming.
I know, of course, that at this point in the chapter, asserting that such things as credit card theft is immoral has not yet been put on a solid foundation. I still have a lot of work to do to complete that argument.
However, the argument that capitalists who argue for preserving the ‘commons’ of a global climate, and who protect those who profit by denying the rights to life, liberty, and property of others, are hypocrites, are not claims that require such a foundation. Their own assertions contradict each other. They either have to take their responsibilities with respect to global warming seriously, or they have to admit that they find capitalism inferior to systems that have no respect for basic property rights.
B. Corporate Feudalism
In college, when I started to realize that there were people who claimed to defend capitalism, but in fact defended a system where those with capital had special government protected powers to harm others, I invented a name for this system. I called it “Corporate Feudalism”.
Corporate feudalism is a system that holds that the masters of industry and commerce have rights and privileges not unlike those of feudal lords during the middle ages, including the right use those individuals who are under them as they wish. They can poison our air and water, and their only fear is that they might suffer a reduction in the value of their stock if the government should impose a fine against them — as opposed to those who poison the air and water of others and get sent to prison or executed for murder.
This is not capitalism. This is something far different.
C. Summary
Again, I want to stress that this is not a full-blown proposal on how best to deal with problems such as climate change. Anybody who wishes to protest that I have left a lot of things out would be correct.
It is a continuation of the task of showing how values are used to explain, predict, and manipulate events in the world. It may be the case that everything that I said about global warming in specific is wrong. It is still the case that value concepts such as ‘public goods’ and “tragedy of the commons” can be used to explain, predict, and manipulate events in the real world. This suggests that value concepts point to something real.
VII. Cost, Price, and Indifference
A. Cost vs. Price
A list of the most important lessons that I learned as I studied economics has to include learning how to distinguish cost from price. There is a widespread tendency to think of these two as being identical. If you know the price of something, you know its cost. Economists tell us that this is not true.
For example, let us assume that my local grocery store is selling bread for $0.99 per loaf. What, then, is the cost of this loaf of bread?
In order to obtain it, I will have to leave my computer, walk three blocks to the store, get the bread, stand in line for a while, pay for it, and carry it back home. Walking to and from the store and standing in line both have costs. At the very least, the time I spent doing these things keeps me from doing other things. Economists call these types of costs opportunity costs. The opportunity cost of getting bread is equal to the most valuable alternative to getting the bread.
Assume that I was working at home on a job that paid me $100.00 per hour, and the trip to the store would take 30 minutes. The cost of the bread, then, must include the wages that I would not receive because I spent time going to the store that could have been spent working. Under these circumstances, the cost of the bread is at least $50,99; and I have not figured in the wear and tear on my shoes.
Any good business owner knows that, if he wants to get more customers, he should not focus on reducing the price of his goods, he should find ways to lower their cost. Drive-up windows, home delivery and pickup, express lanes, an outlet in every neighborhood, these are all mechanisms that stores use to lower cost other than by lowering price.
Wal-Mart made a decision to add groceries to the lists of goods and services it sells because the customer will no longer need to go to two separate stores to get their household supplies. They can get everything they want at one store. Thus, they have lowered their customers’ costs. By lowering cost, they increase demand for their product.
This increased demand is yet another observable, measurable, scientifically real phenomenon. Wal-Mart is using the concept of value to explain, predict, and manipulate events in the real world — namely, to get more customers. And they are successful in doing so.
B. Indifference Curve
Economists also speak of this interesting metric called the indifference curve. An indifference curve can simply be thought of as a demand curve with something of value to the agent on one axis, and a different thing of value to the agent on the other axis.
The indifference curve answers the question, “If the agent has to give up one unit of X, how much more Y will be required so that the agent is indifferent between the two options?” If we take away an ounce of the agent’s chocolate, how much pop corn will we need to feed him so that he does not really mind the fact that he has less chocolate? If we reduce a citizen’s freedom, how much more security will be required to make the agent indifferent to the loss of freedom?
This tells us that agents can and do measure one value against another and make exchanges between them. These indifference curves also describe something in the real world, something that can be measured and studied, something firmly rooted in the world of fact, even though it describers an important feature of value.
If any should want to argue that we cannot compare values, the answer is, “Sure we can. We do it all the time. Every decision we make is based on a comparison of values. To say that we can’t compare values is to say that we can’t make choices.”
VIII. A Belief in the Value of P, versus Actual Value
The last of this loose collection of concepts I learned in economics classes that I want to bring up is the distinction between the belief in the value of something, and its actual value. Those who say that believing something to be good is all that is required for it to actually be good have some explaining to do.
Let us assume that an elderly man is keeping his wife’s ashes in an urn on the nightstand in his bedroom. The grandchildren, while playing in the house, think these ashes are junk and throw them out (so that they can play with the urn). The children’s parents find out and manage to replace the ashes with the refuse from the fireplace without the grandfather finding out. Each night, the grandfather says goodnight to the urn with the ashes, unaware of the fact that his wife’s remains are in the city landfill.
What would happen if the grandfather discovered the truth — that he is saying goodnight to the remains of a log he had once purchased for the fireplace? Barring self-deception in which he simply refuses to accept the truth, he will see the contents of the urn as having no value. The day before, he thought that the contents of the urn were valuable to him, but it turns out that he was mistaken.
I repeat: He was mistaken.
People can believe that something has value — they can even believe that something have value to themselves and be mistaken.
Examples of this type counter the view that value depends on what a person believes the value of something to be. We cannot simply hear Agent X assert that Y has value, and conclude that Y really does have value for Agent X. The value he claims may not be there.
It would be a mistake to leap from this to the conclusion that there are intrinsic values. It would be a mistake to leap from this to the conclusion that the value of the contents of the urn to the grandfather is independent of the grandfather’s psychological states. Its value to the grandfather may be independent of his beliefs, but there are other psychological states available other than belief. We have a lot of options available for explaining how these types of mistakes are possible, for saying that value is independent of beliefs, without postulating intrinsic value just yet.
If we want to know the value of X to Agent, we cannot look merely at what Agent believes. We have to find the value that Agent would assign to X if Agent knew all of the relevant facts about X. The value of the contents of the urn to Grandpa is the value that Grandpa would assign to the contents of the urn if he knew all of the relevant facts about those contents.
A. The Possibility of False Values
Now, let’s assume that some person, other than our grandfather, decides to pursue a course of action because he believes that God wants him to. That is to say, he believes that the action has a property of “desired-by-God-ness”.
His belief would be the same as the grandfather’s belief that the contents of the urn contain “all-that-I-have-left-of-my-wife-but-my-memories-ness,” when, in fact, the urn contains the remnants of a log from the fire.
The actions of both person are alike in that they mistakenly believe that they are pursuing something meaningful. It may make the grandfather feel better to believe that the ashes are those of his wife, and it may make the person who believes that he is serving God feel better to believe this. However, what they think they are doing, and what they are doing in fact, remain two different things. All of the faith that one can muster cannot change the fact.
B. The Morality of False Values
If these actions affect nobody else, then we have little room to complain. Indeed, somebody who knows that the ashes in the urn were taken from the fireplace may simply say, “Let it be. It would upset him if we told him and there is nothing we can do about it now anyway.”
But, what if he is hurting somebody? Instead of a false belief about the ashes in the urn, he has a false belief that Dr. Smith’s Miracle Medicine will cure his wife’s diabetes — provided that she not eat or drink anything else. His wife is too week to communicate, to do anything except what the grandfather says. Would it then be permissible to sit silently while the grandfather feeds his wife a few drops of this medicine, and nothing more, day after day?
Or, let us say the he believes that to safe his grandchildren from a supernatural demonic force, he must ‘put them in a place where this devil cannot reach them’. He must send them to heaven where God will protect them. So, he kills each and every one of them.
We have crossed beyond the point where we can sit back and say, ‘Let it be, he is not hurting anybody.”
The person who obeys the commands of a non-existing God, when he hears that God commanding that he take actions harmful to others — such as deny the benefits of the institution of marriage to homosexuals, or degrade them to the point that we see a substantial portion of them commit suicide — has gone beyond the point where the responsible person can say, ‘Let it be, he is not hurting anybody.’ The same can be said of the person who hears a fictitious God tell him that he must prevent scientists from the medical breakthroughs that stem cells may make available, or who demands that schools promote ignorance of the fundamental facts of biology and life.
These people are not like the grandfather who says good night to an urn containing the ashes of a log from the fire. They are more like the grandparent who drowns his children to put them in a safe place where some imaginary demonic force cannot reach them.
IX. The Value of Ought
Earlier in the chapter, I stated that economic analysis applies equally well to all activities regardless of their moral merit. Economic analysis is no less possible for narcotics and hit men as it is for bread and butter. Pirated music and political corruption are as bound by the laws of supply and demand as concert tickets and laptop computers.
Above, I wrote about different economic systems and their effectiveness at preserving resources for future generations. However, I did not even try to find a basis for the claim that we should preserve resources for future generations.
We can take this issue a step further back. I began this book by mentioning my interest in making sure that I leave the world better than it would have otherwise been. However, what is the value of leaving the world better than it would have otherwise been? Is this just some arbitrary goal I picked up, having no more or less merit than leaving the world a lifeless ball floating through space?
There are aspects of economic analysis that show promise, but they fall short of the goal of telling me how to make the world better than it would have otherwise been. I still had some searching to do.
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