Archive for the ‘coase’ Category

More stupid from Tierney; this time on "Kuznets curve" and the dynamics of "wealthier and greener"

May 11th, 2009 No comments

In addressing in a recent post Rob Bradley`s claim to have a “high” level of readers, I was reminded that one of his best and most frequent commenters was a budding conservative, war-supporting “libertarian” who actually, in the past month that I`ve been banned from the blog, has just graduated from high school.  A  “high” level of readership, indeed!

But as this young reader seemed interested in hearing more about libertarian views, I visited his blog (courtesy of Bradley, no longer being able to continue a conversation on MasterResource) and found that he was being led astray by New York Times` in-house “skeptic” science reporter, John Tierney, who had just devoted a long article – “Use Energy, Get Rich and Save the Planet” – to conclusively demonstrate that he had NO CLUE about the dynamics underlying the environmental Kuznets curve (EKC).  

Tierney seems to believe that the Kuznets curve means that greater wealth magically makes for a cleaner environment.  To the contrary, it is the hard work of people, expressing their desires to protect their own property and to realize other preferences regarding shared resources, to increase wealth by finding means (property rights institutions, litigation and government regulation) to end tragedy of the commons-type situtations, who improve their environment.  That is, working to close externalities leads to both wealthier and greener societies.  

(I`ve remarked on the Kuznets curve before; interestingly, conservatives seem to misunderstand it more than liberals.)

So I tried to offer a more libertarian understanding, which I`ve taken the liberty of memorializing here (with typo correction and emphasis and further links added):

  • Andrew, food for thought on enviro Kuznets:

    Unfortunately, Tierney simply fails to understand that the enviro Kuznets curve does not tell us that problems relating to environmental cost-shifting or to the over-exploitation of unowned commons are best resolved by ignoring them and simply hoping for the best. Rather, it affirms that as people become more wealthy, they care more about protecting the environment and put more elbow grease into achieving improvements – via improved property rights protection, improved information disclosure, greater consumer pressure and even through greater regulation (which is the path the West has largely followed), and reaching agreements with others sharing the relevant resource).

    In other words, the work relating to global, regional and various national commons (atmosphere, seas, forests, water, etc.) is still ahead of us. Libertarians can advocate for property rights (and privatization of public lands) as ways to have a more efficient (and just) path on the curve, or they provide implicit support for powerful and dirty industries by standing by and waiting until citizen pressure groups force government to act in heavy-handed ways.


  • timetochooseagain

    Tom, I disagree. The way that richer leads to cleaner is through improved technology, not with the government creating artificial markets and new definitions of property. How exactly is it you think that you can extend property rights to the atmosphere? And what would that do? Spawn lawsuits? Why would you want to do that? You would just jack up energy prices. I am trying to understand your suggestions, but they just don’t make sense to me.

  • Andrew. I suggest that you start with this short article by Yandle:

    I have plenty more links on my blog to him, Terry Anderson, Mises, Cordato, Block, Rothbard and others on Austrian approaches to environmental issues, fisheries, and climate. Ron Bailey (at Reason) has good posts on fisheries; leading enviro groups all agree that more privatization is desirable:

    Commons remain commons either because government ownership prevents privatization (as in the Amazon, US public lands and most fisheries management) or because full privatization is difficult. There are many examples of the latter case that involve semi-privatization and commons management, like traditional forestries, fisheries and water rights. Elinor Ostrom is the expert on commons; I have plenty of links to her too.

    By the way, you really should read Rothbard and Block on the history of air pollution and the undermining of the common law by industrial interests. The result has been and remains, on net, a subsidy to large polluters, particularly utilities, who have a license to pollute and immunity from most suits from injured persons. If coal was paying its true costs it would have been much cleaner years ago. The American Lung Assn said in 2004 that power plant pollution causes 24,000 premature deaths each year (at least 50% more than annual homicides), as well as over 550,000 asthma attacks and 38,000 heart attacks annually.

  • timetochooseagain

    “If coal was paying its true costs it would have been much cleaner years ago.”

    And how would it do that without technological development exactly? There are natural incentives in the market to reduce pollution-one can’t sell electricity to dead people, after all. But if the technology to clean up energy does not exist, how are they helped to find it by being sued by people who use their energy and then complain about the pollution? There is not just the property rights of those with a stake in the commons to consider, but the rights of the energy producer, too. What your suggesting, the way I see it, would be defacto regulation of the right of producers to do what they do best-produce. In the Laissez Faire approach, everyone gets richer, they invest in energy research (of their own free will) to develop cleaner energy. Then pollution goes down. What is wrong with that? It seems anything else added on to that is ad hoc…

  • Easy, Andrew. People and firms invest all the time in doing things in response to incentives, both positive and negative; viz. they also try to reduce costs, including the costs their activities impose on others if those they injured have rights of recourse. The effort to reduce costs is one of the chief factors driving technological advances.

    Surely you`re not suggesting that the best way to encourage wealthier societies is to free people from responsibility for the damages they cause others? That`s hardly a Lockean or libertarian view. A “Laissez Faire approach” leaves government out, in favor of voluntary transactions and enforecment of property rights, including rights not to be injured. The regulatory state has in fact been a boon to the most powerful producers, by giving them rights to pollute, often grandfafthering dirty plants, while forcing the highest costs on more nimble and cleaner producers. If you^re interested in learning about libertarian approaches to the environment, again, I suggest you look at Rothbard, Cordato, Block and others, whom I link to on my blog.

    You seem to make reference to the enviro Kuznets curve, and how wealthier societies bring pollution dow, while completely missing the dynamics. Wealthier societies clean up because they insist on bringing an end to tragedy of the commons-type exploitation of resources. A society that focusses on property rights typically has a lower curve than societies that fail to enforce property rights (needed for Coasean bargaining) in favor of government regulatory approaches. Our own curve remains too high, because wealtheir investors prefer to use regulation to shift costs to the rest of society.

  • timetochooseagain

    Alright, Tom, I will look into the things you are talking about more thoroughly. You seem to know a lot about this topic.

Can Pigovian taxes be Coasean bargains? – The case of climate negotiations

July 14th, 2008 1 comment

David Zetland’s libertarian-environmental blog, Aguanomics, has recently been carrying on some excellent discussions on resource and environmental economics, with interlocutors like Bob Murphy, Gene Callahan and others.  In the context of two recent posts on government approaches to climate change, I commented on one thread (An Ounce of Prevention…) that

As for the setting the level of carbon taxes, you and Gene keep assuming that there is a global government that sets taxes in a vacuum. Instead, we have a multi-player game, where any politically sustainably prices are set at levels that the chief emitters are willing to agree to.

This is analogous to ranchers, lobstermen or shrimpers deciding to close a range or fishery. No single one of them is setting a price.

On an earlier thread (Pigouvian Libertarians), I noted to the effect that:

Bob, the standard objections to Pigovian taxes don`t apply to climate change, as there is no single government administering the world. Rather, we are engaged in multi-player negotiations as to how to regulate a commons.  The taxes (or other schemes) that individual governments may impose will ultimately be coordinated, and much more resemble a Coasean trade among nations with respect to a shared resource.

David has kindly made this point the subject of a new post:  How to Set a Carbon Tax.

Allow me to elaborate my point.  A C Pigou, is often trotted out by supporters of government economic regulation, for the proposition that governments should regulate or impose taxes in order to force economic actors to internalize the “external costs” of their actions (costs that are imposed on others outside of that transaction without their consent).  This use of Pigou is a bit unfair, as Pigou himself noted that taxing authorities would always lack the information needed to determine the correct tax, but nevertheless the perception that externalities are ubiquitous has helped to justify a wide range of governmental regulatory interventions.

Other objections to Pigou can of course be raised, as Ronald Coase prominently did when he argued that, when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial distribution of property rights.  Pigou and those using him did not consider the real world dynamics of self-help among economic actors, and many ignored Pigou’s acknowledgment that governments are seldom positioned to calculate external costs.  Coase noted that because transaction costs are NOT zero, many bargains would not be reachable, so that the initial distribution of property rights would affect ultimate outcomes in resource allocation.  Coase properly turned the focus of the debate over “externalities” towards a focus on the use of bargaining between parties to accommodate differences in personal objectives, and to fruitful discussions of how property rights and bargains are defined and enforced and whether information and transaction costs can be lowered.  Austrians have further criticisms of Pigou and Coase, but those can be set aside for the moment.

In ongoing discussions over at Aguanomics, Bob Murphy and others have trotted out that standard Coasean attacks on the proposals by economists (such as Robert Nordhaus and other members of Gregory Mankiw’s “Pigovian Club”) for carbon taxes, i.e., that government can’t know at what level to set carbon taxes, that such carbon taxes will prevent private transactions among parties that might fully address climate concerns at less costs, etc.

In the context of this discussion, I ask that people step back from the theoretical and observe the pragmatic – that we are in the midst of a multi-decade multinational negotiation of a GLOBAL resource that no one nation controls, in which there are no private property rights or common legal systems and in which transaction costs for private transactions are enormous and swamp individual economic benefits that may be achieved by them, and that in this context, our governments are essentially our negotiating proxies who can more efficiently negotiate for us and come to terms with others than can any private entities or groups.  Given these circumstances, even though our governments are all subject to domestic rent-seeking pressures, because no effective approach to climate change can be reached without the voluntary agreement of all major emitters, is it not the case that the discussions that our governments conduct – including the possibility of coordinated Pigovian taxes at the national level for implementation purposes – ARE efforts at Coasean bargaining?

Any thoughts?