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Political Economy and the Environment

On the one hand, we have conservative politicians who seem to feel that no environmental problem is worth burdening the economy with any monetary cost. And on the other hand, we have liberal politicians who seem to believe that greater spending for environmental protection will necessarily generate greater economic growth. Both of these arguments are specious and make one wonder why they are the only arguments on offer. Why is the public conversation about economic costs and benefits of environmental protection so off-base?

We can probably all agree that, while free markets are great for economic opportunity, it is better if we don’t allow people to sell hand grenades or heroin, even though we know that this restriction will reduce economic activity in those industries. We restrict trade in things that we think might impose unacceptable social costs. In order to protect our air and water, we impose significant regulatory costs on industries that impact air and water. This limits those industries’ share of the economic pie, but the broad consensus seems to be that protecting environmental health is worth this cost. I would wager that, since the Elk River incident last winter, many West Virginians wish that their government did a better job of protecting their drinking water.

There are obvious benefits to ensuring clean air and water and a healthy environment. But we should not confuse costs with benefits. People’s well-being is improved when environmental harm is mitigated. But when there is already harm done, and we want to fix that, it is implied that someone is going to have to bear a money cost that they did not bear, previously. That will limit their current economic activity. The more inexpensively we can resolve environmental harm, the less cost the economy will bear. Jobs, be they green, blue or red, are costs.

Whether we are talking about global environmental problems such as atmospheric carbon or regional problems such as loss of water quality and diminished fisheries in the Chesapeake Bay, resolving those problems will generally entail trade-offs in the economic status quo. Most people do not wish to pay more for fuel and electricity, but that is likely to be necessary to resolve the atmospheric carbon problem. Farmers and funders of stormwater systems do not want to face higher costs in pollution abatement, although they are important sources for the Bay’s water quality problems. Watermen do not want to be forced to reduce their effort even though that may be required to get the Bay’s fisheries back in shape.

So, on the one hand we have a group of political leaders who say none of it is worth spending money on, and on the other side leaders who say that the more we spend on it, the richer we will all be. Nobody boils it down to the simple point that the way we live is generating significant environmental problems and we are going to have to make some adjustments in order to fix them. It is as if both sides have determined that the American voting public is simply too selfish to ever accept anything looking even vaguely like sacrifice, so let’s not talk about that.

There are important questions to address regarding how to achieve environmental protection at least cost and how we should pay for it. But as long as all people hear is, “we won’t let your money be spent that way”, or “the more of your money we spend, the richer we will all be”, we will never get around to those important questions. This is not good. We need a conversation that starts with, we have a problem here. How are we going to fix it and how do we pay for it?

In 1994, William Nordhaus, a Nobel Prize-winning economist at Yale, wrote a discussion paper that evaluated a couple of different ways of tracking price changes over time. To make his point, he created a time series for the labor cost of a lumen of light (i.e., lighting services) from Babylonian times to the present. Nordhaus estimates that in Babylonian times it took over 36 hours of work to pay for one kilolumen hour of artificial light. In 1800 it took about 5 hours of work to pay for one kilolumen hour of light. In 1992, at average wage rates, it took 0.00012 hours of work to pay for one kilolumen hour of lighting service. It is difficult to comprehend how anyone can sit at this end of that story and say that they won’t accept any increase in energy costs, even if that is what it takes to solve a significant environmental problem.

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