Econ-Atrocity Bulletins

By Gerald Friedman, CPE Staff Economist

At the time of the first Earth Day, April 22, 1970, the Environmental Movement straddled two approaches to addressing environmental problems, approaches rooted in two alternative theories. Senator Gaylord Nelson of Wisconsin proposed the first Earth Day to “force this issue onto the political agenda,” to promote changed government policy to protect the environment. But many of the 20 million Americans who took part in this first Earth Day were deeply suspicious of organized politics or state action. “Personal salvationists,” they blamed environmental troubles on our weaknesses as individuals. Instead of failed social policy, the enemy was ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.

Twenty seven years later, the Environmental Movement confronts the same division between personal salvation and political action, a division nicely illustrated by a new book, Bill McKibben’s Deep Economy. A prominent environmentalist, McKibben has written a clear attack on much of what ails us; but he misses the underlying cause of these ills and, therefore, his prescription for remedial action is necessarily off. In many ways, a pleasure to read, the book also left me so frustrated that I threatened to throw it against the wall.
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Two weeks ago, after complaining to my daughter about how much I would dislike it, I bought Bill McKibben’s Deep Economy (New York, Henry Holt: 2007) from my local Amherst book store. Already familiar with his ideas from his various other writings (including The End of Nature; Staying Human in an Engineered Age; and various New Yorker articles), I suspected that his new book would be well written, an effective attack on much that ails us as a society, and would miss the point. It is this last that led me to threaten to throw the book against the wall in frustration. And that frustration led me to write this note. (Actually, it was my wife who wanted me to write this so that I would stop ranting to her.)

What could be wrong with a book that criticizes the Bush Administration, big oil, Cargill, Monsanto, and the Economics profession (among many many other villains)? Especially when the author has such good heroes: including farmers’ markets, urban gardens, organic farmers, Heifer International, and the Indian state of Kerala. Among economists, environmentalists like Herman Daly and Bob Costanza get most of the Kudos but a few, like Amartya Sen, make friendly cameo appearances. Individualism is bad; society is productive; and I agree that would all be better off, and the world a lot better off, if we listened to Bill McKibben.

The problem I have is that McKibben not only reads orthodox economists but believes them. Read more »

Scientific American is reporting on a an article in the journal Neuron that describes brain scanning experiments intended to see if poorer people react differently than richer people to opportunities to gain a little extra money.

The microeconomic law of diminishing marginal utility states that while accumulating a good—pretzels, pencils, nickels, whatever—each successive unit of that good will be less satisfying to acquire than the one before it. Finding a shiny quarter on the street is a real thrill. But, if you are carrying around a bag of coins, acquiring another one does not seem nearly as exciting. In fact, would you even bother to pick it up?

That hesitation is what researchers at the University of Cambridge in England were banking on when they designed a study to see if the haves catch on more slowly than the have-nots when it comes to reward-based learning. Reporting in the current issue of Neuron, the scientists reveal that when a small sum of money is on the line, poorer people learn quickly how to maximize their profits, leaving their wealthier counterparts in the dust.
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By Hasan Tekguc

What are honeybees, the favorite economic textbook example of a positive externality, doing nowadays? The short answer is: they are vanishing in droves, in billions.

Let’s take a step back and see what economics textbooks tell us. In many economics textbooks and introductory classes honeybees are referred to as the perfect example of a positive externality. A positive externality is the benefit from economic activity that falls on a party ‘external’ to the activity. Economics textbooks and professors explain that when honeybees visit flower after flower to collect nectar, they help flowers to pollinate. However, honeybee keepers are not paid by orchard owners for honeybees’ services and hence the pollination service is underprovided. The market-based solution offered in textbooks is to expand the market to include the positive externalities; in plain language if the orchard owners start to pay the beekeepers for bees’ services, the beekeepers will keep more honeybees, more flowers will be pollinated, and the trees will bear more fruit.
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What will happen? Maybe not much. What could happen? Something big.

Top Court: EPA Can Control Emissions

By MARK SHERMAN Associated Press Writer
© 2007 The Associated Press

WASHINGTON — The Supreme Court ordered the federal government on Monday to take a fresh look at regulating carbon dioxide emissions from cars, a rebuke to Bush administration policy on global warming.

In a 5-4 decision, the court said the Clean Air Act gives the Environmental Protection Agency the authority to regulate emissions of carbon dioxide and other greenhouse gases from cars.

Greenhouse gases are air pollutants under the landmark environmental law, Justice John Paul Stevens said in his majority opinion.

[cont’d]

And in quick response, words to the wise from the auto industry:

Automakers urge economy-wide approach to global warming
POSTED: 12:56 p.m. EDT, April 2, 2007

WASHINGTON (AP) — Automakers called for an economy-wide approach to global warming in reaction to a Supreme Court decision Monday that could give the government the authority to regulate the emissions of carbon dioxide and greenhouse gases from cars.

The Alliance of Automobile Manufacturers, an industry trade group representing General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Toyota Motor Corp. and five others, said in a statement that “there needs to be a national, federal, economy-wide approach to addressing greenhouse gases.”

Of course, don’t expect things to work out all rosy…. The auto industry plans to be the first among equals at the negotiating table:

Dave McCurdy, the alliance’s president and chief executive, said automakers would work with lawmakers and federal agencies to help develop a national approach.

[cont’d]

But even still, the idea is right. Cap and trade? A carbon tax? Good old fashioned rationing? Banning the worst offenders (as in, no new fossil fuel powered electricity plants, followed by a phase-out of existing plants; mandatory efficient building materials and techniques; minimal acceptable auto fuel efficiency; etc)? There are lots of options for economy wide approaches to dealing with carbon pollution, and no time like the present to start trying them out.

Having said that, what the Supreme Court has ruled looks to be restricted to auto emissions (thus the auto industry’s insistence on economy-wide action, so they aren’t made the only ones to deal with the greenhouse gas problem). This is based on

§202(a)(1) of the Clean Air Act, which requires that the EPA“shall by regulation prescribe . . . standards applicable to the emission of any air pollutant from any class . . . of new motor vehicles . . . which in [the EPA Administrator’s] judgment cause[s], or contrib-ute[s] to, air pollution . . . reasonably . . . anticipated to endangerpublic health or welfare,” 42 U. S. C. §7521(a)(1).

Become an expert: read the Court’s actual decision in “Massachusetts et al v. Environmental Protection Agency et al.” [pdf]

P.S.–Don’t confuse this decision with the other environmental decision also released today, “Environmental Defense v. Duke Energy Corp.” That one rules that the EPA should be more rigorous in enforcing the Clean Air Act when power companies alter existing plants to ensure that no more pollution is released than before the alteration.