In The Papers: Environmentalist Calculation

Art Carden, in a recent paper submitted to the QJAE, describes economic calculation in the environmentalist commonwealth (in a paper whose title, oddly enough, is Economic Calculation in the Environmentalist Commonwealth).  This title, as Austrians will already know, is a take-off of Ludwig von Mises’s Economic Calculation in the Socialist Commonwealth, and the theme is similar.  Abstract:

Do environmental initiatives like carbon accounting provide a viable alternative to monetary calculation based on profit and loss? Economic insights about calculation and imputation suggest that they do not provide a reliable, rational guide to action. Non-monetary calculation of the environmental effects of action runs into the same problems of in natura calculation and commonly-owned means of production. The information needed for rational economizing does not exist when we forsake the price mechanism. A legal regime based on strict private property rights solves environmental problems. Relaxed restrictions on property rights can generate environmental benefits and reduce our contribution to environmental degradation. Examples include the elimination of restrictions on housing markets and privatization of municipal recycling and garbage collection.

Carden starts out by quoting Roy Cordato, who states that environmental issues “are not about the environment per se but about the resolution of human conflict.”  Cordato and Carden both believe that environmental problems exist because of ill-defined property rights.  “Private property,” states Carden, “is necessary to generate the information about whether a production process or social system is ‘sustainable’ or not.”

In the economic world, individuals face a staggering amount of information regarding goods.  Fortunately, money acts as a signal, or as Carden puts it, “Monetary calculation reduces the cognitive overload associated with reality and allows us to order and interpret the world around us.”  This simplification cannot exist in a socialist commonwealth, as Mises pointed out, and Carden argues that it applies to environmentalism as well:  “Even if we can get the prices right, the central authority cannot know the optimal amount of pollution.”  We can’t simply maximize some social welfare function and expect solid results.

Carden also has an interesting rejoinder to those who argue that we should act in certain ways in the interest of future generations.  Carden states that “how we know whether future generations prefer a forest to a parking lot will be capitalized into the prices of the land and other resources.  At every point in time, the price of an asset reflects market participants’ best estimates of the discounted present value of the income that will be generated by that asset.”  In other words, if future generations want that forest to remain so badly, somebody will realize that and buy it up in order to obtain future rents from those future generations.  And even things like “climate change” (because you don’t want to have something accidentally become falsifiable, like “global warming”) are no big problem with established property rights.  If people expect that oceans will rise, then they should be willing to sell all of their coastal land on the cheap because it will lose much of its value when the Wrath of Gore sweeps through, and those people who don’t believe that this will happen can make a bet by taking them up on their purchase offers.

Another interesting point that Carden makes is that, like the impossibility of describing the entire production process of consumer goods, “a complete accounting for the carbon impact of any given activity is impossible.”  Because of this, carbon taxes will be more like a shotgun blast than a sniper rifle’s bullet.

In the end, the part that leaves me unsatisfied about Carden’s argument is that we talk about “property rights being fully established” and if that happens, we’ll be in great shape.  The problem that I see is in the difficulty or impossibility of delineating these property rights for things like air and water.  Given that those two things are the most common points of contention for people who want to use government regulation to reduce pollution and, not coincidentally, the area in which pollution most often rears its head, I don’t think it’s enough simply to speak of fully establishing property rights in the abstract, but rather to have a concrete idea of how this could actually be done.  That’s outside the scope of Carden’s paper, but I am currently unaware of any individual who has taken a serious stab at the problem.  I could very likely be won over to it if I had a full logical argument of how it could be done (even in a government-as-your-best-friend situation where they would actually do what is in the best interest of individuals).  Without that, this argument is fun but ultimately unfulfilling.