Monday, April 12, 2010

Environmentalists: Economists are on your Side

There is a tendency among some environmental writers to dismiss “classical”, “traditional”, “neoliberal”, or “mainstream” economics as somehow inimical to environmental interests.

The problem is that more often than not these writers get the facts wrong.

It’s almost as if the knee-jerk aversion to economics that exists among many environmentalists prevents them from acknowledging the truth: that mainstream economics is very much on their side. While criticizing economics may help them polish their leftist credentials and demonstrate the contrarian-independent thinking that grabs headlines, it ultimately leads to sloppy thinking.

Case in point are recent pieces by David Roberts of Grist and Bill McKibben in The New Republic (for the record: I respect both authors and they do good work).

McKibben describes how the Waxman-Markey climate change bill is full of loopholes for special interests (which it is), and uses this as evidence against the basic economic rationale for a cap and trade bill. He then praises the new CLEAR bill sponsored by Senators Maria Cantwell and Susan Collins for its fairness, lack of loopholes, and simplicity. He suggests that it represents a significant departure from traditional economics—the subtitle of his piece is “Forget Cap and Trade”—when in fact the bill is nothing but a cap and trade bill with full auctions and consumer rebates.

The CLEAR bill represents a policy that mainstream environmental economists—from Robert Stavins (Harvard) to Michael Hanemann (UC-Berkeley)—have advocated in one form or another for well over a decade; it is what I have taught and advocated in graduate school every semester for the past seven years.

CLEAR is superior to the Waxman-Markey bill not because it deviates from the prescriptions of classical environmental economics, but because it adheres to them so closely.

Now for the relatively recent David Roberts piece, “Economics as Pathology”, in Grist (one of dozens of pieces over the years where Roberts lambasts mainstream economics). Roberts slams “neoliberal” economics for its insistence on rationality as the guiding principle for human activity; since people don’t act rationally all of the time, Roberts believes this insistence has hampered the search for solutions to climate change.

Roberts, for all of his excellent contributions to the climate change debate, insists on a myopic and caricaturized version of economics that simply doesn’t exist. Even the leaders of the behavioral economics revolution that he admires so much are all mainstream economists in the world’s leading institutions—e.g. Sendil Mullinathan of MIT, Richard Thaler at the University of Chicago, and Matthew Rabin at UC-Berkeley.

In fact, the leading proponents of decisive action on climate change are as mainstream as they come: William Norhaus (Yale), Paul Krugman (Princeton), Martin Weitzman (Harvard), and even Gregory Mankiw (Harvard, former Chair of the Council of Economic Advisors under President Bush). All are extremely prestigious, and all adhere to a largely classical (i.e. neoliberal) economic view. Put them together in a room, and I’m sure they would ultimately agree that we need a range of policies to complement carbon pricing; they recognize that changing both consumer and producer behavior on such a massive scale will require more than just price signals. They might not agree completely on all of the prescriptions but neither do environmentalists.

Economists of all stripes have argued for decades for the proper pricing of pollution, for severely reducing or eliminating natural resources subsidies for agriculture, forestry, energy, water, and fisheries, and for making property rights simpler and more transparent.

So here’s the bottom line: when they discuss policy solutions to environmental problems, Roberts and McKibben (and virtually every other environmentalist) are three out of four times describing concepts that can be traced to mainstream environmental economists, sometimes from work done decades ago.

Of course economists don’t agree on everything, and there is always some economist hack at one of the rightwing “think tanks” who will put forth an outlandish idea—but by and large the most well-respected mainstream economists are squarely on the side of environmentalists.

It would be nice if more environmentalists would simply acknowledge this, and we could all work together to help the public understand the strong synergy between economic and environmental interests. The idea that classical economics is somehow opposed to environmental legislation, or not sophisticated enough to grasp the realities of human behavior, is false. Worse, it creates a false dichotomy that only helps fuel the skeptics and confuse an already chronically misinformed citizenry.

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