There is an ongoing debate about the appropriate role of government for solving environmental problems, with many environmentalists calling for increased government intervention and many people more predisposed to individual responsibility calling for less.

Without getting into a long discussion on political and economic philosophy (for now), here are a few observations on this important topic:

  1. Proponents of classic liberalism — property rights, free markets, the rule of law, individual freedom — assume that as information improves, private markets will lead to the increased preservation of environmental resources, and that externalities (e.g., pollution) will be internalized (e.g., taken into account by private actors) given a system of strong property rights. While much improvement in the environmental arena has occurred for this very reason, and much of this is due to property rights and better scientific knowledge, many famous economists vastly under-estimated the level of coordination required to tackle some of the world’s most serious environmental problems. Issues such as global warming and the loss of biodiversity require much more government intervention then had previously been assumed. This is not to say that this government intervention won’t rely heavily on the workings of the market system, but only that top-down regulation is absolutely necessary. There is simply no way to adequately address these issues without a strong commitment from the federal government, which will eventually include a high level of international cooperation. Policies such as absolute limits on CO2, government funding of alternative-energy systems, and coordinated efforts to purchase and protect biodiversity hotspots around the world will need to be a major component of future government policy.
  2. Facing increased probabilities of natural disasters (many presumably due to global warming), the government should move us towards a more rational method of risk management in areas prone to natural disasters. It is highly inefficient, as well as an abrogation of government responsibility, to create incentives for people to live in areas that are both dangerous and prone to catastrophe by providing them with reconstruction aid every time disaster strikes. The government has two options; either require that all people living in hurricane zones, flood plains, or near fault lines purchase private insurance, or make it absolutely clear that people will not be compensated for their loss of property by the government if disaster strikes. Such a policy would no doubt lead to dramatic shifts in the population densities in many disaster-prone areas of the country, and perhaps some one-time assistance for relocation would be required. The net effect would be to dramatically reduce future losses of life and property and save the government hundreds of billions in future costs. It would also force private actors (notably insurance companies) to fully take into account the effects of environmental externalities that until now have largely been ignored.
  3. Regarding personal health and risk, the government must play a much more active role than typically advocated by some of the strongest proponents of free markets. Milton Friedman famously noted that there is no use for the Food and Drug Administration since companies whose products lead to illness will be forced out of the market (i.e., products that make people sick will not be bought). What he failed to realize is that if someone gets sick, it is extremely difficult to trace the source of the illness, and without government regulation many companies that poison consumers could in fact operate profitably for long periods of time. But Friedman did have a point in that as people look more and more toward government to regulate the economy, they sometimes do decrease the effort they invest in making wise choices for themselves (e.g., does anyone really need the government to tell them that “fast food” is bad for you?). This being said, it is clear that in this highly complex and inter-connected system, where we all are exposed to thousands of chemicals a year, many of which interact in ways that aren’t yet fully understood, where it is hard to trace the origin of products, and where the effects of these products often don’t manifest for years, the government must play an active role in regulation. The information problems are too complex for individuals to cope with (and, unfortunately, governments, at this point). The Food and Drug Administration, the Environmental Protection Agency, and the U.S. Department of Agriculture should all be well-funded, be decoupled from conflicts of interest with industry, and their mandate to protect the public welfare through rational risk assessment should be strengthened.

P.S. A future piece will add some caveats to the above and provide more examples.