The guys at Environmental Economics replied to my post on economics and climate here and here. Read if you like. I would protest that "the extreme position by some environmentalists that economics is evil" has nothing to do with me or what I wrote, and that if there is some war between Environmentalism As Such and Economics As Such I want nothing to do with it, but … feh.
I just want to make one final point, somewhat abstracted from the details of this oh-so-illuminating back and forth. In the course of decrying the pointlessness of a battle between greens and economists, Ryan Avent defends me from Tim Haab’s charge that I’m an idiot:
Roberts is very smart on these issues and has a very sophisticated, and for the most part correct (in my view), outlook on carbon pricing.
First, thanks!
Now, not to look a gift horse in the mouth, but note the evidence offered that I’m not an economic philistine: I respect carbon pricing. I don’t want to make too much of a passing comment, but this strikes me as endemic to these debates: the notion that when it comes to environment and energy issues, "economics" means "market-based policy" means "pricing."
This seems like a weirdly constrained use of economics to me — reflective of the narrow range of economics visible in America’s public conversation — and it’s made for a weirdly constrained debate. Economists themselves aren’t necessarily guilty — see here — but it’s true of many people arriving newly to climate/energy policy debates. They discover that Economic Science says one thing and fuzzy headed advocates say something else, so of course they want to be Sensible and side with Economic Science (don’t want to get patouli on you!). Thus you get a weird kind of zealotry around pricing from people who know very little about the specifics of environmental history or regulation or technology, whereby they wildly overstate the potential of pricing and proclaim confidently that Economic Science has discredited the alternatives. (*cough*carbon tax advocates*cough)
Seems to me, though, economic thinking could go both more micro and more macro than carbon pricing.
In micro terms, pricing is a crucial piece of good climate policy; it serves as a backstop to the other pieces. But bottom-up studies of energy/climate challenges and past experience show that it’s only a piece. There are numerous challenges that will scarcely be touched by pricing: perverse utility regulations; the paucity of green infrastructure (grid, transit, etc.); misaligned incentives and poorly structured markets for efficiency; land use regulations; forestry and ag issues; adaptation in the developing world; etc. And of course, as Gar has argued, command and control regulations have worked well many times in the past, with benefits that conventional economics underestimates again and again (with no apparent diminution of confidence).
So it seems to me Kevin Drum (in the course of an excellent introductory article on cap-and-trade) has the right idea:
[Cap-and-trade] might be the backbone of any effective long-term carbon reduction policy, but it’s not the only tool we need. Or even necessarily the best. If you want to improve vehicle mileage, for example, raising federal fuel-efficiency standards is "much cheaper for consumers than raising the price of gas," she says. Michael O’Hare, a public-policy professor at UC-Berkeley, emphasizes the need for the government to take a more active role than just setting carbon prices. Sure, higher energy prices might motivate people to change their behavior. "But," he points out, "even if I want to take the tram, I can’t do it if there’s no tram."
In other words, command and control will remain absolutely necessary. As will taxes. Even with a well-designed cap-and-trade plan in place, we’ll need tougher efficiency standards, higher fuel taxes, more sensible land-use policies, green research programs, and plenty more.
Anyway, when getting in the policy weeds on this stuff it helps to understand technology, innovation, politics, existing market barriers, existing regulations, and the history of environmental policy. Econ textbooks aren’t enough.
In macro terms, it seems like the concept of pricing externalities is so attractive to (some) economists because it’s a way of fitting environmental protection into the reigning free market economic paradigm with comparatively little disruption. It’s basic neoclassical economics with previously excluded commodities included in markets. And that’s great — I have a great deal of respect for neclassical economics, probably more than most readers here. But we are on the cusp of catastrophe here, and it would be nice a wider range of economic voices were heard. This is from Wikipedia’s bit on ecological economics:
Resource and neoclassical economics focus primarily on the efficient allocation of resources, and less on two other fundamental economic problems which are central to ecological economics: distribution (equity) and the scale of the economy relative to the ecosystems upon which it is reliant.[25] Ecological Economics also makes a clear distinction between growth (quantitative) and development (qualitative improvement of the quality of life) while arguing that neoclassical economics confuses the two.
Now, if I argue that the economists on Obama’s team are a bad influence on climate policy because they — like their neoclassical brethren — pay too little attention to equity relative to efficiency, or too little attention to resource limits, or too much attention to GDP relative to wellbeing, I’m not saying “economics is evil.” That’s just a way of marginalizing and caricaturing criticism. I’m saying that the way economics is typically done in U.S. policy circles has endemic flaws and shortcomings that tend to weaken environmental policy. I’d like better economics, please.
With that semi-focused rambling I hope to leave behind the generic subject of economics and turn more to specific critiques. The two of you still reading can breathe a sigh of relief.
