Climate Change, from a Free Market Perspective

I'm spending a couple of posts giving arguments concerning climate change that we should be getting from any conservative free-market oriented politician running for public office.

Yesterday, I gave the moral argument - activities that inflict harms on others without their consent are immoral. Harm doers, at the very least, owe harm-takers compensation for harms done. This is the very essence of the principle of individual moral responsibility. The purpose of government - unless one wants to support total anarchy where even the government court system, police, and prisons are abolished - is to make sure that people pay for the harms they inflict on others. The harms caused by putting greenhouse gas emissions into the atmosphere are not immune from these moral principles. Furthermore, they define moral rights that are applicable to all humans, not just a subset of humans.

Today, I am going to give the economic argument.

My opponents claim that taking action against climate change is bad for the economy.

This is true - in exactly the same way that taking action against murder, rape, theft, vandalism, arson, and fraud is bad for the economy.

If you know your history, you know that in the 1850s, people were saying that we cannot end slavery because it would be bad for the (southern) economy. Southern plantations would not be able to compete. Prices would rise. Jobs would be lost. The economy would stumble. Ergo, we must maintain the slave economy. It is the only way we can compete.

This turns out to be true only if we define the economy in such a way that we exclude the people who suffer arm. Exclude those who are murdered, raped, or whose property is stolen or destroyed, exclude the black slaves and consider only the economic well being of the white people, and you might actually be able to make this argument work. This is because wealth plundered from those excluded from these definitions and given to those included are calculated as economic gains under these conditions.

Even here, the argument would likely fail. The presence of other wealthy, well-educated, skilled and talented people with which we can trade tends to make each of us better off - not worse off. It means more potential buyers for our skills.

In all of these cases - including the case of climate change - we are talking about actions that impose harms (costs) on others without their consent.

When people - even greenhouse gas emitters - are allowed to inflict harms with impunity, the economic effect tends to be that they perform actions in which the overall economic cost (harm) of their actions greatly exceed the overall economic benefit. The net result is a lot of activity that is actually economically harmful.

Assume that everybody was given a credit card such that, when you buy things, the card randomly searches bank accounts with money in them to pay for it. What would be the result?

We could expect two results, actually.

One of these results is that people would end up spending huge amounts of money on things that, even to them, have trivial value. A person can spend $500 on something he wouldn't normally spend $50 on. From his economic point of view, the price is not $500. The price is $0. Since a $0 personal cost is less than a $50 personal gain, he will pay $500 for the $50 item.

The second effect us that it destroys incentive to create wealth. The personal value of wealth created is $0. If I were to create $500 and put it in the bank - it will be gone in an instant. So, why should I go to the effort of earning $500? I will do so only when the creation of $500 is an unintended side effect of actions that I perform for other reasons.

To have any type of functioning economy, we need rules - a set of regulations, permissions, and prohibitions jointly known as "property rights".

These rights say that you cannot take, damage, or destroy the property of another without their consent or compensation. Of course, another person's life, their body (health), and their liberty (labor) are their property rights - they count high on the list of things others own that we may not take without consent or compensation.

Compensation is what free market economies actually require for economic efficiency. Consent is important because, in most circumstances, it is the most reliable way to determine how much compensation is owed - how much value is actually being taken, damaged, or destroyed. Consequently, free market economics puts a lot of weight on voluntary, unforced, "free" (as in freely engaged in) trade.

Free trade dramatically reduces the amount of economic activity that produces net social losses. With free trade, if my action does harm to the life, health, liberty, or property of other people, I must make sure that my action creates enough of a social surplus that I can compensate others for their losses. If I fail to do so, then I accept the loss difference for myself - others are not forced to suffer for my mistake. I can't simply take $500 or destroy $500 in the value of that which somebody else owns. I must cover pay the $500 out of my own pocket - which includes paying a person $500 if he should suffer $500 in harm.

These limits are not bad for the economy, they are essential for the economy. They sit at the very core of the idea why a free market economy is such a great idea.

Unfortunately, society is filled with all sorts of people who want to do things that harm the life, health, and property of huge numbers of people, without paying them a dime in compensation for harms done.

Among these are greenhouse gas emitters.

The free market itself tells us that permitting this would be economic folly. If we permit this, what we will get is a lot of people engaged in a lot of activity where the overall economic costs well exceed the overall economic benefits precisely because they are being permitted to pass those costs onto others without compensation.

Those who insist on the legal permission to emit greenhouse gasses without paying compensation for harms done are neither applying nor defending free market principles. They are defending a form of wealth transfer that the free market finds absolutely abhorrent - a permission to ignore the free market rights to life, health, and property of those harmed - rights that makes sure that private actions produce a net public benefit.

So, for the sake of the economy, we must find ways to make sure that those who cause harm pay enough to compensate those harmed for the harms done. And if their actions produce more harm than benefit, that they take those costs on themselves, and not freely pass those costs onto others. If the price for that activity turns out to be prohibitively high, the free market tells us that this is only because the activity is one in which the benefits provided are less than the costs generated. It is an activity that the free market itself tells us people should not be engaged in precisely because it generates an overall economic net loss.

This, then, us how a conservative who actually followed and applied the principles of free market economics would answer the question of climate change.

The reason we do not hear this coming from Republican presidential candidates is because they are not actually defending free market economics. They are defending an economic system that can best be described as corporate feudalism.

Corporate feudalism is a system where the serfs do not have rights to life, health, and property. As a result, any harms they may suffer from an activity such as greenhouse gas emissions are not included in the economic calculation. We do not include these harms done in our math - only the benefits provided to the corporate lords and ladies who actually do have rights to life, health, and property.

In effect, the economic argument for greenhouse gas emissions are of the same quality as the economic arguments for slavery in the 1850s. The arguments might work as long as we exclude those who are harmed from the economic community and, thus, do not count their losses among the economic results. Thus, it stands on a foundation that depends ultimately on a fundamental violation of free-market principles. And even then, it probably fails.

Well, as one reader has already pointed out, this argument and the one yesterday both depend on the claim that there is harm done. And that is something that many Republicans simply deny. Let's look at that argument next.