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Sunday, February 03, 2002

Quantum Economics- Pollution and the Environment (part I) One of the more interesting concepts I took away from my first Microeconomics class is the concept of “external costs.” An external cost is a negative side effect of economic activity that the producer doesn’t pay for. Pollution is a classic example of an external cost; the community at large gets the bogons from the bad air and water but the plant owners don’t have to reflect that cost in their bottom line unless forced to by law. The air and water supply are commonly shared; some law or social construct needs to be in place to protect them. “The tragedy of the commons” is the metaphor frequently called upon, where a common grazing pasture is overgrazed since no one is in charge of maintaining the property. Without laws (or shunning of the offender by the community) there is no good way to manage the commons; since it belongs to no one, people will abuse it if it is to their advantage. For regular real estate, there are two options for management-one option is to divide the commons into individual plots and then let the owners manage their own plots. Since the owners will fully get the downside of overgrazing, they will better protect against overgrazing. People will manage their own property better than communal property. This is one of the better arguments for private property. I remember reading in Hedrick Smith’s book, “The Russians”, about communal farms in the old USSR. Along with the big communal fields they would manage together, farmers would get their own small plots to farm and sell the produce themselves. Those small plots were very productive, making up only 1% of the farmland but producing (if memory serves) 20% of the country’s crops. This link says 30%. The other option is for government (or other communal entity) ownership and regulation of the property, limiting the amount of time each person’s flocks can be on the commons. Some grazing areas out west are done this way, but it is not an overly satisfactory method for most real estate. However, it is the only workable model for the air and water supply, since air and water don’t stay put in one place. [Correction 2/4-Maybe not, check back here for link to part two later] Let’s look at a classic pollution case-the plant has a smokestack that emits nasties into the air. The plant could install an expensive scrubber to clean up the emissions, but it would raise the cost of the products and possibly force the plant to shut down if the addition of the scrubber would make the plant a money-loser. The owner of the plant, especially if it is a corporation with owners spread out across the country, gets only a fraction of the pollution but all of the savings of not putting in the scrubber. A local proprietor could be taken aside by his neighbors and threatened to be made a pariah in the community if he didn’t clean things up, but big corporations don’t have owners you can shame at church or the football game. Unless the owner is a big environmentalist, he’s not going to put that scrubber in if he doesn’t have to. The public policy question on how to fight pollution comes back to the basic quantum economics equation-do the bogons prevented by the policy outnumber the bogons caused by the policy. Let’s look at the quantum economics of installing the scrubber. Who likes the scrubber-(1) The scrubber manufacturer and its workers. (2) People affected by pollution in the downwind communities. If the pollution causes extra problems with asthma or is a cancer-causer, there are real economic effects to the pollution. (3) Environmentalists-even if they aren’t downwind, they get a psychic benefit from cleaning something up. Who disses the scrubber (1) The plant owners-business just got more expensive. (2) Workers at the plant- this might cost them their jobs or cut into their paychecks if they have to take paycuts to keep the plant competitive after adding the scrubber. (3) Businesses and their workers in the plant community-less money coming from the plant means less business for them. (4) People who buy the plant’s product-it will get more expensive. Note that category 2 in the likes will include categories 2 and 3 in the dislikes, people near the plant may not like the smoke, but they like the jobs the plant generates. Growing up in sight of (but not downwind of) the smoke coming from Dow Chemical, I saw how the people of a company town rally around a company despite the pollution. When Jane Fonda was trashing big corporations in general and Dow in particular in the late 70s, you had to go to Saginaw to see one of her movies; her movies were conspicuous by their absence in the two Midland movie theaters. There are thus four major players against environmental regulation and two key parties (environmentalists and people affected by the pollution) in favor of it. This would seem to be a hard sell for the environmentalist, with consumers, labor unions and business interests joining forces to stop regulation. However, some pollution is definitely harmful and the cost to the economy will be outweighed by the bogons removed by cleaning up the pollution. Many environmental laws have been net joytron producers, slowing emissions of a number of very toxic substances; a reflexive negative reaction to the word environment isn’t proper. However, many regulations are counterproductive; when a small amount of pollution would require a large expenditure to overcome; we might be better off without it. I think the media have a hand in over-regulation. If you haven’t already, read my piece on network news investigative work. It may be a parody, but it is too close to the truth for comfort. An environmental piece will look at victims of pollution but not look at the effects of the regulation until after the laws are passed. In the first “there oughta be a law” piece, consumers, factory workers and the businesspeople in the communities the plants are in won’t be interviewed, just a token piece from the company saying that the regulation’s too expensive. The company management is thus seen as bad, greedy people who don’t care about Susie Jones’ asthma. A few years later, after the plant has closed or scaled down, they’ll come back and interview the union guys in line at the unemployment office or the barkeep who notes how business sucks these days, but not until after they get the laws past. The effect of this type of coverage is an over-emphasis on the benefits of regulations while all-but-ignoring the downside of regulation. The secondary and tertiary costs of regulations (lost jobs, costlier products) don’t get reported well, and swing voters are swayed by the environmentalist who is over-eager to clean things up and the reporter looking for an easy story. Even if a reporter isn’t acting as a closet environmentalist, it is hard to do those stories right, since a five-minute report doesn’t lend itself to describing the multiplier effect of regulation affecting not just the “rich businessman” but the stakeholders (employees, neighbors, customers) of the company. Thus, the media coverage will tend to be pro-environment, with any liberal bias magnified by the difficulty of presenting the anti-regulation argument in short-form journalism. This coverage will help make the less-informed voter lean towards accepting more questionable environmental regulation. Without a fuller set of knowledge, they will accept the pro-regulation spin that comes out of the media. As voters and citizens, we need to help educate ourselves and others of the pros and cons of environmental regulation, doing what the conventional broadcast and print media don’t do well. The beauty of blogs is that you can do a one-paragraph cutter or a two-page extended takedown. Even conventional Internet journalism will allow more long-form articles, going beyond the template to fully cover an issue. We'll need to direct people to more extended pieces that give fuller coverage environmental topics, and be able to cite them to people when needed to buttress an argument.

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