Markets and the Environment, A Critical Reappraisal

Smith Op-Ed in Contemporary Economic Policy

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The environmental problem is no different from any other economic problem.  The basic problem is scarcity.  Wants are unlimited while resources are limited.  Once we recognize our inability to satisfy all of our ecological wants, how do we decide which wants we will satisfy?  Most efforts to address environmental concerns have used political institutions to answer this question and to devise policy responses.  Environmental concerns have been addressed in the same manner that socialist nations sought to address broader economic concerns.

This paper argues that such policies cannot succeed in the environmental realm any better than they did in the broader economic realm.  Whether the political approach chosen relies on command-and-control or “market-based” mechanism (eco-taxes or eco-quotas) matters little in resolving government’s inability to prioritize.  The dispersed nature and enormity of information needed to prioritize risks and the inability of government to create the rich system of incentives necessary to mobilize human ingenuity renders effective government controls infeasible.

This paper argues for greater attention to environmental problem s but concluded that we can better address environmental quality by integrating ecological resources in to the economy via ecological privatization.  This property rights approach to environmental policy—“free market environmentalism”—may entice more economists to address the important environmental questions and devise more appropriate solutions.