zondag 8 april 2012

Why economists argue with ecologists (2): what is economics?

Tom Tietenberg once told somebody he is an environmental economist, and the person reacted: "Isn't that a contradiction in terms?" People tend to think in terms of "economy versus environment" where "economy" means "overpaid fat cats screwing the planet for a dime with their filthy industries" and "environment" means "the poor polar bear that gets screwed for the fat cat's dime." If you put it that way an economist can only be the fat cat's stooge.

Of course I wouldn't be writing this if I thought it were true - better to keep the conspiracy a secret, right? So indeed I think it is not true. For starters, there are a lot of policies that economists generally recommend but that are not necessarily in the interest of the fat cats, such as anti-trust laws to limit monopoly power, a tax on environmental pollution, and abolishing subsidies or protectionism. Economists recommend such policies because they are likely to increase the welfare of society as a whole.

Mind you: welfare is not the same as your income, or the money on your bank account. You can be filthy rich, but thoroughly unhappy, if you cannot go out without a gas mask. That is because our welfare depends on more than just the money we earn or own, or the goods and services we can buy with it. There are lots of other things we need in life that we cannot trade on a market, such as clean air, or the bird song in your garden. Moreover, a lot of the stuff we do trade on markets depends on what you may call nature's goods and services. Our fruit and vegetables would be a lot more expensive if farmers had to do all the pollination by themselves, but luckily bees do the work for them. And there are loads of examples like this.

The problem with all this is that it all hangs together. Want to spray your crops to get rid of pest insects? Then be aware that you may also kill the bugs that do good things, such as bees and bumblebees. Want to build a shrimp farm in this mangrove forest? Then be aware that the next tsunami may do a lot more damage than the last one. An economist's job is to analyse those tradeoffs, and help policy makers make the right decision. Maybe growing shrimp turns out to generate more welfare than conserving the forest, but it might just as well be better to conserve the forest. You don't know that unless you perform a good analysis of these issues.

So economists do not always prefer 'factories' over 'polar bears', or vice versa. Nevertheless, most of them will put man in the middle, and ask the question "what do these policies mean for Homo sapiens?" Because of this economists are always the ones asking the Nasty Question: "Why do you want to conserve this forest?" And in analysing the tradeoffs we make a few strong assumptions of our own. I'll get back to that in later posts.

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