PAY FOR YOUR OWN DANG EXTERNALITY:

The Conservative Case for the Environment (John R. E. Bliese, Fall 1996, First Principles)

When considering the implications of the libertarian position on environmental issues, I am not concerned with a radical, anti-government philosophy, but rather with those who focus primarily on economics and the virtues of the free-market. For the libertarian, the free market system is believed to be not only the most efficient means of improving mankind’s standard of living, but also the only sure foundation and protection for political freedom. From the free-market perspective, there should be great interest in solving many of our environmental problems—and indeed, there is a small group of free-market environmentalists, primarily associated with the Political Economy Research Center (PERC) in Bozeman, Montana.

In a free market, producers and consumers negotiate their sales and purchases with no outside interference and without affecting third parties. The market price of a product, which the consumer pays, includes all of the costs of making it and some profit for the producer.

However, the real cost of production in the modern world often includes “externalities,” costs that are not reflected in the price of goods and which must be paid by others, rather than by the consumers of the products. All forms of pollution are just such costs. If, for example, a factory does not properly dispose of its waste but saves money by dumping it untreated in a river, its customers get the products more cheaply, but downstream users of the river suffer damages. Perhaps they cannot use the river any more (say, for fishing or swimming). Or perhaps to keep using its water, they have to pay extra to clean it up first. If the factory processed its waste properly, the cost of doing so would be included in the price of its products and would be paid by their consumers, not by innocent third parties downstream.

As mentioned, the libertarian values the free market as a source and protection of freedom—freedom from interference by government and by others. But your freedom is decreased if someone can impose on you some of the cost of his production, or can invade your property with his pollution. Nothing in the theory of the free market justifies a producer and a consumer forcing an outsider to pay part of their costs. And your payment may be much more than just a few dollars; it may be in the form of acute suffering (e.g., illness from breathing polluted air or drinking polluted water). Wherever there is pollution, the libertarian should be devising ways to make sure that the market works properly. The costs of production need to be “internalized” in the market price of goods in some way that also maximizes liberty. [...]

Finally, from the market perspective, we may take a quick look at tax structures. Current taxes raise revenue but often do economic harm because they penalize jobs and profits. Shifting to “green” taxes (e.g., on effluents or on use of certain raw materials) could raise revenue and do some good at the same time, by protecting resources and making polluters pay the costs that they now pass on to others.

Libertarians should be interested in environmental policy not just because market mechanisms can be effective in reducing pollution, but because pollution itself is evidence that the market is not working correctly. Pollution is also evidence that our freedom is being infringed.

The environ,ment is one of the few areas where the Right is reactionary.

Posted by Orrin Judd at May 17, 2008 6:34 AM