The visible hand in economics

Archive for the ‘Environmental’ Category

My favourite article of NewScientist’s series is Herman Daly’s. The father of modern ecological economics lashes out at the way economists ignore the source of inputs to production and the capacity of the waste sinks that we have. As he puts it, we should imagine the economy as a system within the world’s ecosystem. Read the rest of this entry »


So we are going to have to cut our consumption and it’s not going to make us better off. How come NewScientist’s authors seem to agree that we won’t necessarily be unhappier? Where evidence is given it tends to be in terms of happiness measures. Kate Soper (London Metropolitan University) points out that wealth doesn’t correlate with happiness over USD15,000 of income, while Andrew Simms (New Economics Foundation) makes much of the fact that people with vastly different living standards report the same level of happiness. The difficulty is that happiness isn’t the kind of measure that works for cross-country comparisons. Read the rest of this entry »

An important question raised by the writers in NewScientist’s feature is whether we will be less happy living sustainably. This is the part of the series I felt was weakest. The general consensus amongst them is that we will actually be happier if we live sustainably because we will live healthier lifestyles. David Suzuki claims that ‘we would go out and walk around because there would be shops, musicians and people out on the street that we’d want to meet’. Kate Soper thinks we’d ‘…enjoy healthier modes of transport such as walking, cycling and boating’.

The authors appear to be projecting their own lifestyle preferences onto others here. It is this element of the environmental rhetoric that bothers me most: the idea that we would all be happier people if only we were more like them because they know what’s best for us better than we do. Read the rest of this entry »

It looks like National has decided not to continue with the previous government’s plans to introduce a standard for lightbulb efficiency. They say

We want to encourage people to [switch], we think there may be benefits for them to do it, but it should be a choice they make as consumers.

It’s a good point: efficient CFL bulbs are tough to dim, take time to reach full brightness and don’t bring out the sparkle in chandeliers, apparently. So why would we want to force everyone to use them when they’re clearly not suited to some applications? Of course, if people did use them in their homes and offices, where they are suitable, it would be great for reducing our national power consumption. Read the rest of this entry »

I’ve recently been browsing old magazines and my attention was grabbed by a feature in the October 18 edition of NewScientist. In it they collate a series of articles under the heading ‘Why the economy is killing the planet and what we can do about it’. At first I was disappointed that a publication puporting to be scientific in nature was resorting to scare journalism and economics bashing; however, there are a number of interesting ideas in the articles that bear discussion. Read the rest of this entry »

The DomPost contained an article on the potential for metering Wellington’s water supply. The question is asked: should Wellingtonians pay for their water? This issue is a hot topic, having been discussed at Kiwiblog, Infometrics and TVHE earlier this year.

Historically, water has been provided for by the various Wellington councils out of rates. Water is not currently metered, which implies that regardless of how much water each household takes, their rates do not vary. This arrangement has led many to believe water is in some way ‘free’, as they are not forced to pay for their specific usage and the cost is embodied in rates which cover many council services across many households. With water use of 400 litres per person per day in Wellington, relative to the national average of 160 litres, it appears water users here are not internalising the cost of their water usage.

Current arrangements do not allow for the pricing of scarcity. Read the rest of this entry »

So the British are increasing the international departure tax, and stating that it is an “externality tax”.  What spectacularly wrong-headed logic.

The externality they are talking about is “carbon emissions” – now as long as they tax the fuel that airlines use the externality is accounted for, as the carbon emissions stem from fuel use.  Adding a tax on top of an efficient externality tax is not efficient.

The real reason the British government is doing this is straight out protectionism – they believe that the impact on “outflows” from Britain will exceed the impact on tourist “inflows”, a factor that would improve net exports and help to “protect” the retail industry in Britain.  Beyond this, the increase in tax is also a simple tax grab – one that taxes tourist industries the rest of the world over.

No wonder we in New Zealand are unhappy (*, *)

Yay, we’re the 15th happiest country in the world! Unsurprisingly, while money makes us happy, it doesn’t really matter once you earn over 15,000 USD/capita. What really matters is trust, tolerance and religion, apparently. Being religious makes you seven percentage points happier on average, which probably explains Saudi Arabia’s unusual happiness in the face of such intolerance.

And now for the big picture(s)! Read the rest of this entry »

One thing that does upset me about the constant delays to the emissions trading scheme is the impact it has on the poor old forestry industry.

Forestry has struggled from high shipping costs, strong competition from places like Russia which has driven down prices, a large decrease in demand as building activity collapsed (especially in the US), and uncertainty surrounding the ETS.

Finally the government was clear – the ETS will be introduced and if you cut down trees that were planted before 1990 you owe a liability.  As a result, people cut them down before it was introduced – not getting the best price or having to store the timber.  Furthermore, companies started to look at planting trees – as a way of making some money off marginal land.

Now the whole scheme is up in the air – so forestry has to put up with more uncertainty, and people that have acted in the belief that the ETS would occur have been screwed over.

It sounds like the possibility of a “carbon tax” is back on the table. We have written on the topic before – but it does not appear that we have laid out what I see as the primary costs and benefits of the different options. As a result, I will do that now. In the comments, feel free to add some costs and benefits:

Read the rest of this entry »

A recent opinion article by Graeme Edwards on the NBR site clearly articulated a critique of the emissions trading scheme that I have heard in various forms over the past year.  Not only have I heard this critique from politicians and the media, but people commenting on the blog and other economists have used this critique.  As a result, it is important to point out why this critique is simply wrong.

The critique is simply that the emissions trading scheme is a “scam” because global warming is not the result of carbon emissions.

Even if we agreed with this view the critique is still wrong.  The reason this critique is wrongheaded is simple – the ETS is not supposed to prevent global warming, it is supposed to raise funds to pay for/reduce a liability we owe thanks to the Kyoto protocal.  Now that we are in the Kyoto protocal, we want to look at two simple choices – what is the cost if we stay in, and what is the cost if we leave?  The ETS was determined to be the least cost way of paying for the liability if we stayed in the scheme, and it was also determined to be of a lower cost than leaving the scheme (relative to losing international prestige and possible new trade barriers if we leave).

As a result, even if it was true that man wasn’t warming the planet with carbon introducing an ETS is still the best policy – as long as we believe that it is of a lower cost than these other potential options.  The debate should lie with the cost of different options – whether global warming actually exists is irrelevant.

Federated Farmers’ press release:

…if government increase[s] infrastructure expenditure it should spend money on building dams rather than cycle lanes. …Water storage is critical to New Zealand’s future. It is well known that farming is the backbone of the economy. Current run of river water allocation systems see farmers too vulnerable to drought and floods.

The government’s State of the Environment report 2007:

The increase in total water allocation in New Zealand between 1999 and 2006 can largely be explained by the increase in demand for irrigation. The amount of consented irrigated land in New Zealand increased by 52 per cent over this period…

Water is getting scarcer and scarcer worldwide and it’s only a matter of time before NZ feels the pinch, too. Farmers say they should get the water becasue they’re our ‘backbone’; environmentalists throw up their arms in dismay; the government implements ad hoc water restrictions and gets lobbied by everyone.

Luckily, economics provides a solution to the problem: Read the rest of this entry »

Looks like we narrowly missed by crunched by space debris the other night. Although, in true “tragedy of the commons” style “[a]stronauts routinely trash equipment in space.” So, as the world starts to think about trying to fix the mess we made of the ozone layer, we’re already on our way to trashing another part of the environment that’s common property.

I wonder if it’s actually cheaper to fill it with junk now and fix the problem later. Presumably the marginal cost of the cleanup will be lower when technology improves, and it’s discounted from the current perspective. However, since the problem is not the junk itself but the lack of property rights giving nobody an incentive to do anything, I doubt that calculation is being made by anyone.

Greenpeace’s environmental plan has just been released and it says pretty much what you’d expect: be more sustainable. The thing about it that intrigues me is the presence of an emissions trading system, efficiency standards for all energy consuming appliances and legally binding targets for renewable energy usage.

The point of trading systems is to internalise the costs of emissions in the most efficient way by allocating the costs through a market mechanism. Why would you then try to second guess the market by forcing emissions standards and renewable energy targets on people? Read the rest of this entry »

Just quickly, I have to correct this statement by FrogBlog:

In other words if we continue to grow at 3 percent per year every year, as economists would have us do, in 100 years time we will be using and consuming 19 times more than we currently do

No, no we wouldn’t. Remember a little while ago I wrote about technology.

  1. It allows us to create more output with the same input of the resource,
  2. It allows us to access more of the input,
  3. It allows us to speed up the process of creating output from input,
  4. It creates new outputs that can be created with the input,
  5. It creates substitutes for the input.

As a result, even if we assume the worst case scenario that we cannot substitute and that there is no new technology we can discover that will get us access to more resources, technology can help by allowing us to make more with the same level of inputs. Economists target a level of “growth” (when economists have to talk about growth – rather than societies welfare) that they feel relates to growth in resources (such as population) and technology – this does not seem like an unsustainable goal to me.

Read the rest of this entry »

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