This is another diary in the continuing “New Environmentalism” series. In this series, we’re going to be looking at ways to change the way we live and work – sometimes significantly – in order to live in harmony with our environment and deal with the inevitable post-oil period.

Goals of the New Environmentalism: devise a practical, realistic vision for a sustainable future and a plan for moving from our modern society to a sustainable society. In this society, we claim that the proper goal of economic activity is not growth but, rather, human happiness.

Knoxville Progressive and I encourage you to contact either of us by email if you’d like to be a contributor to this series (post a diary / host a discussion).

Because I don’t have a lot of time this week, we’re going to look at something simple: environmentalism and market economics.

Market economics has become something of a sacred cow in politics. No-one dares criticize it too loudly, for fear of drawing the wrath of corporate tycoons that control the pursestrings of both major parties in the USA, and most major parties outside of it. These people made their money through exploiting unregulated or insufficiently-regulated markets, and any suggestion that free market capitalism could be flawed draws fire faster than a Republican on the Big Orange. Outside of the fairyland of Washington DC, things are a little different, and much more complicated.

I’ve only taken a couple economics classes in college, but most sensible economists I’ve talked to admit that pure free market economies are flawed for all sorts of reasons. Their proposed solutions vary widely, but they acknowledge that unregulated markets are a problem. Why? Because there’s only so much that market forces can do, and some goods and services that they don’t apply well to. One such class are natural monopolies, markets that are best served by only one provider without competition. Conventional wisdom is that electrical power is a natural monopoly, though conservative politicians seem determined to disprove this belief. (Often with disastrous results) Telecom services are another such area. If competition is permitted in a natural monopoly, extensive regulation by the government is often required, or the companies employ all sorts of dirty tricks to try and gain an advantage by locking out the consumer. The canonical example from the telecom industry is cutting links between networks, to force people who want to talk to their friends on your network to use your service.

Another odd market is what’s called, if memory serves, a public good. These are goods that everyone wants but no-one wants to pay for (or no-one should pay for), like highway construction, law enforcement, or military forces. Again, the conservative politicians (like Rumsfeld) seem determined to disprove this, and will do anything to demonstrate the validity of their ideologies.

Neither of these really has much to do with the environment, but they’re worth noting as examples of cases where government intervention in a market isn’t just nice but necessary. In all cases, regulatory oversight by the government is necessary. Despite their fancy names, these are still monopolies, and monopolies are prone to certain abuses that can cause wide-ranging damage throughout a market.


The main topic of today’s diary is externalities. Externalities are “incidental” costs or benefits of a good, things that aren’t paid for by the entity producing or consuming that good. Not all externalities are bad. For example, network externalities apply to goods that become more valuable the more people own that good. Information networks have a strong network externality, as the value of the network to all participants is higher the more participants (with equal access) are involved. (Which is why the Internet took off so quickly)

Most externalities are damaging to the market, being costs that the entity producing/consuming the good doesn’t pay. This means that goods get undervalued (and can lead to other goods being overvalued), encouraging harmful economic behaviour. Many of these harmful externalities are additional costs that are paid from a “commons”… Such as the environment. Oil, for example, has been undervalued for decades. Much of its real cost is hidden, and paid from the common air supply. Its fundamentally limited quality should also have pushed the price up even further.

Externalities require government intervention to correct, and can cause significant economic damage if left unaccounted-for. As they make a good cost less than it should, they encourage over-production and over-consumption of that good. In extreme cases, like oil, this can lead to entire sectors of the economy becoming dependent on that over-production/consumption, encouraging other unhealthy practices and doing even more damage when the externality finally presents its bill and the over-consumption cannot continue.

Another example is water use. Upstream users of, say, a river have no economic incentive to keep the water clean for those downstream of them… Or even keep it flowing at all!

Environmental Regulation

This is why enviromental regulations are an economic necessity. They don’t “just” save the environment, they save the economy too. It’s also why fines can be an effective method of environmental regulation… If they’re large enough, are applied consistently, and are regularly reviewed for effectiveness. Tax-deductible fines? Bad idea. Cleanup costs are a good start, and should be an absolute minimum fine for any environmental damage caused by a company’s activity.

But how to sell it, come election time? That’s a slightly trickier problem. Step one is to get some proper progressive candidates in the running, people who actually believe in the message. It’s always easier to convince someone of something if you believe in it yourself. A politician who’s too far into the pay of big business will have trouble actually putting the policies they advocate into practice.

Assuming we can get a good candidate, what’s the next step? Sell the environmental regulation without referring to it as market regulation. Avoiding the “protect nature” angle might be good too, as that seems to get a lot of moderates’ hair up, thanks to the right-wing media campaign over the past few years. What will work? National security’s always a good bet, especially for energy sources. Most renewable energy sources are inherently domestic, which makes this an easy sell. Children’s health is another good hot-button issue here. Make an emotional appeal based on the damage that can be done to children and babies. If done well, this might even be able to win over the pro-life crowd.

There’s one final trump card that we might be able to pull out. Processes that exploit externalities are often very inefficient, as much of their input goes towards fuelling the externality. While there’s some initial cost to developing and switching to new methods, the unit cost (cost per good produced) after that point might be lower. If there are specific instances where this is true, such as cheaper transportation, electricity, heating, or whatever, using the reduced costs to “sell” the regulation to the public would go over very well.

But before we can do any of that, we need to start putting forward some real progressive leaders!

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