Environment, Economics and Externalities

Recently - okay, earlier today - the guys at Two Cathedrals (a great blog by the way) put up a post equating environmental protection with patriotism.  As much as I like the blog, I think the post missed the point.  Environmental protection isn't important because it protects democracy, but rather, when democracies protect the environment, its evidence that the democracy is working.  Sort of a chicken and egg kind of a thing, I know, but bear with me.

First of all, let's clarify something - for all of the many benefits of the market system, the market fails repeatedly at environmental protection.  In a typical market transaction, a buyer and a seller come together, have a meeting of the minds and then money changes hands.  Now, the environmental degradation in the use or the manufacture of the product isn't really a part of the transaction, because often the environmental effects hit someone who isn't even part of the transaction.  With SUV's, for instance, the seller and buyer both knew that SUV's were dangerous to the environment, but went ahead with the sale because the seller wanted to make money, and the buyer wanted a kickass Escalade for under $50k.  The guy living in the South Pacific who ends up having to leave his home because of rise of the oceans gets screwed, but he isn't part of the deal.

The thing is, we know all of this.  There are lots of examples of industry screwing the environment - whether its out and out dumping of toxic chemicals, or selling products that are environmentally unfriendly - and the people on the outside are the ones who get screwed.  This documentary on HBO about Ford and illegal dumping is particularly depressing.  In authoritarian regimes and malfunctioning democracies these horrific acts of degradation are ignored because they stand in the way of "progress" or money making at the hands of the economic elites.

In functioning democracies, on the other hand, the other guy, the one who suffers from the externality that the buyer and seller ignore, has power to go to the government and say, "Hey, hey, I'm fucking dying over here man!" And not only can he say this, but someone will actually listen to his complaints, and act on it because its the right thing to do.  Thus, environmental protection isn't so much a necessity of a functioning democracy, but a symptom of a functioning democracy. 

By the way, those who argue that the market can cure all ills without government intervention forget that the market is a human invention, with all of humanity's foibles.  For instance, it turns out that owners of hybrids are bigger douchebags than drivers of Hummers because hybrid owners feel like they've done enough good by owning a hybrid.  This carries over to lots of other areas as well - we humans have only so much altruism in our hearts.  Also, keep in mind, that if the market was going to stop environmental degradation without governmental interference, it would have done so already.  Instead, economists created the concept of externality to specifically address environmental degradation.