Why economists argue with ecologists (3): consequences versus deontology

A fundamental difference between economists and ecologists is that economists tend to approach environmental pollution as an allocative issue, whereas ecologists tend to approach it as a moral issue. Or, more accurately, economists take a consequentialist approach whereas ecologists tend to be more deontologist.

There are many examples to illustrate this, but none is as sharp as the debate on emissions trading. It used to be no more than a smart idea to limit pollution in an efficient manner, but it has evolved into a political minefield where the Left sees it as a sell-out to Wall Street, whereas the Right sees it as a communist takeover of the economy. The idea is simple: we limit emissions to, say, 100 units, and so we distribute 100 units of emission rights among polluters. Want to pollute more? Then buy rights from another polluter, who will then have to take additional emission reduction measures. You bet he will only agree to that transaction if you pay him more for his right to pollute than it costs him to reduce his pollution by one additional unit. Moreover, you will only agree if the price you pay for the right is lower than it benefits you to increase your pollution. In other words, you can have a voluntary transaction that makes both parties better off without further damaging the environment. This is a way of achieving what economists call allocative efficiency: we shuffle around resources and other inputs to achieve the maximum output at minimum costs, where costs include environmental damage as well as wages and all. An economist would say: we have the same environmental quality, but we increase welfare – what’s not to like?

A lot, an ecologist would say. Besides issues with regard to enforcement, windfall profits, etc., an ecologist would also have objections of a moral nature. Here are a few of the objections I’ve heard from students and researchers:

  • How can you give somebody a right to pollute? Nobody should have any right to pollute the environment.
  • Under such schemes companies can just pay some money and go about their dirty business. They should give a good example to others.
  • It’s immoral to commodify the environment.
  • Tradable emission permits are a modern version of medieval indulgences.

I can think of a lot of misguided objections to emissions trading, but these objections are not among them. They are moral objections that are valid within a given moral framework, which may not be my moral framework, but a valid one nonetheless. You hear similar arguments in the debate on economic valuation of the environment, biotechnology, and to some extent Payments for Ecosystem Services (wait until you propose hunting as a source of conservation funding). In all of these examples economists stress the allocative issue: “look, we clean up the environment right? That’s what you want, right? So why not make sure that we do this efficiently through emissions trading / cost-benefit analysis / GMOs / hunting concessions?” On the other hand, ecologists tend to stress the moral side of the issue: “rights to pollute / pricing nature / genetic modification / hunting is plain wrong and we shouldn’t do it.”

Beneath the economist’s allocative approach lies the philosophy of utilitarianism. In a nutshell, utilitarians argue that an action is morally right whenever it maximizes the sum of all happiness. This also means that utilitarians judge an action purely by its consequences, whereas other moral philosophies (also called deontological ethics) judge the action itself.

In other words, economists take a consequentialist approach to environmental problems, whereas ecologists tend to be more on the deontological side. Note that the moral objections to emissions trading listed above focus on the trading itself rather than its consequences. The economist’s reply will always point to the consequences.

Maybe it is due to my economics training, but I’m more on the consequentialist/utilitarian side. The deontological argument can become self-defeating, for instance when opposition to hunting leads to habitat degradation. If we have to choose between an ailing population of an endangered species without hunting and a thriving population that pays for its own conservation through hunting, I’d choose hunting anytime.

Here we go again

Kalle Lasn, founder and editor of Adbusters magazine, says in the latest edition of Solutions Journal:

“I predict we’re going to move away from large occupations of parks and we’ll have surprise, one-day occupations of banks and corporations and the economics departments of universities”

There you have it: banks, corporations, economists. All latter-day Scrooges. Further down the interview:

“I hope you tell [Herman Daly and Robert Costanza, founders of ecological economics] that from my perspective their ideas are reaching fruition, and I wish they would encourage their followers to be more aggressive. Suddenly, old and young people are pushing against the system and it’s time for ecological economists to stand up and be counted and not just play academic games in the background. Joseph Stiglitz actually went to Zuccotti Park and gave a talk. We need more of that. We need them to champion their paradigm.

We also don’t have full cost accounting. There is a dream among Occupiers to have a global market where products show their ecological cost, which would reflect their true cost. They will find that the price of cars goes up and bikes goes down. Maybe that McDonald’s napkin could suddenly have a certain price to it. And apples from New Zealand would have a different price. How much does all that stuff from China going to Walmart truly cost in environmental damage?”

Lasn’s “full cost accounting” is called a “Pigouvian tax” in any mainstream, neoclassical, economics text book. It’s really not that controversial.

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.

Lessons learned from the Slovenia meeting

  • Biologists have come a long way assessing ex post the invasiveness of a species. They call this Biological Traits Analysis: looking at what a species eats, how it reproduces, how it spreads, and so on. It gives them a rough idea how the species will behave when introduced in, say, the North Sea: how quick it may spread, whether it will do any damage, how much damage it will do, and so on. Even a rough estimate of these variables can help the aforementioned tradeoff between limiting access, limiting spread, and suffering/enjoying the consequences.
  • Some biologists simulate animal behaviour assuming that the animal maximizes some objective, just like economists simulate human behaviour assuming that humans maximize their utility. Funnily, they get away with it, but apply the same principle to humans and people complain that humans “are not like that”. (Mind you, I’m not complaining, it was a biologist who pointed this out to me.) Are humans any different?
  • One of the biologists on the project named a jellyfish after Frank Zappa.

Why economists argue with ecologists (1)

One of the aspects of my work I enjoy most is the interaction with other disciplines. By its very nature, natural resource economics assumes knowledge of the natural resource as well as economics. So in my career as a researcher I have worked with landscape ecologists, fisheries biologists, geologists, sociologists, and so on.

Nevertheless, there always seems to be a tension in my field between, roughly speaking, economists and ecologists (where ‘ecology’ can be understood broadly enough to include any environmental science). I come across this tension on every level of my work. It is in environmental students’ reactions when I teach them the basics of environmental and resource economics. It is in the lengthy discussions (and misunderstandings) I have had with ecologist co-workers, and in the sometimes relentless complaints about ‘mainstream economics’ (whatever that may be) at ecologist conferences. It is even visible in the existence of two global professional organisations of scientists working on the economics of environmental and resource management. On the ecologist side there is the International Society for Ecological Economics (ISEE), whereas on the economist side there is the Association of Environmental and Resource Economists (AERE). For the record, I am a member of EAERE, which the European counterpart of AERE.

It’s not like we are at war or something. Economists and ecologists can often work together very well, if only because both fields have a strong tradition in quantitative modelling. If you both speak the language of mathematics it is not that difficult to spot the linkages between your theories, or your models: “the amount of fish caught in my economic model fits nicely into the amount of fish that dies in your biological model.” But go to an ISEE conference, or try to explain the merits of cap-and-trade to environmental students, and you get an idea of what those poor girls in Salem must have felt like.

One of the things I will do on this blog is to explain what I think are the main points of contention between ecologists and economists. What I can say in general is that these differences can be due to differences in moral values, assumptions, methodology, and, admittedly, genuine misunderstandings about each other’s discipline. I don’t think you can blame any of the two disciplines; in fact I don’t think any of the two is totally wrong or totally right. But it is interesting in its own right to look at the differences.