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Should We Be Recycling Paper or Building Battlestar Galactica?

December 22, 2008

Tags The EnvironmentFree MarketsPrivate Property

If environmental stewardship obligates us to be mindful of future generations in making our day-to-day decisions, what should we do? Should we be recycling paper and preventing people from building parking lots to save trees? Or should we acknowledge that the planet will be destroyed sooner or later and try to find ways to build something like Battlestar Galactica so the species will be preserved?

Careful economic reasoning is indispensable to a correct framing of the issue. One of the most important principles of economics is the principle of the time value of money — the idea that a dollar today is worth more than a dollar a year from now.

Basically, we know that people prefer present consumption to future consumption, all other things remaining equal, so the rate at which we discount the future is of paramount importance to questions about environmental policy. In this article, I will explore two criticisms of environmentalist claims that we must do all we can to "conserve." First, the profit-and-loss system provides us with the information we need in order to make rational decisions about use and allocation. Second, if one denies that we should discount the future, we are led to radical conclusions about environmental policy.

Debates about environmental issues are debates about the rate at which we should discount the future. Questions about "the world we are leaving for our children" and complaints about the alleged short-sightedness of present generations are ultimately claims that we are discounting the future inappropriately.

In his book The Armchair Economist, Steven Landsburg made an important point about the claim that we should conserve land for future generations. He asks how we are to know whether our children or our children's children will prefer a forest to the income that would be generated by, say, a parking lot or a strip mall. We cannot make interpersonal comparisons of utility, but we can use the principle of the time value of money to inform our decision.

The profit-and-loss system provides valuable feedback about whether assets are being used wisely or not. At any point in time, the price of an asset consists of the discounted present value of all future income accruing to that asset. If a firm expects the income from a patch of land to be higher if it is used to build a strip mall than if it remains a forest, then it should be converted into a strip mall.

To the extent that this calculation is incorrect, it is incorrect because some aspects of the decision aren't priced. The reason some aspects of the decision aren't priced is because private-property rights to valuable attributes of the goods and services being transacted have not been defined. When this occurs, a price can be established.

Some object that we should not discount the future, or if we do, we should discount it only very, very slightly. They argue that future generations should be considered equally in environmental calculations. If this is the case, however, then questions about protecting the Earth for its own sake are rendered moot by an uncomfortable fact that economist Walter Block has pointed out: at some point, the sun will die out and the planet we are so concerned about protecting will someday be no more, all else equal.

If we are concerned about the preservation of the species, then this suggests a radically different set of ideas and a radically different way of thinking about the environment. Someday, the key environmental problem facing the human race won't be to refrain from polluting land and sea but to either evacuate or move the planet, two tasks that are both well beyond the boundaries of current technological capabilities but which can be solved, at least in principle.

A solution requires additions to the ultimate resource, which is to say that it requires additional human ingenuity and a finer division of labor so that people can focus on the problems that interplanetary travel would raise. This means that we need more people, and we need to make them richer, faster to release the resources that would be needed to solve some of these problems. While this runs precisely counter to conventional environmental dialogue, the thesis that we should not discount the future implies that all other concerns should take a backseat to the problem of preventing human extinction when the sun dies.

$25 $15

"A solution requires additions to the ultimate resource…"

At first glance, the goal of recycling more and conserving more seems appropriate, even desirable. As Landsburg's example shows, however, advocates of conservation do not have the information they need to make the right decision if property rights aren't clearly defined. Further, as Block's example shows, if we really are to care about future generations and sacrifice on their behalf by not discounting the future, the inevitable destruction of the Earth when the sun dies out suggests a radically different approach. If we are really as concerned about our multi-great grandchildren who will presumably inhabit the earth in several billion years, we shouldn't be worried about recycling paper. We should be worried about building Battlestar Galactica.

Art Carden is assistant professor of economics and business at Rhodes College and an adjunct fellow of the Independent Institute. He has been a visiting research fellow at the American Institute for Economic Research, and a summer research fellow at the Ludwig von Mises Institute. Comment on the blog.


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