Green growth

It's a somewhat curious and unfortunate circumstance that the political right and environmentalists so often find themselves at odds. Environmentalism and a belief in the free market and private enterprise are in many ways complementary. After all, one of the greatest virtues of the free market is that it is incredibly good at allocating resources in an efficient manner that minimizes waste and promotes conservation.

Indeed, it is no coincidence that the countries with the cleanest environments also tend to be those that are rich and economically free. Communist countries, especially in Eastern Europe and the Soviet Union on the other hand tended to be environmental catastrophes.

Coke factory in the former East Germany

This is for several reasons. Rich countries can better afford environmental protection measures, which are a relative "luxury" item that people can only consume after they have taken care of more basic needs such as food and housing. Indeed, the greater the wealth the more environmentally friendly you can be. Having more money makes options such as solar power and cage free eggs easier to obtain.

In addition the top down command economy structure of communist countries was quite inefficient, resulting in an overconsumption of raw materials that often resulted in little material improvement in people's lives. Perhaps the most egregious example of this was Mao's Great Leap Forward:

With no personal knowledge of metallurgy, Mao encouraged the establishment of small backyard steel furnaces in every commune and in each urban neighborhood. Huge efforts on the part of peasants and other workers were made to produce steel out of scrap metal. To fuel the furnaces the local environment was denuded of trees and wood taken from the doors and furniture of peasants' houses. Pots, pans, and other metal artifacts were requisitioned to supply the "scrap" for the furnaces so that the wildly optimistic production targets could be met. Many of the male agricultural workers were diverted from the harvest to help the iron production as were the workers at many factories, schools and even hospitals. ...The output consisted of low quality lumps of pig iron, which was of negligible economic worth...

Also significant was the fact that people could not protest against government action and had to suffer the consequences in silence. If a government built a factory next to your house that belched tons of smoke that you had to breathe, too bad. This also explains why Chernobyl was such a disaster. The government had no incentive to care about the impact of its decisions on the people, and was only interested in getting things done as cheaply and easily as possible -- consequences for the people or the environment be damned.

Fast forwarding to the present day we hear increasing talk about how government-mandated green technologies and policies will help lead the way into a new era of growth. For reasons that have been already discussed on this blog I have a deep skepticism about such an approach that relies upon government officials deciding what technologies to use and products to make. That is not to say, however, that there aren't policies that could be enacted that would be both beneficial to the environment and promote economic growth. One possible pro-growth green agenda could include the following:

• An increase in the gas tax. This would be good for at least two reasons. The first is that it would force people who drive to pay the costs of infrastructure that supports their preferred method of transportation. This could also result in making public transport more attractive, which is more environmentally friendly. The other reason is that gas consumption results in pollutive emissions and an increase in the gas tax would help cover the costs imposed on all of by this externality. To make this revenue neutral the tax could be offset with a cut in income or payroll taxes so that this doesn't just become another government grab for money.
  

• Elimination of the mortgage interest deduction. The mortgage interest deduction promotes the overconsumption of housing. This means that more square footage is built and resources consumed than would otherwise be the case while more energy is used to heat this additional housing. Elimination of this tax break would also remove a contributing factor to the housing mess (boosted prices) and result in a more efficient use of people's money. Again, to make this revenue neutral a tax cut could be made elsewhere.
  

• Congestion pricing. Congestion pricing would cut down on traffic jams, thus improving air quality, and would make our infrastructure more efficient by speeding delivery of important goods.
  

• Adopt variable rate electricity pricing. If prices for electricity fluctuated with demand, people would make smarter decisions about when and how much electricity to use. This would result in greater conservation and less stress on the electrical grid.
  

All of these measures rely on markets to achieve their end rather than regulation, which should only be used as a last resort. Too many environmentalists, however, look to Washington for government directives to achieve their ends, which often are bad economically and don't even achieve their desired results for the environment.

For example, concerned over algae blooms in the Gulf of Mexico that resulted from fertilizer coming down the Mississippi river from farms in the Midwest, measures were implemented that restricted fertilizer use. The result was that while fertilizer use was reduced, farmers expanded the size of their farms to maintain production levels, thus destroying natural habitat. Is that really a net win for the environment?A better approach might be to tax the fertilizer and then use the proceeds to clean up the algae or some other measure that would promote a cleaner ocean.

Another example is the Alaska National Wildlife Refuge where drilling is prohibited. While this ostensibly protected wildlife in the refuge -- a debate by itself -- it did not diminish the U.S. appetite for oil. The result is that instead of getting our oil from modern facilities in Alaska that we get it instead from some other place, possibly such as Nigeria where there is much less much concern for the environment. Again, what is the net result? Again, why not tax the oil and place it in a special fund to expand the nature preserve?

When using government legislation to serve your ends the law of unintended consequences abounds and environmentalists would be better off in many instances by adopting a market-based approach. This presumes, however, that the environmentalists sincerely care about nature and do not harbor inherit anti-free market sentiment, which is not at all clear.

Update: Another part of a pro-green growth agenda could be ending farm subsidies, especially for ethanol. It is both horrible for the environment and the spending could either be used more productively elsewhere or used to fund tax cuts.

Oh, and yes I support the Pigou Club.