Tuesday, June 25, 2024


Dhaka Tribune

Of course we have problems

But how do we go about solving them?

Update : 02 Apr 2023, 01:20 AM

It's easy enough (and people do this) to claim that free market and capitalist folk like myself just don't care. In fact, one climate change organization claims that I am a climate change denier because I recommend a carbon tax as the way to solve that problem.

That I recommend the same thing as the Nobel Laureate on the subject, Bill Nordhaus, the same thing as the British government report, the Stern Review, and even the economics section of the IPCC itself doesn't matter. I'm a climate change denier for insisting on an unfashionable-yet-efficient solution to the problem. 

Ah well, I can put up with being unfashionable -- you should see the way I dress.

At which point my disagreement with the Centre for Policy Study over this matter creeps in. They say “eventually shifting to a carbon tax “ and I say start with a carbon tax. We both know that this won't be an entire and total solution, but my point is that we should do the big and sensible thing first and then clear up the minor stuff.

After all, we want 160 million Bangladeshis -- or perhaps all eight billion humans -- to make those little changes in daily life which reduce carbon emissions. The way to do this is to change the prices that all eight billion face in their daily lives -- every decision is informed by the cost of carbon emissions.

This idea, that price is the right way -- often enough to deal with environmental problems -- faces a certain opposition. Not just from those who don't like markets or capitalism but also from those who would get comfy office jobs from using non-price mechanisms. Like, say, Ms Semedo, Deputy Director-General of the UN Food and Agriculture Organization, who tells us in this newspaper that usage of fresh water is a problem.

Indeed it is. This is called the “tragedy of the Commons.”

When anyone can just go use some resource then if we have open access -- what is called Marxian, but really just means anyone can turn up and have some -- then we've got a problem, if more people turn up than there is resource available. We have two possible routes of solution, we can go all “capitalist and market” and solve it with taxes, property, and prices. Or we can go socialist and solve it with rules, law, and government. Which solution works best just depends. 

We have substantial real-world evidence that farmers take better care of their fields if they own them instead of their being common land with rules about usage. Actually, there is some thousands of years of evidence of that one. We have much more recent evidence that giving fishermen rights in catches and fish populations (so called “individual fishing quota”) works better than bureaucrats in offices like the EU's Common Fisheries Policy.

We have at least that theoretical result that a carbon tax would work better than planning -- given what planning has resulted in Europe, that seems proven too. On the other hand, the great comfort of modern life -- sewage treatment -- seems to work better through regulatory provision. So too, to a great extent, does air pollution. So, it really does depend on what we are talking about, what the specifics of that thing are. 

Our UN bureaucrat tells us that “the international community aimed to emerge with a Water Action Agenda” and “integrated water resource management approaches” and “we need strong political will” and, yes, “proper planning.”

To which the answer is no, we don't. What we need are proper prices. 

The standard example used here is that certain farmers in the California desert have privileged access to water. They use -- and this is true -- hundreds of dollars of water to grow a hundred dollars worth of crops. In some areas they pay $100 per acre foot (about the amount for two American households for a year) to grow alfalfa, which is really just a fancy sort of grass.

When American households would happily pay $500 each a year for the same water to run their showers, toilets, and so on, growing the alfalfa is a destruction of value. California actually has laws against farmers selling the water to households. Also, California mandates that households must restrict their showers, their toilets, and so on so that the farmers can have the water. That's the sort of madness we get with planning and not markets. Things get diverted to politically powerful but lower-value uses.

We do actually know the correct answer here. Just put a price on water and watch as it flows to the highest-value uses. Of course Ms Semedo won't like that as it provides no comfy jobs for bureaucrats in nice offices. But perhaps this is a sacrifice we should all be willing to make in order to make the world a better place?

Tim Worstall is a senior fellow at the Adam Smith Institute in London.

Top Brokers


Popular Links