Deadweight losses, Hayekian decision-making, and environmental catastrophe

Jane Galt responds to Jared Diamond’s reflections on catastrophic environmental failure with the sensible point that regulations, like unregulated behavior, have unforeseen and undesired consequences. That fits into the broader point made by David Saxon at Diamond’s lecture: dealing with potential environmental catastrophe requires systematic intervention, and systematic intervention is always a tricky business. At a deeper level, all this is simply an instance of the Hayekian observation that decentralized decision-making always has certain advantages over centralized decision-making.

Right. That’s why we have a fundamentally market-based society. Now the question is when and how to intervene. I don’t find the “government is not the solution, government is the problem” blatting of the libertarians much more illuminating than the rants against consumerism and corporate greed from the left.

The problem is one of balance, of factual judgment, and of institutional design. If global climate change due to greenhouse gas emission is as big a problem as most climatologists now think it is, the fact that any public intervention is subject to deadweight losses and rent-seeking is simply something we’re going to have to deal with in deciding how to intervene, not a reason for inaction.

Anyone who doubts that systematic coercive intervention can sometimes make things very much better need only go outside and take a deep breath. The noisy wing of the environmental movement spends so much time viewing with alarm that we don’t hear much from them — as we naturally don’t hear much from industry and the libertarians — about the enormous success we have had (mostly with dumb, unnecessarily expensive and intrusive command-and-control regulation) in improving air quality since 1950.

Tom Schelling tells of working at RAND in the late 1940s and routinely taking a wet handkerchief with him whenever he had to drive to downtown Los Angeles in order to pull over every few blocks and wipe the grit out of his eyes. I know people my age who were born here and still remember the first time they were able to see the mountains.

The generic case against environmental regulation transparently fails. The remaining question, then, is how much regulation, of what kind, for what purposes. Right now, we’re spending grossly too much on “toxic waste” (much of which isn’t), and not nearly enough on taking the particulate matter out of the air. It seems very likely that we’re doing less than a prudent amount of prophylactic intervention against the very grave risks of massive climate change. The thrust of Diamond’s argument was simply to remind us that this stuff is serious, and that societies in the past frequently collapsed because their political and social structures couldn’t handle the challenge of keeping their impact on the environment down to sustainable levels.

The serious part of the environmental movement has now grown up: market-using or market-simulating mechanisms such as effluent fees and tradable permits, which were unspeakable heresies back in the mid-70s when I was pushing them as a way of dealing with the chlorofluorocarbon/ozone layer problem, are now “in.” I’m waiting for the libertarians to make a comparable amount of progress; then maybe we can get down to business.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: