Nature in numbers – Econlib

In Spencer Banzhaf’s account of the history of environmental economics, these are the two most pressing questions environmental economists have asked themselves. In The unaffordable pricesBanzhaf assumes a version of the second question.

The environment is a resource that we want to preserve for future generations so that they can also use it. It is therefore our responsibility to rationally plan its continued use. But the environment is also a resource worth preserving as it is, for its beauty, for our spiritual enjoyment of it, for its own importance, even if, or perhaps especially because, it serves no purpose whatsoever. The idea of ​​conservation, first associated with Gifford Pinchot (1865-1945), and the idea of ​​conservation, first associated with John Muir (1838-1914), are the intellectual lines around which the debate is Banzhaf’s book develops. Both approaches share the problem of pricing the priceless.

The story Banzhaf tells us is a story about the development of ideas, a story that is not linear, not obvious (especially prior to), and a story about both tensions and synergies between academia, think tanks and public bodies.

Banzhaf notes that the term environmental economics was not coined until the 1960s and did not come into general use until the 1970s, but its problems predate the name. The development of environmental economics is intertwined with the development of the understanding of externalities, in both Pigouvian and Coaseian terms, of the tradition of public finance, of agricultural economics, and of the government and the military in particular.

When the government had to develop policy, it faced the problem of understanding whether that policy was worthwhile. But how could we know that? A cost-benefit analysis works well if there are proportional costs and benefits. But what if the benefit or cost is the environment itself? Or nature? Or perhaps outdoor recreation? Can we measure how many people are willing to travel to be outdoors? Can we reliably ask them how much they appreciate the outdoors? Or how much are they willing to pay not to have it destroyed? What if we could compensate those who face the costs? What if we can only potentially compensate those who face the costs? What incentives do people have to tell the truth? Or what if high prices, caused by increased scarcity, drive the discovery and use of substitutes?

The environmental problem became more urgent during the Cold War. One of the problems was ensuring that there would be sufficient resources to survive the communist threat. Conservation and ‘efficient management’ became a priority, especially when it came to water resources. It was difficult to find a method to estimate the value of the losses to nature caused by a water dam, let alone to human life. The resistance to any attempt to give an individual life a monetary value, among other seemingly priceless things, encouraged economists to think not only in terms of costs and benefits, but also in terms of trade-offs. So instead of just recommending optimization, some preferred to simply identify the tradeoffs between incommensurables. This allowed economic experts to provide policymakers with a range of options to choose from, leaving the final decision on what to do to politicians, thus avoiding unpleasant and unpopular recommendations. Part of the problem was that optimization results would not always correspond to political outcomes, as concentrated interests would win out over the diffuse interests of taxpayers and consumers (p. 185). Economists thus found themselves divided between a belief in consumer sovereignty and a belief in political sovereignty, without any obvious solution.

For this reader, the book is a wonderful window into the field and into post-war America. Yes, it’s a history of environmental economics, but environmental economics grew within the economy, and the economy grew within postwar American politics. For me, the message of the book is summarized in the following sentence:

• They joined the government to contribute their expertise to practical problems [economists] had lost at least partial control over their research agenda and were forced by their government agencies to undertake such valuations. Thus bureaucratic necessities became the mother of economic inventions” (p. 229).

The book highlights the complicated and unintentional interrelationship between an academic discipline and a political reality.

There’s much, much more in the book, from the history and reasoning behind cap-and-trade licensing to its connections to experimental economics. Everything is explained in detail and rigorously documented, as the forty pages of references testify. While it may not be a book for a general audience, an economist, or an educated person with a keen interest in the environment, should be able to appreciate its rich content and thorough narrative.