Free Markets Benefit the Environment, Conference Panelists Report

Published May 19, 2017

Speakers on the opening panel of The Heartland Institute’s 12th International Conference on Climate Change (ICCC-12) examined “Environmental Economics,” telling the audience free markets are typically better than big government at protecting the environment, despite widespread belief to the contrary.

Moderator Samuel Karnick, research director at The Heartland Institute, set the stage by noting for the past half-century, economic activity and environmental protection have commonly been depicted as being at odds: Either humans can create and trade new products and services with one another or they can protect the environment. Karnick said the assumption free markets and free people will degrade the environment is wrong. Instead, markets help improve the environment by increasing economic growth and giving people incentives to take care of their property.

Scarcity and Tradeoffs

Panelist Daniel Sutter, a professor of economics at the Manuel H. Johnson Center for Political Economy at Troy University, began his presentation by stating economics is about scarcity and tradeoffs.

“This is a fundamental reality any economic system has to address,” Sutter said. “For example, if we have a forest, we can use the trees to make either paper or houses. This is the tradeoff.”

Markets are a reliable way to deal with scarcity and decide on tradeoffs, says Sutter.

“Markets generally work,” Sutter said, because they perform important discovery functions in the economy.

As an example, Sutter noted we have to discover what goods and services people are willing to pay for and how to acquire the raw materials—such as iron, coal, and oil—to make the products people want to buy.

“The market discovery process is ongoing and critical, with people making decisions based on the information they have at that time,” Sutter said.

Environmental protection is an additional use of scarce resources, Sutter said.

“For example, if we choose not to cut down a tree for environmental reasons, we have to recognize we won’t be able to make paper,” Sutter said. “In other words, we have to compare alternative uses for scarce resources.”

Applying his analysis to climate change, Sutter said addressing climate change is ultimately an economic decision.

“Even if the science on climate change were settled, we’d still have to make choices about the resources we would use and what we would be giving up,” Sutter said. “There’s always going to be an economic decision.”

Externalities and Doing Nothing

Randy Simmons, a professor of economics at Utah State University, said the standard political approach to environmental problems has been to say they are due to externalities and government must act to reduce or prevent such externalities, either by taxing or regulating the activity causing the purported harm.

Externalities are not always bad, Simmons said, and even when externalities do produce inefficient results, there is little reason to assume taxes or regulations will lead to superior outcomes.

In addressing climate change, there are three types of actors on the stage, Simmons said: politicians, voters, and interest groups. Politicians take the stands they believe will get them reelected. Voters, though they may not be educated on a particular matter, often act out of fear instilled by the third set of actors and demand government do something. Interest groups seek government-mandated advantages and use the process to pursue their ideological agendas, which may not have anything to do with climate.

The public policies that result from the political process produce their own externalities, often harms greater than those they are intended to prevent, and politicians are very likely to foul things up when they feel pressure to “do something,” Simmons said.

“Having a policy directed by fear or an ideological perspective is … not necessarily a good thing,” said Simmons. “Politicians like to do something, reporters like to talk to politicians who are ‘do-something’ guys, and it’s hard for politicians to say, ‘Let’s sit back and wait and see how this all works out.’

“Most humans are really bad at evaluating risks,” Simmons said. “So [my take is] we should sit back, wait. We can adapt. We can mitigate. Humans are really good at dealing with slow-moving disasters, even if they generally don’t turn out to be disasters.”

Capitalism as Environmental Protector

Calvin Beisner, founder of the Cornwall Alliance for the Stewardship of Creation, said many environmental writers and policy advocates begin with the assumption economic growth necessarily harms the environment.

“But the reality in history is the opposite,” Beisner said. “A clean, healthful, beautiful environment is a costly good, and richer people can afford more of it than poorer people.”

The greatest threat to the environment is not affluence but poverty, Beisner said, with government being the second-greatest threat. Property rights provide people with incentives to take care of what belongs to them, Beisner said. As a result, socialist governments, which deprive people of property rights and exert great amount of control over the economy, have historically produced much more environmental harm than those with freer economies. Countries with socialist or tyrannical governments have worse economies and more poverty, which combine to produce environmental destruction.

“Capitalism is a much better defender of the environment than socialism is,” Beisner said. “If you look at the history of disastrous environmental policies, socialist countries have a far worse record than capitalist countries.”

Kenneth Artz ([email protected]) writes from Dallas, Texas.