The Cato Review of Business & Government
The Cato Review of Business & Government
Reason Foundation
Dear Editor:
I read with interest Michael Kellogg's article, "After Environmentalism," in Regulation. I applaud Mr. Kellogg's attempt to sort through the advantages and disadvantages of different environmental policy models. Unfortunately, Mr. Kellogg's comparison of command and control, market-based, and free-market models presents a muddled analysis-and conveys some factual errors along the way. Above all, Mr. Kellogg would have done well to apply to his analysis of market-based approaches at least the degree of critical thought that he used to highlight the pitfalls of free-market environmentalism.
The problems in Mr. Kellogg's analysis are legion: I will focus on only a handful of analytical points, beginning with his assessment of market-based policies.
At least four of the criticisms Mr. Kellogg launches against command and control regulations are equally applicable to market-based environmental policies.
First, both command and control and market-based approaches involve centralized, political goal-setting. Under such decision processes, whether setting centralized standards or specifying fees, central goal-setting produces "winners" and "losers." And that implies conflict-the sort of "highly adversarial" processes that Mr. Kellogg seems to suggest are peculiar to command and control. Recent deliberations in California on its tradable emissions program-regarding what baseline emissions to use for establishing credits, what counts as a credit, etc.-demonstrate just how contentious such market-based approaches can be.
Second, depending on the particular policy design and the targeted problem, market-based approaches can also involve as high, or even higher, monitoring costs than some command and control regulations. Indeed, one of the driving forces behind the "technology-mandate" approach of command and control measures is that compliance can be easily determined: either the regulated firm has, or has not, put in place the required technology. By contrast, some market-based approaches can require complex, ongoing measurement of emission outputs, constant restructuring of fees, and monitoring of fee compliance (which can involve significant reporting and auditing).
Third, not all market-based approaches make environmental mitigation costs visible to consumers. Like regulations, such fees, especially if placed on manufacturers, are not at all apparent to consumers as a discrete "price" for environmental protection, and are no more apparent to the manufacturer than are certain regulatory costs. Take "virgin materials" taxes. These are set forth by advocates of market-based approaches as a means of reducing consumption of depletable resources. Such taxes are as invisible in terms of their relationship to the achievement of any environmental goal as regulations that require use of recycled content in products.
Fourth, since both command and control and market-based approaches involve central goal-setting, both face the same sorts of difficulties in addressing scientific uncertainties about harms and setting priorities among complex, often competing goals. Both require a dependence on "the wisdom and foresight of a single, centralized bureaucracy, subject to all the usual problems of misinformation, political pressure, and downright ineptitude," to repeat Mr. Kellogg's own indictment of command and control.
But this point raises another fundamental problem with Mr. Kellogg's arguments. He blurs together two very different kinds of "knowledge problems," with the result that his discussion of market-based approaches is confused at best. Environmental policymakers face at least two distinct problems: 1) how to set priorities and determine goals; and 2) how most cost-effectively to achieve goals once they have been set.
It is only in pursuing the latter-that is, cost-effectiveness-that market-based approaches may offer some improvement over technology-mandating command and control regulations, since market approaches allow knowledge of time, place, and detail to frame individual responses to price signals set through the political process. It is this sort of dispersed production knowledge that centralized bureaucracies lack.
However, this sort of dispersed "production" knowledge, while important to the efficient allocation of resources, has nothing to do with the information problems of defining environmental problems. Questions like "do pesticides cause cancer," or "what is causing ozone depletion" are matters of scientific inquiry. The knowledge problem with regard to these questions is not that centralized bureaucracies lack the information, but that no one has clear answers to these questions. This means we face fundamental questions about whether or not a particular chemical or emission is a problem; we face questions about the risk tolerance and risk avoidance attributes of different individuals; we face fundamental questions about how to choose goals when individuals hold different priorities or manifest different degrees of risk avoidance. In terms of these sorts of goal-setting questions, market-based approaches have no advantage over command and control regulations. Both models rely on collective goal-setting processes, which obscure rather than illuminate information about individual preferences. This decision process is in marked contrast to the marketplace, in which individuals, through their decentralized transactions, pursue widely varying "ends" even in the absence of consensus about those ends. The market economizes on "knowledge" necessary to coordinate the allocation of scarce resources among infinite (or virtually infinite) ends, and it economizes on the need for "consensus."
Without market transactions actually occurring, we "know" nothing about what people really value or how much they value one end over another. Mr. Kellogg notes this dilemma briefly, but fails to explore its implications for central "price-setting" under market-based approaches. Kellogg mentions that there is no "right" price (or "cost") for various environmental externalities that is "knowable" outside of a context of marketplace transactions. "Price is merely a yardstick for measuring the relative value individuals place on use of resources for one end in relationship to other ends. Kellogg acknowledges this problem, but treats it as an inconvenience rather than as the central problem that it is.
In making those remarks about goal-setting, I do not mean to downplay dilemmas consumers face in the marketplace as they make their own choices. Precisely what makes environmental decisions so difficult-whether in public or private settings-is a lack of knowledge about the harms and risks associated with certain production and consumption activities. Are the courts adequate to protect citizens from harms of which they are not aware? Do perceptions of harm count? Or only scientific evidence of harm? Are citizens in a position adequately to use tort and liability laws? Those are important questions, but they are matters that transcend particular environmental policy models: market-base approaches have no advantage over either command and control or free markets in this regard.
I leave to other commentators the task of critiquing Mr. Kellogg's assessment of free-market environmentalism save for one comment. Mr. Kellogg is dead wrong about the inability of the "free" marketplace to accommodate "spiritual" values, which I distinguish from what Kellogg calls "intrinsic values." It makes no sense to talk of "intrinsic values," if by that term one means the world out there and its various components have "value" outside of the presence of any "valuer." The very notion of "value" is a human construct. Nor does it make sense to talk about "value independent of the choices of particular individuals." Even collective decision processes about environmental protection are ultimately an expression, however crude, of the "values" of individuals.
If what Mr. Kellogg really means to identify are spiritual values-valuing "nature as cathedral," valuing the very existence of golden eagles, or Alpine lakes-then he is wrong to assert that free markets cannot take account of these values. Property rights provide spheres of autonomy in which individuals-or groups of individuals-can pursue their dreams, both instrumental and spiritual. The long legacy of private preservationist activities is a testament to how the marketplace translates spiritual values into private actions.
In his discussion of "intrinsic values" Kellogg also displays a common confusion about markets, prices, and values. He writes, "some things simply should not be reduced to monetary terms. Some things are, or should be, sacred." Money is simply a common denominator-a mechanism for making noncommensurate values commensurate in order to facilitate making choices among competing values in the context of finite time and resources. In fact, as Tom Sowell has pointed out, "there are only noneconomic values." He adds, "to say that we 'cannot put a price' on this or that is to misconceive the economic process. Things cost because other things could have been produced with the same time, effort, and material. Everything necessarily has a price in this sense, whether or not social institutions cause money to be collected from individual consumers."
A final word of caution: Kellogg is right that free market environmentalism has failed adequately to come to grips with some of the toughest cases of institution-building, rights allocations, and rights enforcement. But Kellogg's indictment is too broad brush. A property rights approach functions reasonably adequately with respect to resource and land use matters. Negotiated agreements are increasingly emerging among "polluters" and those affected by particular sources of pollution in the form of various compensation packages. Moreover, the boundaries for functioning property rights approaches are even expanding to include some "fugitive" wildlife such as elephants, ducks, elk, and now, in several experimental efforts, to pelagic fish such as tuna. Property rights approaches have been more elusive are in the realm of "fugitive and fluid" emissions, most especially air emissions. Here, we may have to settle for politically set emission charges or standards combined with tradeable permits.
It is worth remembering two points about decisionmaking and markets made by Thomas Sowell in Knowledge and Decisions before we hasten to find the marketplace inadequate to address many (most-per Kellogg) environmental problems. The marketplace, wrote Sowell "is no particular set of institutions…Any comparison of market processes and governmental processes for making a particular set of decisions is a comparison between given institutions, prescribed in advance, and an option to select or create institutions ad hoc." Most important, Sowell rightly reminds us that the most basic question we face "is not what is best but who shall decide what is best." Both command and control and market-based environmental approaches sidestep this question as it relates to fundamental decisions about goals.
Turning from these more abstract matters, I wish to point out a few factual errors in Mr. Kellogg's essay.
He notes that "it is now estimated that as much as 85 percent of the expenditures from Superfund will go, not to cleanups, but to transaction costs …"The 85 percent figure comes from a RAND Corporation study. It did not refer to all Superfund sites, but only to a subset of sites in which insurers were involved. Transaction costs associated with the clean-up for all types of sites fall way short of the 85 percent figure.
Kellogg also appears to confuse industry Superfund costs with those of federal government. He writes that to date Superfund has spend $6.7 billion to clean 180 of 1,250 sites on the national priorities list. He then goes on to say "estimates for the remaining clean-ups range from $125 billion to...$1.25 trillion." The lower $6.7 billion figure is for government expenditures only. The latter billion and trillion dollar estimates are for total public and private costs. Yes, the figures are huge, which is Kellogg's main point; but he misleads the reader by making it appear that the jump in expenditures will climb at least twentyfold.
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