Sustainability: Gore and Blood in WSJ

Today's Wall Street Journal has a commentary from Al Gore and David Blood (subscription required) that asks the question: when will we start accounting for environmental costs?

Gore and Blood begin by invoking the concept of sustainability, and the relationship between capitalism and sustainability. Sadly, they do not bother to define what they mean by either term, and as "sustainability" is a very wooly concept, they can proceed to use it as they see fit to suit their argument. The Wikipedia entry on sustainability, which is extremely thorough, offers some insight into the breadth, and subjectivity, of the various definitions of sustainability.

I have always been quite skeptical about the definition and uses of the concept of sustainability, particularly when they start from a position of antagonism between long-run resource supplies and economic growth. This antagonism is implicit in Gore and Blood's introduction to their commentary today, and reflects the widely-held belief in "the sustainability crowd" that resource preservation and economic growth are incompatible.

I reject that argument. Resource preservation and economic growth can be compatible. Under what conditions are they compatible? Under conditions in which information about relative resource scarcity can be communicated across time and place in a low-cost manner. In other words, clear price signals and complete capital markets are the fundamental foundations of aligned economic and environmental sustainability. Capital markets provide agents in the economy with ways to shift resource use through time depending on the intertemporal opportunity costs they see. As a resource becomes more scarce, its price rises. Instruments like futures contracts and financial derivatives enable agents to communicate information about expected future scarcity and opportunity costs into today's resource use decisions.

Thus I think Gore and Blood come at the question of accounting for environmental costs from the wrong direction. Not surprisingly, they think top down, and want to see accounting costs reflected in national income accounts. Gore and Blood put too much trust in national income accounts, when they should instead be focusing on the fundamental economic and policy reasons why agents do not take into account the interdependence of their actions.

In other words, if Gore and Blood want, as they say in their commentary:

Not until we more broadly "price in" the external costs of investment decisions across all sectors will we have a sustainable economy and society.

then they should advocate policies that reduce transaction costs and create better opportunities for agents to trade off their decisions across time and space. That means better-defined property rights and using capital markets. This idea may currently be anathema to those who think that economic growth and resource preservation are incompatible, but if those people are really intellectually committed to resource preservation, then they should advocate this approach instead of the business-as-usual political, regulatory, top-down approach.

But what do we need to have clear price signals and complete capital markets? In reality, completely clear price signals and full caital markets are impossible, but the way to get them as close to that benchmark as possible is to focus on reducing transaction costs and increasing the clarity of property rights definitions. When transaction costs are low and property rights are as well defined as is economical, then scarcity information flows across time and space.

Messrs. Gore and Blood should think more bottom-up than top-down if they want to see that alignment happen.

[Cross-posted from Knowledge Problem]

Comments

[Dano]

Linky behind a paywall.

Anyway, part of - as I'm sure you know - managing resources means a better knowledge and operational base. Babbit's book is a compendium of the latest knowledge and thinking in this subject and advocates more regional planning.

Regional planning isn't simply top-down, but bottom-up as well. There are examples of this BTW and the two are not exclusive, as nature operates in this mode across all scales. That is: not all controls are bottom-up and in some ecosystems the strongest controls are top-down (I'm not advocating, jus' sayin').

Best,

D

[Lynne]

Oops, sorry, forgot to note the subscription link!

[Mark Thoma]

For those without a subscription, I posted a quite a bit of the article here.

[hugh]

Although clear price signals and full capital markets would undoubtedly accurately portray a picture of a resource's scarcity, I do not understand how it would account for the costs of extracting those resources besides those of capital and labour. If the people making a decision about land are thousands of miles away from that piece of land, how will they be signaled about the negative human health and environmental effects from their companies actions. They are disassociated from the consequences of their economic decion making process. Perfect markets and property laws will not change that.

[joshua corning]

That is: not all controls are bottom-up and in some ecosystems the strongest controls are top-down

what ecosystems would those be? The ones god chooses to regulate?

been my experiance that definitions of ecosystems that exclude individual agants pursuing thier own interests, ie natural selection, are always dead wrong. and it doesn't matter if they are top down or bottom up.

here is a fun thing to think about: bottom up is not a synonym for emergant behavior

[Dano]

Whatever joshua.

Every ecosystem on the planet has both top-down and bottom-up control. Every single one.

An example of one where the dominant is top-down would be Yellowstone, where wolves control elk herbivory. I'd be just as happy to argue that the dominant control there is bottom-up because of the parent rock creating the soil types or the climate making the winter harsh, but recent introductions of wolves have controlled the willow growth quite nicely.

been my experiance that definitions of ecosystems that exclude individual agants pursuing thier own interests, ie natural selection, are always dead wrong. and it doesn't matter if they are top down or bottom up.

That kind of definition is incomplete and of course should be rejected. This is not a great discovery you made.

bottom up is not a synonym for emerg[e]nt behavior

Thanks for sharing.

Best,

D

[joshua corning]

Preditor-pray relationships have nothing to do with top or bottom anything....classifing an animal as above or below another is simply a way of learning. It has no place in nature. Just a human construct for the sake of cataloging.

Elk population is a larger determiniate of wolf population then wolf population is a determinate of elk population.

The Yellow stone is an example of an invasive species. The wolves have a huge advantage becouse the ELk have not been exposed to them for a few generations...as time goes by the wolfs will have less and less influance on the elks population...you picked a terrible example.

Also comparing economics and politics to preditor-pray relationships is very telling.

[Dano]

joshua, this is like shooting Googler fish in a barrel. I'll amuse myself one last time at your expense:

Preditor-pray relationships have nothing to do with top or bottom anything.

Please obtain some knowledge about ecosystems. Top-down control.

Elk population is a larger determin[ant] of wolf population then wolf population is a determin[ant] of elk population.

You might want to get some knowledge about this issue before you type.

The Yellow stone is an example of an invasive species... [etc]

Nooooo...both elk and wolf are native. Native. Native is not invasive. The ecosystems have evolved to expect both species (hence this).

Also comparing economics and politics to preditor-pray relationships is very telling.

I didn't. Try this. Or this.

Best,

D