I just finished reading a great book that substantially changed how I think about economics - "Economism: Bad Economics and the Rise of Inequality" by James Kwak. In a nutshell, the book describes "economism" - which has also been called "Econ 101ism". It is the over-reliance on basic microeconomic principles (the kind I teach in my principles of microeconomics course) and the failure to realize (or admit) that the predictions and prescriptions of these simple models often fail in the real world.
One of the most popular examples of an Econ 101ism argument is the argument against increasing the minimum wage. We all know from principles that an increase in the minimum wage will hurt the very people that it is supposed to help, because it will create a surplus in the labor market, i.e. unemployment. We can even prove that it's true with a nifty graph! But, it's probably not true. (Here is an excerpt from Kwak's book with more on the minimum wage argument.)
Econ 101ism arguments are usually employed by libertarian-conservative types who argue for less government/more laissez-faire. Lower taxes, less regulations, etc. Most Econ 101ism devotees would admit that there are exceptions and instances where government intervention can improve things, like in the case of environmental externalities.
But, sometimes these 101ism arguments are also employed by the left. For instance, the left across American and Europe is making a lot of pro-immigration and pro-trade arguments, while many on the right are arguing for isolationism and protectionism. In this case, it's the left that is on the side of Econ 101ism, since "free trade benefits both sides" is another tenet of 101ism. Of course, that doesn't make it wrong. But we should be wary of arguing about important and complicated issues using simple models that I can teach an undergraduate in 5 minutes.
What does this have to do with environmental policy? It occurs to me that even we environmental economists may be guilty of relying too heavily on Econ 101ism when arguing for policy. Specifically, environmental economists often feel that it's their primary mission in life to convince as many people as possible in the virtues of Pigouvian pricing relative to any other environmental policy. Environmental economists often will go so far as to scoff at any alternative policy. I've done this myself! Several times! Even in this blog!
Preferring Pigouvian pricing to command-and-control policies is fine, and most probably taxes are more cost-effective. But economists may be guilty of letting the perfect be the enemy of the good by constantly reminding everyone around them of the inferiority of alternative policies. Larry Goulder gave a talk at the AERE luncheon at the ASSA meetings earlier this month in Atlanta, arguing that the "probability of implementation" ought to be a desideratum of environmental policy alongside cost-effectiveness. If a command-and-control policy, like a federal clean energy standard, is more likely to pass than a tax, that might trump its lack of cost-effectiveness.
Alternatively, environmental economists could think more carefully about making environmental pricing more popular and therefore implementable. My colleague here at Georgia State University, Stefano Carattini, recently published a comment in Nature describing his research that returning carbon tax revenues to households increases their popularity.
One of the most illuminating points made by Kwak in "Economism" is that, when making arguments appealing to Econ 101ism, the arguers will often claim intellectual superiority by insisting that anyone who disagrees with them only does so because of their ignorance. "If you understood economics, you wouldn't support the minimum wage." Some of us environmental economists may be guilty of the same hubris. Lots of research has been done on the political science of environmental policy, and there is a lot of opportunity for economists learn something from it.
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