In my column today in the Pittsburgh Tribune-Review, I explain why I wince even at private initiatives to "live green." Here’s my concluding paragraph:
There are worthwhile private green initiatives, such as driving
less when the price of gasoline rises. But these worthwhile initiatives
almost all are economically sound responses to changes in market prices
– prices that contain information from around the globe about the
objective state of the world. Acting on such knowledge is the best that
we can do
UPDATE: Jonah Goldberg makes a similar point.
Podcast RSS Feed
Full EconTalk Text
{ 25 comments }
Don Boudreaux says “prices that contain information from around the globe about the objective state of the world. Acting on such knowledge is the best that we can do.”
Yeah yeah, a decade ago the price of oil was $10 dollars per barrel and heading south. In April 1999 the Economist wrote it was going to be 5$ dollars and much as a result of that today it is over 130$. Sincerely, you as a tenured professor in an American university think “this is the best we can do”?
This of course does not mean that I do not share the professor’s aversion of the green fanatics who are more interested in selling their beliefs rather than real solutions, just like some of the fanatics anti-fanatic-greens are doing.
Mistake in reasoning there Per:
If people didn't buy gas at $10 a barrel back in the 1990s, it would cost a whole lot more now, not less. The industry would be dead and we would have a lot further to go to meet today's apparent demand.
Just thought I'd point that out. Of course, that kills your whole argument, sorry.
Does it matter that the price signals for many (most?) goods and services are completely distorted by govt interference?
If the top 16 oil companies in the world are all state agents then can we say consumers are reacting to market signals?
If I react to the price of gasoline by altering my driving habits, does it really matter whether the price has been set by a completely free market or by a partly free market that has been distorted by government? It matters to me in an intellectual way but I don't see how my reaction would be different either way. The price level is what it is and it's still making me want to buy less gasoline.
i'm becoming more green…as in, nauseated by this [edited...we'll just call it 'rib removing', and let you figure it out] that's happening everywhere.
http://www.allsp.com, season 10, "smug alert".
What we need is more socialism, not less.
/muirdiot
flash –
ok, fair enough…people make consumption decisions based on prices…not the political machinations behind the prices. though wouldn't distorted prices yield poor information?…such that reasonable individual choices add up to less than desirable results?
separately, i don't know how one can get away with labeling a response to price signals 'green.' if prices drop and consumption goes up that wouldn't seem to be green. or maybe prices continue to rise and the next best alternative to burning gas pollutes even more? dr. boudreaux says we can't even calculate that reliably. so what's green exactly?
Yeah yeah, a decade ago the price of oil was $10 dollars per barrel and heading south.
– Posted by: Per Kurowski | May 23, 2008 9:26:40 AM
You're confusing hindsight for foresight.
That price represented the objective state of the world then. Neither you nor anybody else could have predicted how the following 10 years would roll out nor can you predict how the next 10 years will.
But it's now so bad, because of market prices we don't need you or your 'foresight' (read 'hindsight).
You nailed it Don. One of the most annoying trends in my Inbox these days is emails from Xerox touting how environmentally correct their printers and ink are these days. I do a lot of printing. Usually, what I am trying to achieve with my printing is for the recipient of the print out to feel that she is holding something special. I use high quality, heavy, extra white paper. I like Xerox color laser toners because they are pretty vibrant and durable. That's what I care most about. But I'd guess that unless Xerox marketing is shooting itself in the foot intentionally, people generally want to be assuaged that they are being environmentally sensitive with their purchases. Or that collectively, Xerox thinks its customers respond better to that kind of message than actual product benefits (color range, speed, cost per page, etc.).
Another one that just makes my stomach churn is radio spots that So Cal Edison is running these days, urging us to get our air conditioners serviced, because if we all did that, it would be like taking 100,000 cars off the road. Say they have 2,000,000 customers. So that's like each of us taking 1/20 of a car off the road for $150 out of our own pockets. (a) Everyone isn't gonna do it. And (b) everyone isn't going to do it. I bet even the Prius owners won't do it. This isn't a religion, it's a cult. A religion does not ask its followers to do objectively stupid things for the common good.
FreedomLover –
If you asked for more socialism, Maxine Waters agrees with you. Watch and be amazed.
Check out reactions of other people in the frame – priceless.
http://en.sevenload.com/videos/5R0Ex3l-Waters-oil
I am 100% in favor of pollution reduction.
100% against environmentalism.
More, more, more I say! I can't get enough socialism!
/muirdiot
The price of gasoline contains next to no information about the environment. How can driving less when the price of gasoline rises be considered a private green initiative? If the price of gasoline rises fast enough to ameliorate some of the effects of global warming, it will purely be luck.
I think what drives a lot of environmentalists is that realization, at least intuitively, that there is no price on public goods.
Also, while its possible that the one can make mistakes trying to be green, do you really think it is so hard, so prone to error that people trying to be green are worse for the environment than people who don't care? While I'm sure not every choice is right, I'd bet that the average super cognizant person is better for the environment than the average person.
I generally agree with the point of this post. However, is it reasonable to dismiss out of hand the possibility that there are potentially significant environmental impacts that are not reflected in market prices?
Let me add a little additional confusion or enlightenment to this. The price of gasoline in Europe Japan and many other places have, for more than two decades, effectively been above 100$ for the consumer, not because of the price of oil but because of taxes. And so there in Europe, beside their current Euro advantage, they are much less affected by current oil prices than the US since their trough tax “distorted” prices kept their proportion of SUV´s much better under control.
And so now you need to make up your mind whether you are discussing oil or gasoline.
Don Boudreaux says “I wince at the thought of people voluntarily buying books that explain how to get rich quick or how to lose weight while they sleep. While I don't wish to forcibly prevent adults from choosing to spend their money on such gimmicks, the fact remains that these things are fraudulent. Their purveyors prey on people's gullibility.”
Afraid of a little competition, aren’t´ we?
Per, the flaw in your reasoning is apparent if you watch what Americans are doing rather than asking them what they think. Yesterday, while watching Charles Gibson on ABC News announce that most Americans are staying home for the Memorial Day weekend because of high gas prices, my Mom sent me a picture of the parking area at the marina at Lake Oroville (Nor Cal) where they have their boat. It was already packed early Friday evening. People were out with their houseboats, ski boats, jetskis, you name it.
But perhaps by your reasoning, boaters weren't so affected by gas prices because they already pay a big premium at the pumps on the lake anyway. Gas was over $4 on the lake last winter.
Brad it is just as big a mistake to look at one instance that confirms your prior assumptions and ignore other evidence. Recently, U.S. demand for gasoline has dropped, and demand for fuel efficient cars has risen, clearly showing that people respond to prices.
It does make sense though, that people on the lake will respond less. For one they have already payed a large fixed cost by buying a boat and sometimes a home and a dock.
Charlie: Demand for gas is down, what 1% or 2% from last year? Yeah, gas costs more. To hear the media talk about it, we've all taken up telecommuting and walking to get groceries. That's silly, but not nearly as silly as trying to defend horrendous taxation because it insulates people from commodity prices.
I don't know who "the media" is or when you heard "the media" talk about it, but it sounds like selection bias again. Tim Harford (Financial Times) and Paul Krugman (New York Times) have both been talking about gas and oil consumption lately. Both link to studies of estimates for elasticity of demand for oil and gasoline. If you heard "the media" say something, perhaps it has more to do with the media you sample, than some objective truth.
As for horrendous taxation, I'm not really sure what you are referring to. Perhaps it is subsidization(http://www.icta.org/doc/Real%20Price%20of%20Gasoline.pdf), which definetely insulates people from commodity prices.
Also, Per made an observation that a rise in gasoline won't affect the relative price in Europe as much as in the US. It should be obvious that a $1 rise in gasoline from $3 to $4 is a 33% rise and a rise from $7 to $8 is only a 14% rise. And I think one could read further into his point that since a lot of investment is irreversible (I can't wave my hands and make my Explorer a Civic), Europeans may benefit from the costs they bore by being better prepared now. I am not advocating we have the government routinely try to forecast future prices and tax them before hand, but Per didn't advocate that either. I think Per's point was that a "distortionary" tax may actually lead the economy better prepared.
Interestingly, you actually don't even need to care about many externalities to want a positive gas tax. There was an article in J of Public Economics showing that because gas and leisure are complements, and with pre-existing taxes on labor, even with no externality the gas tax should be nontrivially positive.
Perhaps the European policies are not horrendous after all? If you'd like to overcome confirmation/selection bias you should at least consider ideas that don't confirm your priors.
Charlie: Did I just read that a great reason to support high gas taxes is because people will goof off less and work more? I am stunned that… well, no I'm not. Hey, I love how Per's other big point is that the hosts here are snake oil salesmen. And I love how gas tax proponents have their religion together on subsidies (being against them). I can't wait to see this new religion applied to Social Security and health care!
So other than hating what ordinary Americans like to do on weekends and at night, what is your point?
Per Kurowoskiduck,
"Let me add a little additional confusion or enlightenment to this. The price of gasoline in Europe Japan and many other places have, for more than two decades, effectively been above 100$ for the consumer, not because of the price of oil but because of taxes. And so there in Europe, beside their current Euro advantage, they are much less affected by current oil prices than the US since their trough tax “distorted” prices kept their proportion of SUV´s much better under control.
And so now you need to make up your mind whether you are discussing oil or gasoline.
Posted by: Per Kurowski | May 24, 2008 1:24:30 PM"
The extreme high taxation in Europe is the result of most of the continent's devotion to socialist beliefs. Socialist programs such as subsidized public transportation has to be paid for in some manner. Those extrememly high petro taxes are what pay for all those empty light rail commuter cars that you see going up and down the tracks every 30 or 20 minutes all day and night in between rush hours.
If American want a look at how that works, just go down to a rail line that runs AMTRAK as commuter rail and look at the empty cars, go to Denver, Portland, Dallas, NYC, Boston, Washington DC, San Francisco, Houston, etc. and watch the empty rail cars roll by in the off hours.
Thing is, those trains cost just as much to run empty as they do full, and they run empty far more than they do full, or even reasonably occupied.
Making comparisons between Europe and the USA on the price of gas or oil just doesn't work yet, but it is obvious that we in the USA are being forced to adopt the European model of socialism.
Vidyohs, your comment re empty mass transit reminded me of some recent news here in the Denver area about RTD's (Regional Transportation District) woes. Ridership is up (no surprise), fuel costs are up (no surprise), but revenues are down (surprise). Apparently there was a fare increase which decreased paying riders while many downtown employers pay RTD a fixed price to distribute free bus passes to employees. Those free bus passes added lots of new riders without new revenue while the fare increase may have been more than offset by reduced ridership by paying riders. Interestingly RTD does not seem to track fare paying passenger count vs. pass using passenger count. If so, clearly some management systems/management issues there. Anyway RTD's financial situation in what should be a siginficantly improved economic environment got me wondering how efficient publice transportation really is. Your comment about running empty trains combined with RTD's poor management makes me wonder how efficient our urban mass transit systems really are.
"I can't wait to see this new religion applied to Social Security and health care!"
The argument is not to subsidize things we want more of. If you have a good argument for why oil should be subsidized (you don't) then you are free to make it. Just as people make other arguments that savings/health care/education should be subsidized. To try to imply that to be against a subsidy, one has to be against all subsidies is one of the more ridiculous arguments I've heard in awhile.
"So other than hating what ordinary Americans like to do on weekends and at night, what is your point?"
I'm sure the point is beyond your grasp, but the intuition is that leisure is a normal good just as food, movies and pretty much everything else is. As your income rises you want more of all normal goods. We tend to tax labor and consumption (because we can't tax leisure) encouraging people to shift toward greater leisure time. Now, maybe you are for this, because for whatever reason you think people are not good at choosing the appropriate amount of leisure time. That is, in the absense of any taxes, you think people wouldn't participate in enough leisure. This argument is sometimes made in support of high tax rates in France.
But if you think people are good at choosing optimal bundles of leisure and consumption goods. You want to limit the amount that you distort those bundles. In which case, you'd want to tax goods that are compliments with leisure more and substitutes with leisure less.
I know it is in some ways a difficult idea, but it is worth trying to wrap your head around. If you ever want to overcome confirmation bias, you must force yourself to confront ideas you aren't comfortable with.
*First sentence should read-The argument is to subsidize things we want more of.
{ 1 trackback }