Quotation of the Day…

by Don Boudreaux on November 22, 2013

in Cleaned by Capitalism, Competition, Complexity & Emergence, Environment, Seen and Unseen

… is from pages 40-41 of Mikhail Bernstam’s insightful 1991 monograph, The Wealth of Nations and the Environment; here, Bernstam describes the “environmental Kuznets curve” (see, for example, Bruce Yandle, et al.):

Competitive firms, in trying to maximise their profits, have to minimise their costs, among other things.  They increase productivity via the use of capital stock and energy at early industrial stages when these both substitute for, and are complementary with, labour.  However, resources involved in energy conversion, materials processing, and the employment of machinery represent costs.  All these costs continue to be minimised.  The growth in resource productivity then outpaces the growth of resource output and eventually compresses the producer goods part in the latter.  Environmental disruption slows down after the initial rise and then declines at an increasing rate.  The result was not a design of participants in open competitive markets.  They were driven by profit motives to eventual environmental ends with no intention of their own.

If you doubt the premise of the above quotation, ask yourself: if you could save $35 over the course of a month by buying for the full price of $20 per month a fuel additive that, with no side-effects, doubles your car’s fuel mileage, would you do so?  And would you do so chiefly because you care about the environment or because you’ll net a gain of $15 each month?

If you think (as some might) “Oh, saving $15 per month is too little incentive for me to go to the trouble,” then imagine that you own, say, the Miracle Maids housecleaning service in Big City, USA; you own a fleet of 50 cars for your maids to use to drive to your clients’ homes and businesses.  Would you then buy the additive for each of your cars?  If you don’t do so, you’ll leave $750 on the table month in and month out – which is $9,000 annually.  If you think (as some still might) that you’ll not bother to act on this cost-decreasing opportunity, then you are not a good candidate to succeed at owning or running a private business.  Academia is an ideal place for you.

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