Consider, for example, our atmosphere. It’s not just today’s
pollution that hurts, it’s the accumulation of fumes we’ve been
pouring into the air for centuries. This has already caused ice caps to melt,
hurricanes to gain ferocity, and the Gulf Stream to weaken. Almost universally,
the world’s scientists warn that far worse lies ahead.
The question our generation faces is: will we change our economic
system
voluntarily,
or let the atmosphere change it for us? ... read
the whole chapter
“
Let us suppose,” economist Ronald Coase wrote in 1960, “that
a farmer and a cattle-raiser are operating on neighboring properties.” He
went on to suppose further that the cattle-raiser’s animals wander
onto the farmer’s land and damage his crops. From this hypothetical
starting point Coase examined the problem of externalities and proposed a
solution — the creation of rights to pollute or not be polluted upon.
Today, pollution rights are used throughout the world. In effect, Coase conjured
into existence a class of property rights that didn’t exist before,
and his leap of imagination eventually reduced real pollution.
“Let us suppose” is a wonderful way for anyone, economists included,
to begin thinking. It lets us adjust old assumptions and see what might happen.
And it lets us imagine things that don’t exist but could, and sometimes,
because we imagined them, later do.
Coase supposed that a single polluter or his neighboring pollutee possessed
a right to pollute or not be polluted upon. He further supposed that the
transaction costs involved in negotiations between the two neighbors were
negligible. He made these suppositions half a century ago, at a time when
aggregate pollution wasn’t planet-threatening, as it now is. Given
today’s altered reality, it might be worth updating Coase’s suppositions
to make them relevant to this aggregate problem. Here, in my mind, are the
appropriate new suppositions:
- Instead of one polluter, there are many, and instead of one pollutee,
there are millions — including many not yet born.
- The pollutees (including future generations) are collectively represented
by trusts.
- The initial pollution rights are assigned by government to these trusts.
- In deciding how many pollution permits to sell, the trustees’ duty
isn’t to maximize revenue but to preserve an ecosystem for
future generations. The trusts therefore establish safe levels
of pollution and
gradually reduce
the number of permits they sell until those levels are reached.
- Revenue from the sale of pollution permits is divided 50 percent
for per capita dividends (like the Alaska Permanent Fund) and
50 percent for public
goods such as education and ecological restoration.
If we make these suppositions, what then happens? We have, first of all,
an economic model with a second set of books. Not all, but many externalities
show up on these new ledgers. More importantly, we begin to imagine a world
in which nature and future generations are represented in real-time transactions,
corporations internalize previously externalized costs, prices of illth-causing
goods rise, and everyone receives some property income.
Here’s what such a world could look like:
- Degradation of key ecosystems is gradually reduced to sustainable levels
because the trustees who set commons usage levels are accountable
to future generations, not living shareholders or voters. When they fail
to
protect
their beneficiaries, they are sued.
- Thanks to per capita dividends, income is recycled from overusers of
key ecosystems to underusers, creating both incentives to conserve
and greater
equity.
- Clean energy and organic farming are competitive because prices of
fossil fuels and agricultural chemicals are appropriately high.
- Investment in new technologies soars and new domestic jobs are created
because higher fuel and waste disposal prices boost demand for
clean energy and waste
recycling systems.
- Public goods are enhanced by permit revenue.
What has happened here? We’ve gone from a realistic set of assumptions
about how the world is — multiple polluters and pollutees,
zero cost of pollution, dangerous cumulative levels of pollution — to
a reasonable set of expectations about how the world could be if
certain kinds of property
rights are introduced. These property rights go beyond Coase’s,
but are entirely compatible with market principles. The results of
this thought
experiment show that the introduction of common property trusts can
produce a significant and long-lasting shift in economic outcomes
without further
government intervention. ... read
the whole chapter