Market Fundamentalism and climate change
Columbia Review recently posted an article by Erik M. Conway, co-author of The Collapse of Western Civilization: A View from the Future, which seeks to explain how market fundamentalism is contributing to the difficulties we’re facing in coherently addressing climate change. There are a ton of great excerpts in the article, but the one that really seemed to distill the message was this one:
There are many things wrong with market fundamentalism, but the aspect of it that’s preventing us from dealing with climate change effectively is that markets as they currently exist don’t account for the cost of pollution. It’s free to dump carbon dioxide and methane and many other things into the atmosphere. In other words, we use the atmosphere as an open sewer, and don’t charge anyone for dumping stuff into it. In economic terms, pollution is an “externality,” a thing that exists outside the market system.
This very externality problem is really, more than anything, a problem of accounting, and it’s a problem that ecological economists are keen to solve, since curbing greenhouse gases and slowing growth could simply be a matter of changing how we account for these externalities. I’ve talked about this before, but one of the big objections to accounting for externalities is that critics claim it is impossible to put an accurate number on ephemeral things like pollution or environmental degradation. This is, on the face of it, either a lie or a supreme misunderstanding of how the markets work. The markets are, if nothing else, a mechanism for putting concrete prices on things that are otherwise difficult to quantify, sort of like crowdsourcing for value.
I like to use real estate as an example, because real estate prices are something that we all take for granted, yet they are a classic example of quantifying something that is completely subjective. In order to determine the “price” of a given property, we simply crowdsource the solution, by allowing the most recent real estate prices for comparable properties determine the acceptable range of prices. In the end a property is worth what someone is willing to sell it for and what someone is willing to buy it for, but these prices rarely settle outside of the given range at any given time. This system is not perfect by any means–just recall 2008–but it is nonetheless a pretty decent way of using the power of the market to quantify something that is inherently subjective.
Pollution is no different. We can determine PPM of carbon in the atmosphere, and we can even quantify the approximate amount of carbon emitted by any given source. All that would be required would be to create a marketplace for pollution would be to set an initial price (like an IPO for a stock) and let the market take over from there. This is the basis of the Cap and Trade system that’s been proposed a million times since the 1990’s, and it’s a reasonable and sensible plan for capping the emissions of carbon into the atmosphere and ensuring that those who pollute the most pay the most.
I disagree with the authors that market fundamentalism is getting in the way of dealing with climate change, since true market fundamentalism would lead one to buy into the Cap and Trade system. It is an inherently market-driven solution and so it should appeal to market fundamentalists and liberals alike. No, I believe the biggest thing standing in the way of climate change solutions is simply that largest, wealthiest, most powerful companies on the planet have an active stake in denying climate change and maintaining the status quo. Until we curb the power of the fossil fuel lobby and their lackeys in the automobile and power generation industries it will continue to be extremely difficult to get any coherent movement on climate change.
