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December 16, 2004

Libertarianism and Pollution's Externalities

In many ways I am a libertarian but I can never bring myself to make the giant leap that so many others in that camp seem to embrace. So that's why I welcomed the opportunity to guest post this month at the Agitator, the blog of famed libertarian writer Radley Balko. There I cross-posted a brief update on COP 10's conference addressing global climate change, conluding, "This probably isn't a view shared much on a libertarian blog, but the C&C appears to be a elatively sensible solution to global carbon emissions." In the Agitator discussion board reader "LeeFranke" offered a common libertarian response:

If people really want to reduce carbon dioxide emissions, the market will reflect that and the emissions will be reduced.
A more sensible libertarian with the handle "Westy" soon provided the proper response, but I think it's worth exploring a few important shortfalls in the traditional libertarian approach to envrionmental externalities.

Ronald Coase's work is usually applied to law and economics (called "Coase Theorem"), but there's enough property rights involved that it works very well with environmental externalities. Coasean irrelevance observes that people will agree to circumvent disadvantageous (inefficient and suboptimal) assignments of rights and obligations. If factories were entitled to pollute, downstream farmers would buy filters for upstream polluters if the injury by the pollution was greater than the cost of the filter. If polluting were prohibited, upstream polluters would buy the tolerance of downstream farmers if the filter cost more than the polluter's injury. People and the marketplace determine outcomes; people will work around the law to get the best deal. That's a highly simplified summation of Coase's Theorem and although many libertarians don't realize it, it is this theorem that forms the foundation for much of libertarianism's philosophy. It's an attempt to find solutions to pollution without government help.

But as with most theorems there are a number of assumptions that don't always hold in reality. For instance there are transaction costs, hold-outs during negotiations, free riders, imperfect information, and different risk preferences. Moreover, it doesn't work in a number of important areas affected by the environment, such as when the resource can't be divided into private property (air, some water).

Once you puncture the theory the problems turn from a trickle to a gushing stream. If 999 residents agree to accept damages from the factory, but one insists on his right to clean air, what happens? This problem exists in reverse too. There are thousands of pollution sources all around us in various forms. Who pays for which, especially given the complexity behind them all. Just as importantly, who decides the proper amount - courts, the legislature, or both? I could go on, especially in noting the problems when risk preferences are imbalanced, but I'll end with the moral dilemma. Imagine being told you don't have the right to keep your leg - only the right to collect damages if someone chops it off. That is, in essence, the idea behind Coasean environmental externalities.

The libertarian approach to government is ideal as it relates to rights and responsiblities so long as those rights and responsiblities do not impose significant externalities on the larger society. When they do, as in the case of environmental pollution, a government response is warranted. Just what response is best, however, is a discussion for another day.

Posted by Joshua Claybourn at December 16, 2004 12:11 PM

Comments

No comments on this??? Geez....

Posted by: Paul at December 16, 2004 11:05 PM | permalink

Well, it is rather self-evident. It's a major reason why I consider libertarianism singularly unfit as a system for modern society.

Posted by: Jim S at December 17, 2004 01:10 AM | permalink

Well it's not that self-evident or it wouldn't claim so many adherents.

Posted by: Joshua Claybourn at December 17, 2004 03:13 AM | permalink

I think many libertarians have a great deal in common with the members of the far left. Both fall in love with the ideal and have a real problem with what happens when their idolized system meets the real world.

Posted by: Jim S at December 18, 2004 11:38 PM | permalink

That's pure nonsense Jim. The reality is that libertarianism can work in the modern world and when you think about a number of arrangements, usually do. Take marriages and not the civil -- government -- part of it. When you marry, you accept that you're taking on family members you don't exactly like or want. But you do. So you figure out ways of dealing with them. Annoying mother-in-law who barges into your home for weeks? Well, you come up with various arrangements from simply putting up with her to putting her up in a hotel for a week so as to limit your time. Or just simply banish her from the household -- if you can actually muster that. There are no rules actually governing family relations save for those to which the family informally agrees. And for the most part, it works.

But the way it works is by accepting tradeoffs. You love your wife, you put up with her relatives. Your kids love you, they put up with your domineering behavior for limited periods of time. That means you only get to be so happy.

That very need for tradeoffs and acceptance that you're not going to completely be happy with the results is why libertarianism is so tough for most people to get their hands around. Most people prefer the utopian ideal that they can get everything they want and will use any tool, including force, to get it. If that means trampling on one's property rights in order to obtain a certain value, let's say, clean air, so be it. The funny thing is that force, be it eminent domain or regulation, often forces you into tradeoffs anyway. It's just that force gives one control.

Which leads to the second reason why libertarian is tough for most people to accept: Humans love control, either controlling other people or their environment. That's why people cut down trees. That's why religious conservatives, for one, can't accept gay marriage: They can't define what marriage means. And defining things is another form of control. After all, he who defines the debate wins the debate.

Posted by: RiShawn Biddle at December 19, 2004 02:32 PM | permalink

Nope. Your examples are ludicrous. In addition you obviously either paid no attention to Joshua's post or also disagree with it. Libertarianism has no methods for dealing with issues like the environment. Nothing in your post changes that fact.

Posted by: Jim S at December 19, 2004 07:24 PM | permalink

Jim:
I wouldn't call ludicrous the arguments of anyone who gets paid to argue for a living. What I'm ultimately pointing out is that libertarianism's purpose -- how to deal with complicated, thorny issues -- works in every facet of life, be it family relations -- and who hasn't had to deal with such thorny affairs -- or the environment. And if paid attention to Claybourn's post, you'd realize that environmentalism is exactly that: A complex issue.

Now does libertarianism deal with anything in a neat, orderly manner? Of course not. But few things in life are neat and orderly. That's what libertarianism ultimately acknowledges.

Let's deal with Claybourn's example of the 999 residents with one dissenter. One possible solution would be to tailor the deal to include such things as pollution credits into the mix. If the remaining 999 is willing to take less money in exchange for accepting the existence of the plant, which would then allow the plant to trade pollution credits in order to reduce emissions, then perhaps the one person is satisfied. Or you buy the one person's property at a higher than market price, which would allow them to move elsewhere.

There are a myriad alternatives out there. It's just a question of inventiveness and ultimately figuring out what satisfies that one person and the group. If they are reasonable, these things get done.

That said, the problem lies in assuring that everyone at the table is fairly reasonable and that's not always possible. This is why libertarian solutions don't always work -- and that we'll admit. That's also why government solutions don't always work either. Any system you can game either through political support or otherwise means that there is a risk that the rights of others can get slapped around like a Hunts Point prostitute. And if you don't believe that, consider all sorts of episodes in history where one group has used government power to gain an advantage to others' detriment: Hutus and Tutsis in Rwanda come to mind.

Posted by: RiShawn Biddle at December 19, 2004 08:34 PM | permalink

All that noted, there are times where government force is necessary. And one has to concede that: After all, a cornerstone of libertarianism is the rule of law which in turn, means the ability to enforce the law. The question is a matter of scope. In the case of pollution, government enforcement action is surely needed if a plant leaks sewage or toxic waste into community ground water. That's sensible since it would likely injure the property of others -- including water -- or violate a contract.

The problem is that government power can wreck havoc on liberties when its power is extended beyond simply enforcing laws to stop people and businesses from violating property and liberty and serving as a dispute resolution mechanism through the court system. By, say, a congressman ameding a law in someone's favor, it can result in a takings from others. Consider for a moment every time eminent domain is used for acquiring property for a Wal-Mart. Or for the Colts in order to get a new stadium. One group wins, the others (smaller property owners lose.) This also happens with environmentalism: By using environmental laws, someone's real estate can be taken for use as someone else's greenspace.

It can also serve as a disincentive for people to settle their disputes informally as most disputes ought to be. After all, if you know that your congressman can fix a dispute for you by amending a law in your favor, then you will continue to do so. That explains why companies, unions and environmentalists lobby.

Posted by: RiShawn Biddle at December 19, 2004 09:12 PM | permalink

And not to take any more time: My apologies Jim for my more arrogant statement in the last post.

Posted by: RiShawn Biddle at December 19, 2004 09:24 PM | permalink

I'm going to rip off some old Polanyi here for my basic, very simple rebuttal of libertarianism.

To wrest questions of humanity and the application of humanity away from human beings and place them in the "invisible hand" of an inherently amoral system is to position not humanity as the critical endpoint of human knowledge and interactions, but rather the market. Classical market economics, which we have thankfully moved away from, but which libertarianism clings to with a utopian fervor, places the market as the guiding force within humanity, rather than having humanity guide the market. This has been fought against since the beginnings of market economies, as societies find themselves unwilling to place themselves and their loved one's fates within the complete purview of a system that does not take into account the shared nature of existence. As mentioned earlier, this belief in a grand future that would naturally progress out of the right application of principles that are rooted themselves within human fallibility and variability is completely utopian. People have fought long and hard over the last hundred years to ensure that economies remain embedded within societies, rather than societies becoming embedded within economies.

That's my answer for you. He doesn't give much of an answer himself to the problem of dealing with the pratfalls of the market system, but his train of reasoning has been widely carried out within the Western experience over the last fifty years. I like it.

Posted by: C M at December 20, 2004 08:07 PM | permalink

CM:
Your problem seems to be that you see libertarianism as a mere economic theory instead of seeing it for what it is: A way of ultimately dealing with others similar to the old concept of the golden rule of don't do to others what you don't want done to you. Part of that is a conflict of visions: You and those who aren't libertarian want to impose your vision while libertarians see the world as a hodgepodge of viewpoints, not all equally valid, but as long as they don't hurt others, deserving of their existence. It's not simply the markets guiding society -- which ultimately does anyway because markets are made of people and people make up society -- but the concept of peaceful coexistence between those who won't agree on everything -- or most things.

Unlike conservatives, libertarism accepts that save for not wanting people killed and wanting a rule of law to govern on the streets, most people will disagree on everything. There are few shared visions; some prefer traditional marriages, homosexuals may want to marry or not at all and some may prefer to remain single. Should everyone be forced to marry? You may argue yes, but I wouldn't. The same with television viewing: I prefer "South Park" and "Law and Order." You may prefer "Masterpiece Theater," others stil may prefer porn.

So how do you resolve such conflicts? Well, one can impose their will on the other. But consider the loss of freedom and the damage to societies that such moves would cause. The Khmr Rouge regime, for example, wrecked the entire Cambodian society; the Communist reign of terror in Russia has wrecked economic and social consequences that still haven't been fully resolved.

Since there are few points of agreement in life and much to disagree on, the best solution is a system that allows either a relatively painless resolution of conflicts and more importantly, gives people the right to live their lives in their own way except when they steal or murder. That's where libertarianism comes in and where it works.

Now libertarianism is far from Utopian, as some of you suggest. In fact, it's anything but. It's a system of trade-offs, opportunity costs, gaining something and losing something else, not having your cake and eating it too. I'm not a big fan of smoking in bars; it ruins my health and clothes. Yet going into bars is a completely voluntary thing. Besides, I want to go out and have fun. So I make a trade-off; smelly clothes in exchange for an occasional rum and coke. That's the simplest trade-off, but not the only one. And more importantly, not Utopian.

Posted by: RiShawn Biddle at December 20, 2004 09:08 PM | permalink

I understand your points on Libertarianism, and I have been widely attracted to its social aspects since I began seriously thinking about politics. You know with an opening sentence like that you're going to get a however. However, I stand by my assertions that it is essentially utopian in that it sees a variable action, human interactions within a market system, continuing along a line of progress in a non-variable fashion.

Your explanation of trade-offs seems to just be a cost-benefit analysis, thus grounding it deeply in market considerations. Your example of going out to the bars fails to account for such important categories as free riders and infrastructure development, two areas where expansions of market principles over social decisions have been shown to produce negative development patterns.

Those are all minor points however. I am deeply wary of two portions of your post, the peaceful coexistence statement and your belief that markets are reflective of, rather than formative within, societies. Peaceful coexistence can only be expressed as a product of market systems if peace is only meant to be an absence of physical violence, as one of the cornerstone of markets is creative destruction, a decidedly non-peaceful force. Markets inherently change the nature of the society they take part within through a separation of production from income as represented through the change in the following two schemas

commodity>>>>>money>>>>>>commodity
money>>>>>>commodity>>>>>money

To argue that the shifts in American society, for example, in the late 19th and early 20th century were merely manifestations of that society itself is to ignore whole strands of American populations that resisted the move towards regimentation and industrialization bitterly as well as the manipulation of that culture, especially within its governments, by the forces of the market.

I have to be up for work in the morning, so I'll leave that at that for now.

Posted by: C M at December 20, 2004 09:47 PM | permalink

Cost-benefit analysis? Well, at the heart of life are cost-benefit analyses of all sorts. Why? Becauuse half the time, life is nothing more than a series of trade-offs half the time. Why? Because you make choices as part of living, which often means weighing both the tangible and the intangible. After all, some of us care about money while others care about power, close family relations and piece of mind. And what we define as important within those boundaries differ between each and every person, which means making trade-offs.

Want a relatively secure income and benefits? You have to work for someone else, which means submitting to their rules and roadmaps. Want independence and the ability to make billions? Then you start your own business, but take the risks that come with it.

This goes further into the intangibles. Wife cheats on you? You can either divorce and take the various social risks -- including the loss of friends, loss of control over a portion of your income and a close relationship with your children (who will also suffer other social or intangible problems.) Or you can stay in the relationship and deal with the problems: A marriage that's not working very well, personal unhappiness, a spouse who may not want monogamy at all. These are trade-offs we make in order to secure personal satisfaction and happiness.

But I can't define what personal happiness should mean for you. For myself? Sure. But not for anyone else. And guess what? Neither can you. That's why conservatism and leftist ideologies fail: Both try to define other people's happiness and cannot. Conservatism may be good at protecting traditional ideals, but not everyone is a traditionalist. Even traditionalists differ on what constitutes worthy tradition and those that should be discarded. Leftists try to provide the greatest amount of material and social gain to the greatest number. But it fails for numerous reasons, including the fact that what constitutes happiness for me does not exactly fit for thee.

Ultimately markets do reflect society if the markets and societies are relatively free. That's because organizations of all kinds, be it churches or companies, arise to meet them. Do they give a complete definition? Of course not. Some things aren't measurable (such as underground economies and prostitution) for various reasons. And those things that are measurable don't give a full statement of what's going on. After all, based on the number of churches, participation in churches, ownership numbers of video games and video game revenues, one would get the perception that this country consists of a bunch of bible-thumping, "Grand Theft Auto"-playing schizos. Look further and you might get very different pictures.

But guess what? Perhaps it's not supposed to be measured. Perhaps we're not supposed to know. After all, there's nothing in the Constitution or in the Bible or any important document that says that we're supposed to knwo what people really want anyway.

Now can everyone peacefully co-exist? No. The personal desire for power, for example, creates conflict because power, unlike momey, isn't easy to define. Criminals also create problems because they don't believe in following social norms of any kind: They thrive on lawlessness. However, they are the few more often than the many and in domestic situations, there are ways to deal with them. A fundamental rule of libertarianism is rule of law or as I like to put it, don't do unto others that you would not want done onto you. There are numerous ways to deal with criminals and we already do them: Jail, death penalty etc. Foreign policy is a different story and I'd be the first to tell you that. And that's why I'm dissent from large portions of libertarianism when it comes to foreign affairs. I'm a limited interventionist who believes that war is needed both in self-defense or as a limited pre-emption of a credible threat. That's why the War in Afghanistan is proper in my eyes (Al Qaeda) while the Iraq invasion was a folly (Saddam wasn't a credible threat; we ignored a real threat in Iran and paying the price for it.)

Now CM, your ultimate problem has nothing to do with logic, but with your vision of the world and mine. We think differently, so we disagree. That's fine.

Posted by: RiShawn Biddle at December 21, 2004 08:47 AM | permalink

 
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