TheMarketForIdeas

Climate change and sustainable development are, somehow, like “love and marriage”, and they go together like “a horse and carriage”; and if you ask “the local [as well as global] gentry”, they will say that this is “elementary”. But despite a basic consensus, that something is happening to our earthly environment and something must rapidly be done, the problem is much more delicate scientifically and politically.

Three interlinked dilemmas come to our mind. (1) Is climate change an undisputable fact? (2) If proven, is it a cosmic hazard or man-made? (3) If it is anthropic, which is the best way to solve it sustainably: free markets or state policies? The first two are the natural-scientists’ job, while the last one pertains to social-scientists. But all three are extremely interesting, economically, for politicians as for the rest of us. 

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At (beyond) 40 Celsius, the human body goes haywire and hallucinations are the new reality. At 40 Celsius in the soup, chez Alain Ducasse, Paris, the bill is unbearably hot for most of us. At 40 Celsius, indoors, retail sales for air conditioning as well as otitis medical cures explode. At 40 Celsius, outdoors, brewers take advantage of the drought-ruined farmers’ faint subsidy.

Joking on climate change (NB: a consequence of human species unsustainable development practices since the Industrial Revolution) may not get us rid of the chills which this phenomenon has reserved for us and the future generations. The same is true also for taking too seriously convenient “inconvenient truths” and implementing ill-designed public policies. 

The Planet is warming up 

Each and every year we are (early) warned that “this is the hottest summer of the last decades”. And that this is Industrial Man’s fault. Physicists, geo-physicists, climatologists, meteorologists, oceanographers, chemists, biochemists, biologists are portrayed as agreeing this. In academic democracy, public-funded vocal opinion is good proxy for universal truth.

Let us not forget though that not so long ago the same academic democracy decreed that no machine heavier than air can fly or that the Sun revolves around the Earth. The only argument of “man-made climate change” thesis is that there can be observed a historical correlation between increased carbon dioxide concentration in the atmosphere and higher temperatures.

But, as any high-school teen is taught (or should be), correlation (as neither consecution nor coincidence) does not mean causation. Not to say, few mention negative correlation between 1940 and 1975 or the paleo-geological evidence that the increase in CO2 concentration in the atmosphere took place, on average, 800 years after (not before) a period of global warming.

Although apparently we lingered a bit in the courtyard of natural sciences, political economy can further enlighten us on the harsh consequences that we expose ourselves as species by adopting nonsensical eco-theses. The problem with fighting chimerical enemies with already heavily scarce available resources is equivalent to “sustainable” inefficiencies and inequities. 

The science is boiling 

The first answer of “basic instincts” economics is rather petty – any researcher tends to be more or less biased towards the interests of the grant sponsor and the results that can afford the research to continue. If we’re talking public money, we can only assume, plausibly, a self-perpetuating raison d’état in financing research that justify state interventions in the economy.

A more concrete answer can be built on decade-old case, the famous “Stern Review on the Economics of Climate Change 2006”, an independent report by Sir Nicolas Stern under the patronage of the British Government, also presented in Bucharest at the beginning of 2007. The report perpetuated the Club of Rome’s omen on “environmental economics and politics”.

Skimming throughout several scenarios, crossing decades, math probabilities and Celsius degrees, in the purest scare-mongering style, the aforementioned report quintessence was the following: the costs of state inaction were estimated to 20% of global GDP, while those of intervention were only 1%. Any simpleton can understand that a public policy is pure bargain.

In order to avoid the loss of those 20% of global GDP, the world should decrease its carbon emissions to 75% from the levels at the time of the report by 2050. Considering though the technological patterns and consumption preferences, the Report remained silent in explaining how these constraints would not also lead to comparable loss of GDP. Ce qu’on ne voit pas… 

The stats are burning 

According to Stern, the action to upgrade current technologies to less polluting ones looked even cheaper than the modicum 1 percent of global GDP to be allowed to world governments. And closing on that objective would only take a doubling of public funds for energy research and development, to mere 20 billion USD or 0.05% of world GDP.

Although reasonably noticing that low carbon technologies cannot be efficiently exploited at the current point in the learning curve, Sir Nicholas argued for substitution, ignoring the logical and natural connection between the exploitation of current carbon intensive technologies and the future emergence of viable green technologies.

Economic logic assures us that technology cannot appear ex nihilo and cannot proliferate unless supported by a certain stage in capital accumulation. And capital cannot accumulate if untied from the stage of currently efficient technologies. Only imagine medieval “green” leaders banning Watt’s engine waiting for renewables and miracles.

Capital development is the only way that leads, in time, to a refinement of technologies. It is this exact improvement that affords us, even though at a smaller scale, the possibility of thinking of less polluting technologies. Thinking at the extreme: preaching too “green”, too early might have led humans to “sustainable subsistence economy”. 

But Trump stays cool 

In the meantime, the world is richer with a new climate treaty, inheriting the Kyoto Protocol: the Paris Agreement, sealed in 2015 and signed in 2016, was ratified by the end of 2017 by 172 countries (out of 185 signatories). It epitomizes the contemporary orthodoxy in the field: capping CO2 emissions, trading pollution rights, and financial aid for ecological friendliness.

Practically, the “world” committed itself to keep the global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to do its best to limit the temperature increase even further to 1.5 degrees Celsius. The agreement also aims to strengthen the ability of countries to deal with the impact of climate change according to the level of development.

US President Donald Trump is not impressed by the arrangement and by the factual and logical proofs behind it. He is neither a fine connoisseur nor a principled critic, since his arguments are rather holistic and pragmatic: Trump is a free marketer in the morning, only to become an interventionist-protectionist at noon and nobody knows how evening will find him.

With respect to the Paris Agreement, Trump fears the global redistribution to the detriment of the US economy: the waste of American taxpayers’ money to finance eco-development abroad and the anti-competitive cost of eco-compliance in terms of American jobs loses. But the sceptical case against the mainstream environmentalism works beyond American injuries. 

From a chronical un-sustainability of sustainable development 

The mainstream “economics of sustainability” rests on the “ethical axiom” that it is every generation’s responsibility to “preserve” a certain amount of “capital goods”, required to sustain a certain “level of income” for the members of the generations to come. The terms highlighted above hide, despite an apparent common sense, a predisposition to erring action: “capital” is seen as a rather crude physical concept; “preserve” refers to tax-spend-regulate-type of public policies, and “level of income” denotes the faulty conviction that the future benefits (basically, nothing else than subjective valuations) may be imputed by economists-bureaucrats out of (an unmarked to market) stock of environmental social capital. Therefore, it becomes obvious that the discussion is confiscated and monopolized by the public sector: the said resources (such as eco-systems, atmosphere, oceans, exhaustible resources and the like) are and should remain public or publicly managed, while the pure privately owned environmental assets are and should rest marginal, for humans are profit-seeking short-sighted animals, thus completely unable to sustainably discipline the anarchy of markets. The proper “playing ground” of the great quest for sustainability is the “public goods and services” domain, that is to be brought to order through some kind of centrally planned and enforced social responsibility.

This “scientific” trend fills up the “catwalk” of contemporary theoretical and political debates on sustainability, fashionably oriented how to make the governments more effective in this. But from the viewpoint of “free market economics”, it only replicates the very errors signaled when Mises and Hayek challenged Lange and Lerner in the “socialist calculation debate”. Apart from unsound incentives coming from forced public property (tragedy of the commons, free riding, moral hazard), the quasi-absence of private property escalates in mere fumbling. The process of social coordination of capital allocation and preservation cannot bypass the realm of “environmental assets”, subject to scarcity and prioritization, choices and sacrifices. Without private property rights and free exchanges of property mediated by sound money, the free money prices (critical carriers of social information) are logically impossible, and, along with this, the capital mobilization and maintenance is erratic, being reduced to some arbitrary decision making by bureaucratic entities, making pseudo-scientific cost-benefit analyses. Referring to capital or income with respect to environmental assets outside private property framework is only a metaphor; to tax-spend-regulate in the name of a whimsical metaphors is fraudulent logically, as it should be legally. Hampering private property rights set-up with regard to environmental resources literally tortures both present and future generations’ “wealth and health”. 

To a (free market) re-development of sustainable development 

In the extensive article “Law, Property Rights, and Air Pollution”, Rothbard (1982) laid out a free-market approach, extending natural private-property-based logic to environmental issues. To quote from the master, the argument runs as follows: “If A is causing pollution of B’s air, and this can be proven beyond a reasonable doubt, then this is aggression and it should be enjoined and damages paid. […] It is only permissible to proceed coercively against someone if he is a proven aggressor, and that aggression must be proven in court (or in arbitration) beyond a reasonable doubt. Any statute or administrative regulation necessarily makes actions illegal that are not overt initiations of crimes or torts. […] To establish guilt and liability, strict causality of aggression leading to harm must meet the rigid test of proof beyond a reasonable doubt.” Primum non nocere: this is decent caveat (also) in the environmental field.

Prolonging the ethical and efficient response of private property rights in resource allocation and administration, this iconoclast perspective on sustainability stresses out the input of complementary, spontaneous, strictly voluntary solutions: sound money, as a device to tame modern boom-bust cycles raids onto the critical resources; independent research, pursued in a competitive and as less as possible corrupted environment; religious stakes, pointing to the need for moderation as earthly training for transcendental life; family cells, managing through the successional logic the sustainability of private (eco-)heritage. These frameworks, once cultivated inside and across communities, may adjust the maximizing behaviour of people far better than coercive mechanism, viewed as discretionary and discriminatory. Environmental concern, as defined and devised today, turns, by using poor means, against its noble purposes.

Natural Ownership. Private property rights, in their natural, Lockean sense, are derived from the principles of self-ownership and homesteading, extending consecutively to productively transformed and voluntarily transferred goods. The arrangement of private property extended to environmental goods provides the translation of equivocal logic of negative externalities and their imputation in that of easily ascertainable property conflicts, repairable by personal and proportionate restitution / compensation of the injured party by the injuring party. Thus, we now have a more accurate sense of the idea that “the polluter pays” than in the pigouvian-type public mechanisms or in the pollution permits schemes, turning the price indicator (by means of legal internalization of the real pollution cost) into relevant dimensional expression of the separation between socially acceptable pollution and unacceptable aggressive pollution.

Sound Money. In a monetary system based on fiat money creation and on credit expansion and cheapening via the monopoly-granted central banking - private fractional reserve banking tandem, the illusion of availability of resources and profitability of investment projects occurs recurrently. In boom times, investors put hasty pressure on the natural environment (e.g., real estate bubbles), only to suffer later on severe correction when discovering that consumers cannot fully absorb the products obtained due to artificially facilitated credit instruments. More often than not, busts do leave behind gruesome images of a bankrupt economy ruling over a mutilated environment. Fiat money and cheap credits give a poisonous helping hand to undermining the very sustainable development so much praised by policy-makers and to burdening the economy with so visible environmental sequelae of the “irrational exuberance”.

Depoliticized R&D. Perhaps the most sensitive area of ​​research in the last decades is the one regarding the climate change / global warming. The international scientific community is divided (somehow asymmetrically) between a “majority” (self-proclaimed, supported by state authorities and financed with abundant public funds) advocating industrial-based global warming, and a contesting and also contested “minority” (accused of being sponsored by the industrial corporations interested in slighting the subject). But the “Climategate” 1.0 (2009) and 2.0 (2011) leaks revealed a very shadowy “dominant” community of climate scientists that invest time and effort in obstructing the dissemination of heterodox facts and data, admitting informally that methodologies are weak and the results are prone to manipulation, and defending generously-funded pre-established political targets rather than scientific truths.

Christian Ethics. Christian theology contains elements of unity more consistent than the schism that impaired it. Eco-theology, a relatively new concept, delivers a message that we are advised to have in mind. The reconciliation brought by Jesus Christ had two dimensions: on the one hand, it had a vertical dimension, because it reconstructed people’s relationships with God, and on the other hand, it had a horizontal dimension, allowing the restoration of ties between individuals and, at the same time, with God’s creation. There is a tendency to neglect this second horizontal axis. Also, Christian wisdom is called to tackle the temptation to ambiguity regarding the ontological ranks of human mission, of nature’s meaning and the creation’s essence (i.e., the New Age movement, a confusing syntheses between Western scientism and Far Eastern mysticism, theosophy, occultism and adoration of a deified nature).

Empowering Family. The modern family has a pervert ally in the very institution that made out of its protection a title of glory, the state. However un-progressive it might sound, the traditional family was constructed as a deliberate economic organization, with a function both of an investment-productive nature (to bring up children and prepare them for working life), and also of welfare-insuring nature (to help parents after they had ended their working life). The welfare state subtly distorted the family’s incentives in the context of privatizing the cost of bringing up children, doubled by socializing the benefits of their support as grown-ups. The family has also a patrimonial dimension, transferable by succession between generations: for instance, inheritance taxes (to “equalize chances” cross-generation) stimulates excessive present consumption, with perverse effects on the sustainability of the society’s development.

Voluntary CSR. “Corporate charity” is a more sincere term than the politicized “corporate social responsibility”. The legal sphere of “responsibility” is entirely solvable in the logic of ownership rights, while the true charitable contribution of enterprises within the community is a quite distinct issue. Nowadays, CSR is more about public authorities’ interfering in the norming of private corporate behaviour forcefully extending the scope of “big” economic enterprises’ liabilities. Forced generosity distorts economic valuations and moral values, while genuine charity has both a “pure” moral valence and an “investment” one: generosity can capitalize on long-term, the public positively sanctioning, through voluntary acts of purchase, the (for instance, ecological) unsolicited noble gestures; for example, voluntary actions of afforestation, cleaning previously polluted areas, recovering and recycling garbage. 

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Part of this article was published in a slightly different Romanian version, under the title “Lumea a făcut temperatură”, as cover story, in Piața Financiară magazine No. 7-8, July-August 2007.