Thursday, January 5, 2012

Can Economists and Environmentalists Get Along?

Over at Legal Planet (here), Dan Farber observes that economists have learned a lot over the past couple of decades about how to deal with environmental problems in their models, and argues that environmentalists need to embrace the positive utility of economics for their cause and appreciate that trade-offs are sometimes necessary. In support of this argument, Dan enlists a neat graphic (reproduced below) from a Gallup Poll, showing an unmistakable shift in attitudes of Americans, who now favor economic development even if it requires a marginal reduction in environmental quality.

Without disagreeing in any way with Dan's larger point, I think this graph provides only weak evidence of a shift in public priorities, away from environmental protection and toward economic growth. First there is the question of whether the crossing of the lines after 2007 is a temporary phenomenon - an artifact of currently weak economic conditions - rather than a more robust change in preferences. Prior to the global economic depression of 2008, from which we are only slowly recovering, a significant majority (55% to 37%) thought that environmental protection should be prioritized over economic growth. That the lines crossed during a steep economic downturn is easy enough to understand, given that environmental protection, beyond minimal standards of air and water quality, is in the nature of a luxury good (as the "Environmental Kuznets Curve" suggests).

Moreover, even if the graph is emblematic of a longer-term change in attitudes, the survey questions on which it is based are premised on a common category mistake that conceptually severs environmental protection from economic growth as if they are not part of the same social welfare function. In other words, the reason environmentalists need to pay more attention to, and be more accepting of, economics is not so much because people prefer economic growth to environmental protection but because environmental protection is an essential component of "real economic growth," as defined by Sir John Hicks 65 years ago (see his 1946 book Value and Capital), and is most effectively advocated as such.

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