Perkins on Stroup, 'Eco-nomics: What Everyone Should Know About Economics and the Environment'

Richard L. Stroup
John Perkins

Richard L. Stroup. Eco-nomics: What Everyone Should Know About Economics and the Environment. Washington, DC: CATO Institute, 2003. v + 91 pp. $9.95 (paper), ISBN 978-1-930865-44-0.

Reviewed by John Perkins (Department of Modern History, Macquarie University) Published on H-Environment (October, 2003)

Eco-nomics: A Dispensable Guide

Eco-nomics: A Dispensable Guide

There is a widespread perception that economists and environmentalists are antipathetic. This slim volume goes a long way in support of that view. A professor of economics at Montana State University, the author has impeccable credentials as a free marketer. A senior associate of PERC, the Center for Free Market Environmentalism, an "Expert" for the Heartland Institute and adjunct scholar with the Cato Institute--a neo-liberal "think tank" that espouses "limited government," his effort here appears to be to provide all the economics that politically active middle-class taxpayers with a high school education need to know in respect to environmental issues.

The model presented is, as perhaps befitting a resident of Montana, that of "Cowboy Economics," as derived from Adam Smith. We are informed that people are innately selfish and pursue their own self-interest. The exercise of altruism, such as the conservation efforts of the likes of John Muir, fits within this rubric, in that the successful preservation of the environment means, for example, fewer possibilities for the likes of Mother Theresa to build hospitals.

The pursuit of self-interest through the market, on the basis of secure property rights and competition, apparently yields the optimum outcome as regards both consumer satisfaction and the environment. In that context the proper role of the state is merely to secure property rights and ensure free competition in the market. Otherwise, the author perceives as a major but largely neglected role of government to be the collection and preservation of data on pollution sources and levels. The examples of negative externalities (of social costs generated by individual economic activities) emphasized by the author are those arising from situations where private property does not exist, as with the overgrazing of common lands and the overfishing of waters, and through government decision-making.

More than a touch of Darwinism is added to the model. Apparently, "competition and conflict are inevitable in a world of scarcity" (p. 18) and "competition implies that some species will lose out" (p. 2). Conflict among human beings in a context of private property rights, however, can be resolved by resort to the courts, which operate on the basis of common law, and the usual outcome is environmentally positive. Whereas, as an alternative, "we often witness acrimonious discussions at public meetings, [and] read angry letters to newspaper editors" (p. 26).

Apparently, disputes over the boundaries of private property "can be easily settled" (p. 18), by civil actions through the courts. The actual cost of such litigation is largely ignored, although the affluence of my local lawyer in suburban Sydney is to a large extent due--apart from divorce cases--to actions in the neighborhood over property rights. By contrast, the author rather strangely more than implies that the establishment of property rights in the "Wild West" was a peaceful process.

Not only is the work simplistic and blissfully ignorant of history, many of the illustrations and examples provided to bolster the author's case are farcical. As "a good illustration" of higher land productivity resulting from secure private property rights the Netherlands is compared with Ethiopia, which is apparently "a socialist nation" (pp. 68-69). Even assuming comparable soil and climatic conditions, the illustration ignores the far higher capital to land ratio in the Netherlands and, in particular, the stimulus to production provided by the Common Agricultural Policy of the European Union, in the form of tariffs and subsidies. The CAP imposes a considerable burden on EU consumers through tariffs on food imports and taxes to provide subsidies to farmers. It diverts capital and labor toward what would be a relatively low productivity in the absence of tariffs and subsidies. The subsidies on the export of surplus EU foodstuffs stymies the development of internal markets in developing countries. The degree of intensification of agricultural production stimulated by the CAP, involving the application per acre of considerable quantities of artificial fertilizers, pesticides and herbicides, generates serious environmental problems through run-off. The disposal of pig manure creates serious problems for farmers, especially in the Netherlands. Although the Schengen Agreements provides for freedom of movement of people between participating EU countries, neighboring Belgium finds it necessary to place officials at border crossing to prevent Dutch farmers from "exporting" their pig manure problem.

The analysis gets worse. The author correlates an "economic freedom index" (pp. 69-72) constructed by two economists, which purports to rank countries according to the extent to which their economies are driven by private decision-making and voluntary exchange, with per acre cereal yields and per capita GDP. Correlations obviously prove nothing. This particular correlation might as well be used to "prove" that low cereal yields account for limitations on "economic freedom" in developing countries. The "economic freedom index" is also correlated (pp. 72-73) with access to safe drinking water and life expectancy, ignoring the historical role governments have played in the provision of the former, using life expectancy and quality of the water in the Republic of Georgia.

It should be obvious to anybody that average life expectancy depends upon a lot of other variables in addition to safe drinking water. For starters a role is played by genetic inheritance, diet, lifestyle and (dare one say it?) the environment. According to the available statistics, life expectancy in Georgia in 1999 was 68.6 for males and 75.6 for females, which are around the figures for the United States by the mid-1970s and those achieved by African-Americans by the mid-1990s. Perhaps the Georgian data is distorted by the reported exceptionally long lifespans reported of some inhabitants. Perhaps, for that matter, the amount of safe (or unsafe) water imbibed explains the differential between male and female life expectancies?

An estimate is employed (p. 78) of the cost of regulatory programs in relation to the resulting life-years of a single person, in which the range is from $23,000 for the Federal Aviation Administration to $7.6 million for the Environmental Protection Agency. This totally ignores the very different problems involved and the bases the agencies started from. It could also serve as a measure of how seriously the environment has been degraded by "unbridled capitalism."

Just as the author concedes that "markets are imperfect," the issue with government regulation is the imperfection of current government decision-making. In addition there is the extent of the environmental problems governments are called upon to fix. It is all very well for the author to laud the admirable efforts of the Oregon Water Trust; a private organization established to buy up existing water rights based on prior private appropriation on tributary rivers and returning them to the spawning of fish. The acceptance of $6,000 by one farmer to stop growing hay for one year is admirable. However, the model is hardly appropriate to such environmental problems as massive salinity in the Murray-Darling Basin in Australia occasioned by generations of inappropriate agriculture.

It is also questionable whether many economists would go so far as to question democracy, where the outcome of the process is what is deemed inappropriate government interference with property rights. Apart from the courts, from the author's perspective the protection of the environment can be safely left to the operation of capital markets and "shareholder power." As cases such as Enron illustrate, shareholders are not even able to protect their own money. On the role of government the author may now be changing his mind, on account of the regulatory actions of the Bush administration. He presumably welcomes the President's recent decision to allow thousands of older power plants, refineries and factories up to twenty percent of the cost of replacing plant as "routine maintenance," thereby not requiring the acquisition of costly anti-pollution technology. Other than for amusement, this effort offers little of value to environmental historians of this generation. Thankfully, the same can be said for most economists.

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