Global Warming: In Defense of the Marketplace?

In all my pieces on global warming, I have made one assertion that has not been challenged: That the marketplace cannot solve the problem of global warming and its associated problems. To be clear, I include with global warming such issues as depletion of resources, over-population, species extinction, and pollution. I see all of these issues as interconnected.

In an exchange between me and Don Merek in my post “Economics and Global Warming: the April IPCC report,” Don rose to the challenge. In response to my assertion that “the marketplace cannot handle a problem of this magnitude,” Don answered:

I see no other system that can do it.
Even if there was man made induced global warming, why does it require extracting more money from my wallet and give to government?
Given governments consistently poor record managing a variety of social, economic, and technical issues, government is the last entity to place trust in for the future of the world.
If many resources become scarce due to global warming, only the market can allocate it most efficiently with the price mechanism.
If land becomes more scarce, and the land must be divided between agricultural use versus industrial use versus living space for people, do you seriously believe government can allocate this best?
The track record for government is not there.

In this short piece, I am not going to offer a direct counter Don’s assertions; rather, I would like to flesh out Don’s argument. I am going to try to enunciate the credo of the free marketplace, along with some ancillary beliefs that many economists have.

First, I am going to use Mark Witte from Northwestern University teaching Ecnomics 201 to enunciate the efficacy of the free market place in meeting problems.

While not addressing global warming and environmental depletion and destruction, Mark Witte offers a good summary in his 201 Economics class handout:

Markets are powerful force of nature.
They are not a necessarily a good force, but they are a powerful force that must be respected.
Markets embody a form of collective intelligence.
Markets somehow know how much food Chicago will need.
Could government or some genius do it as well? I doubt it.
Selfishness is a useful way of organizing society and a useful way of understanding how it is organized.

When I got this far in the post, I hit a roadblock. I wanted to find a reputable economist who satisfied two criteria: Had complete faith in the “free marketplace” sans government regulations or interference and fully accepted the science behind global warming and all the attendant consequences. I spent hours on the internet, searching. To no avail. I suspected that freemaketers sense that global warming cannot be handled within the framework of their economic beliefs.

All this said, I will press on, doing my best to give the best possible argument to the free market.

In summary, because the marketplace works on the principle of self-interest–a kind of collective intelligence–it is the best way to address societal needs; in fact, it may be the only way. Government will fail. It’s intentions may be good, but it is inefficient and clumsy, its work always suffering from the problem of unintended consequences.

By extension, the marketplace is the only way in which to face such issues as crashing fish stocks, ocean acidification, weather changes, sea rise, desertification, terrestrial species extinction, decreasing glacier water sources, depleting resources, pollution, overpopulation, etc. Governmental intervention cannot fairly or intelligently solve these issues. In fact, such intervention is more likely to make matters worse.

There are two ancillary parts of the economic “credo,” if I may call it that. The first is a profound belief in technology. The other is the belief that continued growth is the key to prosperity; in fact, without continued growth, the world might collapse.

Economists often see technology not only as a driver of the market place but also as a means of solving whatever problems it creates as well as fulfilling its needs. Furthermore, the market place creates conditions for technology to create surprising and useful things. In a curious way, selfishness drives technology. Is there a problem or a need? Out of self-interest someone will use technology to solve it. As Milton Friedman said, only a free market can make a pencil. The marketplace and technology are two sides of the same coin, both driven by self-interest. The marketplace can determine exactly how much food Chicago needs; if a food source expires or crashes, technology will find a replacement. Such was the case when Greenspan testified before the Committe of Commerce and Energy, saying that frozen methane hydrates were a solution to the energy crises. He did not address the technological issues or whether we could solve the problem within ten or twenty years. He assumed that the solution was within reach. Technology can do it…now.

Although the following is not in keeping with making this piece a serious defense of the marketplace, I cannot resist one techno-solution that George Reisman at offers for global warming: A carefully controlled nuclear winter. Yup, set off a few atomic bombs at strategic locations. Of course, Reisman does not take global warming seriously, but just in case: atom bombs.

And finally, the last part of the economic credo: Without continued growth, the world might fall apart. Here is Tyler Cowen, addressing the issue of global warming over at The Marginal Revolution:

I have yet to see a real plan which recognizes three points: a) without continued economic growth the world will probably fall apart, b) the problem is real and significant, c) any good preventive solution would require an enormous amount of concerted action across both time and across nations

Tim goes on to say, conveniently, that the threat global warming most probably is overstated.

Here we come, I think, to the heart of the dilemma that economists face: If the world will fall apart if continued growth is not sustained–even given the occasional recession or depression–, how then do we confront global warming, if the scientists are correct? The IPCC seems to be drawing apocolyptic scenarios, threats on a global scale. Economists are generally very uncomfortable with the picture the IPCC and thousands of scientists are drawing; they understand what this may mean to “continued” growth.

Even though I do not agree that the free market place is the answer, let me advance further the argument for the marketplace. Suppose, just suppose, everyone–including the economists–accepted the scientific reports, all of them, from crashing fish stocks, resource depletion, species extinctions, weather, sea-rising, pollution, over-population…you know the drill.

Would not, out of self-interest, the market place respond intelligently? Would not the collective wisdom of the billions of rational beings comprising the market place, acting from pure self-interest, put a premium on those activities to lessen, to mitigate, yea, to reverse global warming? After all, the market place determines value. The highest value is self-preservation.

Could government intervention, in the final analysis, be left out of the equation? Or must governments create artifical market places–through carbon trading, carbon taxation, etc. Are those enough? Is something more needed?

Can the marketplace alone, along with technology, handle these issue?

If free marketers cannot show that their policies of deregulation, low taxation–all part of the free market mentality–are enough to deal with global warming, population growth, weather, pollution, rising seas, depletion of essential resources etc–then they and the free market mentality may well be an endangered species in the not too distant future.