Environmental Economics (Philosophical Issues)

    Some would say, "Environmental Economics"--isn't that an oxymoron!?  There may be some reasons--which we'll discuss-- not to like the economic approach to environmental policy, but the view that economics clashes inherently with environmental concerns is not one of them.  Many people believe that economists have an overriding concern with the production of ordinary goods and services and that economists think that environmental concerns are "bad for the economy."  This is not the case: economists are interested in allocating resources so as to give humanity the highest-valued bundle of goods (ordinary and environmental goods) that can be obtained from the resources at hand.  If people come to care more for the environment over time, economists would love to see that reflected in improved environmental quality over time--despite necessary cost increases imposed on producers and consumers of goods made more expensive by pollution controls.  Indeed, economists have frequently criticized measures of economic performance (e.g. GDP) that fail to include environmental goods that people care about.  But economists also know that people care about a great many things--warm homes, good food, pleasant entertainment, etc.  How does one decide how much of a good--even an important good like environmental quality--should be "produced" (we produce more environmental quality when we produce ordinary goods in a less-polluting, but more costly, way)?  Clearly, we would not want a zero pollution economy, because a zero pollution economy is a zero production economy--and a zero production economy is a zero person economy!  [In the jargon of the economist, the costs of pollution control exceed the benefits of that control at such a high level of control].  But, at the same time, it is very clear that we don't want rampant pollution with people dying in the streets, choking on foul air and doubled over from drinking tainted water.  [In the jargon, the benefits of pollution control exceed the costs of that control at such a low level of control].  So, we see the "right" amount of control lies between the extremes--but where?  How do economists think about this problem and how does their way of thinking differ from others concerned with the environment?
    Economists believe that rational people will take any actions that have expected advantages (called "benefits") greater than expected disadvantages (called "costs")--as they see the benefits and costs (those are both subjective--examples).  In doing so, they will make themselves better off, which is presumed to be their goal.  If, on the other hand, people people routinely took actions with costs greater than benefits, we would think them to be irrational since they are deliberately making themselves worse off than is necessary.  Indeed, viewed this way rationality may be viewed as a Darwinian survival trait--people who routinely make themselves worse off, are less likely to survive and pass their genes on to future generations!  (Discuss the animal experiments and the role of incentives).   Actions with benefits greater than or equal to costs are said to be "efficient" actions, while actions with costs greater than benefits are said to be "inefficient" (Discuss full costs and benefits).
    The easiest way to understand the philosophy underlying the economist's approach to analyzing the environment is to first consider how an economist thinks about  how much of an ordinary good, say blue jeans, should be produced.  Recalling supply and demand analysis, there will be an equilibrium price and quantity of blue jeans produced.  (GRAPH)  The equilibrium is usually discussed from the perspective of the price axis--but let's look at it from the quantity axis.  When demand is equivalent to "human marginal social benefit" and when supply is equivalent to "human marginal social cost," then the equilibrium quantity of blue jeans will be called "socially optimal."  Note that one can interchangeably say the quantity of blue jeans is "efficient" in that all jeans with benefits greater than or equal to costs are produced.  (SHOW how any other quantity makes the individuals comprising society worse off).  But, what about cases where the "whens" don't apply (when an equilibrium is not socially optimal or is inefficient): NOTE: In all environmental problems--as economists see them--there is a "missing market"  If you perceive some environmental or other problem, always look first for the missing market.  I believe that disagreements between economists and others interested in the environment would be quite minimal, if we agreed to give priority to environmental problems that we can *all* agree on, prior to attacking the more contentious issues considered above!
(DISCUSSION--the role of property rights/missing markets in appropriate policy--the case of the consumer ivory boycott)

CONCLUSION: The goal of the economist is to have resources allocated so as to provide the amount of environmental goods that a perfectly-functioning market would provide if it existed.  That is, we would like to have additional environmental quality up to the point where MSB=MSC.  [GRAPH: PPF between environmental and ordinary goods, showing two points, one the two-good S&D equilibrium, the other elsewhere--go through why the S&D outcome makes us "best off.")