CHAPTER FIFTEEN THE PECULIAR THEORY OF POLLUTION CHAPTER FIFTEEN: TABLE OF CONTENTS The Economic Theory of Pollution Conclusion Afternote: Ecologists's Criticisms of Economics On April 19, 1970, at the time of the first Earth Day demonstrations, the top-of-page headline story in the Chicago Tribune was "The Pollution of Earth: 'I'm Scared,'" with the subheadline "Air, Sea and Land--All Being Strangled." The story was typical of headlines all across the country: "`I'm scared,'" said Joseph Sauris, 16, a sophomore at Maine East Township High School, Park Ridge.... `I don't like the idea of leaving a dead world to my children. That might sound like a cliche, but it may be the truth someday.'" Today, a quarter-century later, people still believe that the earth is being strangled. But what are these deadly substances that are supposedly killing the planet? Almost without exception, the purported pollutions that have most scared the public in the past few decades - Alar, dioxin, acid rain, and a large number of others ranging back to DDT - have turned out to be destructive false alarms (for examples, see chapter 18). Yet the alarms have been much louder than the later all-clears; this contributes to the public's impression that pollution is becoming worse rather than improving. Let us first distinguish between real, important pollutions and false or trivial claims. The worst pollutions of the past were diseases caused by microorganisms, and spread by contaminated drinking water and by airborne germs and insects. The following story conveys an aspect of life that was common throughout all of human history until very recently: The mystery of death finally came into our household. There had been a fourth child born in the house on the hill -- "little Frankie," we always called him -- blue- eyed like my father, the sunniest of us all. For weeks one season he lay in the parlor fighting for life -- scarlet fever -- a disease more dreaded by mothers in those days than even smallpox. Daily I stood helpless, agonized, outside the door behind which little Frankie lay screaming and fighting the doctor. I remember even today how long the white marks lasted on the knuckles of my hands after the agony behind the closed door had died down and my clenched fists relaxed. Little Frankie died, became a pathetic and beloved tradition in the household. My little sister, who had made a terrible and successful fight against the disease, told me how she could not understand why father and mother cried when they talked of Frankie. Pollution used to mean such phenomena as human excrement floating in rivers everywhere, as it still does in India and Thailand (and I'm sure many other countries), and as it did in the Hudson River off Manhattan when I was a young man. When I was in the Navy in the 1950s, there were few harbors in the world that were not completely foul, and it was always disgusting to see native kids diving into that mess to fetch the coins the sailors and tourists would throw near the docks for amusement. In the rich countries we have been so successful in sanitary operations and preventive medicine that infectious diseases are no longer even thought of when pollution is discussed, though in poor countries these diseases still are mass killers. The next worst pollutions of past and present are dust particulates (and perhaps other smog-making emissions) from burning fossil fuels. These have killed thousands on occasion, and have been systematically associated with the death rate in Great Britain and surely elsewhere. Finally, there are the trivial pollutions and downright false alarms. To see how far we have traveled from the serious killers, consider that packages of common salt for use in medical laboratories must carry the statement: "WARNING: CAUSES IRRITATION." And a Geiger counter at a landfill in Berkeley, California, set off a major incident when it was triggered by a bit of iodine 131 in the kitty litter of a cat that had been treated for cancer by a veterinarian. In the poor countries, there are still too many of the age-old pollutions: The next morning, we...went down to the nearby Ganges...Close by us, a young woman held a tiny baby and washed its face with river water. She opened the baby's mouth and with a bit of the Ganges she massaged its gums with her finger. Eight feet away, the corpse of a dead camel floated by that baby. The plan for the next few chapters is as follows: (1) Clarify how economics views pollution - as a trade-off between cost and cleanliness. (2) Study the trends in the purity of air and water as income and population have increased in recent decades. (Surprising to many, pollution has decreased, on balance.) (3) Consider which is the best overall measure of environmental purity and pollution. (Life expectancy seems to be the best, and by that measure pollution is decreasing sharply.) THE ECONOMIC THEORY OF POLLUTION Economic theory views natural resources and pollution as the opposite sides of the same coin. For example, sooty air is undesired pollution; it may also be thought of as the absence of a desired resource, pure air. The economic theory of resources, introduced in chapter 1, therefore applies to pollution as well. If the resource in question - pure air - seems to be getting scarcer, that's a sign that society has been using the resource to get richer. And rich societies have more options (as well as more knowledge) for cleaning the air than poor societies. They can install scrubbers in smokestacks, switch to alternative sources of energy, hire researchers to improve technology, and so on. In short, the perceived scarcity of this resource - pure air - generates a public clamor and then economic activity that creates more of the resource than was originally "used up." The principle behind the long-run increase in our supply of pure air (or any other environmental good) is the same as with minerals, farmland, forests, energy, and other resources discussed in the preceding chapters. And that's why the title to this chapter echoes the title to chapter 1. The "peculiar" theory of diminishing pollution is peculiar only because it runs counter to the prevailing opinion. At first, it seems like common sense to assume that pollution is the inevitable consequence of economic growth. But if we think the problem through, we should expect to see pure air, clean water, and healthier environments in general become less and less "scarce," or easier to obtain, just as raw materials, food, energy, and other resources have become easier and easier to obtain. Our environment should become more and more suitable for human habitation - with no meaningful limit on making it cleaner. A study of European countries confirms the theory that increased income brings about decreased pollution. Countries with higher per capita income tended to have more laws that control pollution. And during the 1970s and 1980s, the richer countries had significantly greater decreases in carbon dioxide and sulfur dioxide than did the poorer countries (though no statistically significant effect on nitrogen oxides was observed). The key conceptual difference between a natural resource and pollution is that the goods we call "natural resources" are largely produced by private firms, which have a strong motive - profit - for providing what consumers want. A deal is made through the market, and people tend to get what they are willing to pay for. In contrast, the good we call "absence of environmental pollution" is largely produced by public agencies through regulation, tax incentives, fines, and licensing. These political mechanisms that adjust supply and demand are far less automatic, and they seldom use a pricing system to achieve the desired result. Another difference between natural resources and pollution is that natural-resource transactions are mostly limited in impact to the buyer and the seller, whereas one person's pollution is "external" and may touch everybody else. This difference may be more apparent than real, however. One person's demand for natural resources affects the price that all pay, at least in the short run; conversely, the price that one person must pay for a resource depends upon the demand of all others for the resource. Much the same would be true for pollution if there were a well-adjusted system by which people had to pay for the privilege of polluting. But such a price system for regulating pollution is not easy to achieve. And hence resources and pollution tend to differ in how "external" they are. Economics also teaches the habit of searching out unintended, diffuse, and long-run consequences of immediate actions - the way of looking at problems that we may call the "Bastiat-Hazlitt maneuver." This is the central issue in the study of population economics, and of this book. A pollution example: CFCs, chemicals used in refrigerators, are being phased out with the aim of protecting the earth's ozone layer and reducing skin cancers. Whether this direct effect would occur is itself an open question. But there are indirect and unintended effects that should also be considered. For example, might this ban lead to higher prices of refrigerators and hence lower the use of them in some poor parts of the world? And might this lead to increased spoilage of food and hence increased disease, which would work in the opposite direction from any skin cancer reduction? Ralph Keeney and Aaron Wildavsky have shown that any government intervention - environmental rule, safety requirement, or conservation regulation - that saves lives at a sufficiently high cost in reduced economic growth would have a more-than- offsetting indirect negative effect on health and mortality, because lower income causes poorer health. The Bastiat-Hazlitt maneuver insists that when assessing a technology or policy, one should see the benefits as well as the costs, the hidden effects as well as the obvious ones. Automobiles not only cause air pollution and accidents and become junked cars; they also reduce the number of horse carcasses in the streets - 15,000 per year in New York City alone at the turn of the century, deaths from horses and runaway carriages - 750,000 injuries a year in 1900 when the population was much lower than now - and pollution from manure in the streets - 45 pounds per day per horse. And one should factor in such matters as the increased personal liberty that autos provide, which enables a person to select from a wider geographic range of jobs and places to shop, and hence lessened control by monopoly employers and merchants. A third insight from economic theory concerns the different outlooks of engineers and economists. The engineer views all emissions of pollutants as bad, and studies how to get rid of them. Though sensible technical persons do not make this error, many technical analysts set as a goal the total absence of pollution. The notion of "zero pollution" reminds me of a Simon household discussion comparing the virtues of rinsing a dish from the faucet versus dipping it into a pan of rinse water which fairly quickly is no longer pure. When my children were growing up, I often said to them that the aim in washing dishes is not to get the dishes clean but rather to dilute the dirt to an acceptable degree. This always put them in a tizzy. I pointed out that this is what one necessarily does in managing a swimming pool, and also in purifying a water supply. But no amount of example or logic would budge them when they were young. And they considered it downright immoral on my part that I did not cleave to the ideal of total purity. Perhaps there is an instinctive esthetic reaction to wastes as there seems to be to snakes or blood. Revulsion to excrement is seen in the use of such words as "crap" for anything we do not like. It may be that this instinct makes it difficult for us to think about pollution in a cool and calculating fashion. Indeed, nowadays washing dishes pertains mainly to esthetics rather than disease, though we "feel" that uncleanness is unhealthy. Another relevant analogy is that pollution is like sin; none is the ideal amount. But in economic thinking the ideal amount of pollution is not zero. It is no easier to wean environmentalists from the ideal of no radiation and no trace of carcinogens than it was to persuade the Simon kids that we should simply dilute the dirt to an acceptable extent. This mind-set stands in the way of rational choice on the path to the reduction of pollution. In contrast to the technical view, the economist asks about the optimal level of pollution. How much cleanliness are we willing to pay for? At some point we prefer to spend money to buy more police service or more skiing rather than more environmental cleanliness. The problem of pollution for economists is like the problem of collecting a city's garbage: do we want to pay for daily collection, or collection twice a week, or just once a week? With environmental pollution as with garbage, a rational answer depends upon the cost of cleanup as well as our tastes for cleanliness. And as our society becomes richer, we can afford and are prepared to pay for more cleanliness - a trend that we shall see documented in the following chapters. A "cost-benefit analysis" that weighs and compares the goods and bads of a given pollution control policy implements the economic theory of comparing the overall costs and benefits to society, including the toll in human life of pollution. Though economists have long conducted such analyses, they now are being called for more frequently by policymakers, to the applause of most economists and to the dismay of many non-economists who feel that it is immoral to put explicit values upon human life, as the analyses usually require. An example of this controversial type of cost-benefit analysis is the study of regulations to control volatile organic compounds (VOCs), and to a secondary extent, dust particulates, by Alan Krupnick and Paul Portney. Analyzing the improvements in air quality mandated by the 1990 Clean Air Act, they assessed the costs and benefits - and if the analysis is to be done well, it must include all such effects, even effects upon nature that are difficult to appraise in dollars - as valued by the public now and in the future. The analysis showed that "the costs associated with a 35% reduction in nationwide emissions of VOCs in [areas presently violating the law] will be at least $8.8 billion annually by the year 2004 and could be as much as $12 billion. Yet the acute health improvements that we predict to result from these changes are valued at no more than $1 billion annually and could be as little as $250 million." Krupnick and Portney also applied their analysis of health effects to the especially troubled area of Southern California. They found a similarly unfavorable cost-benefit balance for proposed air pollution control efforts taken as a whole in Southern California, but speculate that the benefit-cost ratio may be favorable for particulates (and could also be affected substantially if effects other than on health were included in the analysis). So this analytic tool can help policymakers sharpen a policy to operate where it is especially needed, thereby gaining benefits to the public and avoiding waste. The Krupnick-Portney analysis also has the virtue of helping discriminate among sub-policies. For example, they found that though reducing urban ozone gets the most attention from the public, reducing dust particulates has a better cost-benefit health ratio. Still another virtue of cost-benefit studies is that they help sharpen scientific discussion. Because the Krupnick-Portney calculations are stated objectively, other analysts could a year later present another set of calculations for California's South Cost Air Basin, and make clear which elements of the analysis are the subject of disagreement; this helps researchers and policymakers thrash out differences in a reasonable fashion. Of course it is crucial that a cost-benefit analysis take into account all the important aspects of the situation - non-monetary as well as monetary. By making the calculation explicit, however, such studies can highlight these intangible matters which otherwise may be considered in a quantitative fashion.CONCLUSION Pollution is a bad thing - by definition. Economists conceptualize the reduction of pollution as a social good that can be achieved technologically but costs resources. The question before us is: What is the optimal level of pollution, in light of our tastes for a cleaner environment relative to our desire for other goods? AFTERNOTE: ECOLOGISTS' CRITICISMS OF ECONOMICS Some some who call themselves "ecologists" severely criticize economists' thinking and its effects on national policy. They even deny that "those who have been trained in modern `economics' actually deal with economic realities." Among these critics, Paul Ehrlich is noteworthy. He laments the "blunders Simon and other economists of his ilk commit when they attempt to deal with problems of population, resources, and environmnt"[ Here is a quote from him in a newspaper article, introduced as follows: "Next to the possibility of war, the danger that concerns Dr. Ehrlich most is economic growth", Economists think that the whole world is just a market system, and that free goods are infinitely supplied. They are a discipline built on transparent mistakes, from the point of view of a physicist or a biologist. Economists are probably the most dangerous single profession on earth, because they are listened to. They continue to whisper in the ears of politicians, all kinds of nonsense. Everybody feels that the economic system is what dominates human affairs, when actually the economic system is hopelessly embedded in the physical and environmental systems. Economists say it's jobs or the environment, when actually if you don't treat the environment right, there will be no jobs. (Steward McBride, "Doomsday Postpooned", The Christian_Science_Monitor, Aug. 26, 1980, ppB10 and B11) From Stephanie Mills, prominent environmental organization person: Another impediment to perceiving and acting on overpopulation has been conventional economics, which activist and author Hazel Henderson has called "a form of brain damage"...For example, economist Julian Simon, whose work has served as a rationalization for recent U. S. population non- policy, maintains tht population growth generates its own solutions" (1991, p. 48). Neither Mills nor Henderson explains why the theory or facts are in error; calling it "brain damage" is as far as they get. Robert Goodland, the World Bank's principal ecologist, that "the most important thing for the environmental movement is to revamp economic thinking." Peter Raven puts it this way: "Perhaps the most serious single academic problem in the world is the training of economists." The ecologists claim to provide a set of larger and more penetrating concepts than the concepts used by People who have never studied the subject feel qualified to make statements such as "Economic theory was developed at a time when human population was small and the planet was considered an infinite resource." The intellectual basis of such ideas is a mystery. Regrettably, I have not been able to find much response by economists to this criticism. Ecologists say that economists omit crucial goods and bads from assessments of policy issues and from calculations of the state of economic welfare from one period to another. Indeed, if these criticism were valid, economics would fail in its task. Like Oscar Wilde's cynic, to them an economist is a person who knows the price of everything but the value of nothing. But in fact, to be a good economist one must be able to establish a sound valuation - and that means not leaving out any important elements relevant to the valuation. Of course economists often fail, but this is not a failure of the science but of its practitioners. The question really hinges on what will and will not be included in cost-benefit analyses. Economists have long taken into account goods other than those that pass through the market when doing cost-benefits analyses of such governmental activities as dam building. Included have been the value to vacationers of boating and other recreational opportunities. At the same time, economists have tried to determine the felt costs to people who would be moved from their homes by the building of a dam. I am not suggesting that these analyses have always been carried out well, but simply that economists have been cognizant of the need to include magnitudes other than those paid for in money. They have mostly proceeded by estimating how much people would pay to obtain these goods or to avoid these bads if given the opportunity to do so. In all cases, the magnitudes that have been considered have been impacts upon human beings, taking futurity into account with the discounting mechanism in standard economic fashion. On a macroeconomic level, economists - William Nordhaus and James Tobin early among them - have experimented with factoring some important non-market goods and bads into expanded estimates of national economic welfare. They have found that these expansions of the intellectual framework do not change the general impression left by GNP times series, however. But these widenings of the standard economic measurements have not satisfied many ecologists and a few economists. One major charge is that conventional economics does not take into account a depletion cost of the use of natural resources. But such an entry into the calculation often turns out to be double counting, and assumes that the value of materials extracted will be rising in the future rather than falling, as we have seen (see chapter 2 for materials and 11 for energy.) Another assertion is that the effects of our activities other than on humans should also be included in the calculations. That is, eradication of mosquitoes and reduction of malaria might simply be recorded on the positive side of the ledger by economists. Biologists ask that the effect upon the mosquitoes, and upon species in the rest of the ecosystem such as fish that eat the mosquito larvae, also be taken into account. Some who call themselves "ecological economists" have produced graphs that show an "index of sustainable economic welfare" - as a substitute for conventional national income accounting - which is declining in recent years rather than rising. Regrettably, mainstream economists have not dignified this work with solid critique, to my knowledge. I confess that I cannot make head or tail of this writing. A detailed analysis of what seems like metaphysical writing would require considerable space and would go beyond decent bounds for this book. Ecological economics also tends to have a different concept of the role of future generations in present decisions than does conventional economics. Sometimes it has a very short horizon, quoting "In the long run we're all dead", and sometimes a very long horizon, as in energy accounting where the effects 7 billion years from now are treated as of equal value with present effects. Conventional economics discounts the future in a graded way, as do buyers of bonds. (See chapter 10 for more discussion of the matter in the context of conservation of resources; also chapter 4 on humans as long-run creators rather than destroyers.) This ecological line of thought does not allow for the fact that because knowledge accumulates with time and human effort, the sources of wealth increase with time, and the relative values of natural resources decline - as, for example, the value of farmland declines over time as a proportion of all assets (see figure 8-1). Herman Daly disputes this by saying that "the current 3% figure [the size of the agricultural sector] could soar to 90% in the event of a serious disruption of agriculture." I do not know how to reply to this without resorting to satire. More generally, people in the future are likely to be richer in every sense - including a cleaner, healthier environment - than people now and in the past, because of the accretion of knowledge. But this is apparently left out of ecological economics. Economists reverse the charges with a parallel argument. Ecologists accuse economists and human society generally of being free-loaders in using up the world's endowment of natural resources and leaving too little for people in the future. Economists accuse ecologists of being free-loaders in using the knowledge produced by human beings in the past while opposing the addition of more people who will increase the stock of knowledge that will raise the standard of living even more for people in the future, including future ecologists. Ecologists seem to be calling for an economics-like science based on their own values, which include the points of view of other species. But the science of economics has always been concerned with human welfare. To ask that it be otherwise is properly not a criticism of it but rather an assertion of one's own values. Furthermore, there simply is no way to bring these additional valuations into the standard calculus of economics, nor into any objective science. How could one operationally value the loss to individual mosquitoes, to their species, and to other species, of eradication? This goes beyond simply estimating the size of populations - a standard task of ecologists. One can base on objective measurements an analysis of whether the United States is better or worse off economically if, say, cigarette advertising is banned, though even this requires assumptions that some economists regard as improper. And it is possible to make a meaningful cost-benefit analysis of the effects upon humans - including the values to humans of the spotted owl - of banning logging in an area where the spotted owl lives. But to include the value of the spotted owl to itself or to other species, or to calculate the loss of a species that humans do not even know about, or the value of an event on another planet that we do not see or hear or feel would require an entirely different sort of calculus. The only calculus that has been suggested so far depends upon specifically religious values deriving from particular religious doctrines, and is not based on measurements that have the basic scientific property of objectivity, and can be repeated by independent observers. This is the thrust of the "ecological economist" Herman Daly mentioned in chapter 00. Energy accounting has seemed to ecological economists to have the property of objectivity. One can measure the number of units of energy used in various human activities. They then value the activities by their energy inputs. The fundamental flaw in an economics based upon energy accounting is discussed in the afternote to chapter 12. Though they could not be more critical of conventional economics, these persons have not offered a substitute for criticism in its turn. In the vernacular, you can't beat sump'n with nuttin. page# \ultres\ tchar15 January 31, 1994