Tuesday, August 09, 2011

Systemic flaws are not reported

What the news media are not telling us: There is a defect in our economic system that threatens the stability and sustainability of civilization.

If we start from basic democratic principles, we can recognize a right of the people to define limits to pollution and limits on the overall rates of taking of the various kinds of natural resources. From this, we can see that citizens are stakeholders whose preferences must be taken into account when industries decide how much of this or that pollutant to release or resource to take. If our commitments to democratic principles and the stakeholder role of citizens are to be respected, then the collective decisions of industry about how much to impact the environment cannot be allowed to exceed what most people would identify as acceptable limits.

Self-interest dictates that we look for the low price. Enlightened self-interest suggests that prices should tell us the truth about real costs, so that we can make well-informed decisions. But prices do not tell us the truth. We have an economy that hides resource depletion costs and other environmental costs from consumers. There is no general fee or tax assessed in proportion to adverse impact caused or natural resources taken by producers, so these costs are not reflected in prices. 

Because costs are hidden, there is a distortion that leads all cost-benefit analyses and buying decisions to skew toward more environmentally harmful acts. Consumers do things, they choose to buy things, that tend to deplete resources and pollute air and water more than what they would do if the cost of the degraded environmental quality were factored into the prices of the things they buy. 

"Economic externalities" (hidden costs) cause us to do the wrong thing. When markets function with a lack of regard for environmental impacts and quality of life (because natural resource user-fees and pollution fees are not part of the economic calculus) citizens may loose interest in maintaining free markets as an efficient and fair way to allocate resources. This is potentially a very serious risk, because the preservation of institutions requires that the people have confidence in those institutions.

Hidden costs equate to a lack of transparency. This defect is a lack of transparency. The distorted (dishonest) price structure is giving us bad information (false information about costs) and we are cut off from the consequences of our choices.

This defect in our economic system harms the interests of all of Earth's inhabitants. It causes long-term damage that will harm the interests of future inhabitants, including our own descendants, by depleting resources that they might rely on and polluting air and water that they will need. They cannot speak up in protest. Should we? Where are the reporters and commentators who will report on and speak out against a defect in our economic system that gives us incentive to do the wrong thing?

If we believe that industries should feel some financial penalty when they take or degrade natural wealth, so that prices will reflect these otherwise hidden costs, we could charge a fee or require the purchase of a permit when adverse impacts are imposed on society and the environment. If we believe that natural resource wealth is owned by all people equally, then any money paid by users of these resources should go to all the people; to each an equal amount. A proper accounting for this wealth would end abject poverty in the world. We would not only improve the efficiency of markets and of our whole economic system in terms of natural resources used, we would also improve the fairness of markets by making access to them (in the form of economic power) universal across the human population. When natural resource wealth is shared equally, disparity of wealth becomes a much smaller problem.

It is immoral to acquiesce in a system that gives people incentive to do the wrong thing. It is immoral, also, to acquiesce in a system that gives (at most) mere lip service to respect for public property rights, while making no effort to manifest that concept in reality. If more efficient management and fair accounting of natural resource wealth (necessary as a foundation of a sustainable civilization) would bring an end to extreme poverty, it would seem to be something worth talking about. It is particularly important that journalists speak up when they recognize systemic flaws and see solutions presented.

There is deafening silence in discussion of and reporting on systemic flaws--in economic and political realms.

Perhaps a reporter or editor somewhere can explain why this analysis is flawed; or start reporting on natural resource wealth accounting.

Open Letter to Secretary of State Clinton

Natural Law Requires Respect of Public Property Rights, Too