In the Winter 2011 issue of PERC Reports I used this column to commemorate Ronald Coase’s 100th birthday and thank him for his insights into the role of property rights and transaction costs for resolving conflicting resource demands. Now at 102, Coase is proposing a new journal to help save “economics from economists” by urging economists “to step away from the blackboard” (whiteboard for younger folks, and PowerPoint for this generation). Coase’s concern is that economists have become so fixated on complicated equilibrium models that they have lost touch with complex human action and interaction and the institutions that govern them. Coase seems to be searching for “econ-pragmatists.”
Although his focus is mainly on macroeconomic concerns such as the financial crisis and growth in China, his criticism is equally applicable to environmental economics. From blackboard diagrams to explaining “externalities” to computer models of “optimal control theory,” environmental economics has little to do with the interface between human beings and their use of nature’s bounty.
Consider the environmental economists’ call for using cap-and-trade or a carbon tax to control greenhouse gas emissions. Pretty as their diagrams may be, they ignore the political reality of assigning a cap on carbon emissions or determining the “optimal tax.” This and hundreds more, are examples of Coase’s criticism and indeed have been the focus of free market environmentalism since its inception in the 1980s. Blackboard environmental economics ignores “the influences of society, history, culture, and politics on the working of the [environment],” to paraphrase Coase.
Along with Coase, environmental thinkers, many of whom attended PERC’s conference on “Reconciling Economics and Ecology,” and are featured here, are challenging their peers to also step away from the blackboard. These “eco-pragmatists” walk in the footsteps of respected ecologist Daniel Botkin, who was one of the first to point out the futility of applying static equilibrium models to dynamic ecological systems. His new book, The Moon in the Nautilus Shell: Discordant Harmonies Reconsidered, admonishes ecologists again to stop seeing the environment as a “Kodachrome still life” and to start watching the “moving picture.”
Another eco-pragmatist is Emma Marris, author of Rambunctious Garden: Saving Nature in a Post-wild World. She asks environmentalists to “temper our romantic notion of untrammeled wilderness” and recognize that nature is resilient and ever changing.
Econ-pragmatists and eco-pragmatists UNITE. Using the Coasean lens of property rights and transaction costs, economists can offer more pragmatic and entrepreneurial ways for humans to interface with one another. Prices, property rights, and transaction costs can connect dynamic people with dynamic nature. Econ-pragmatists must provide detailed case studies to show the potential for markets to resolve competing demands on the environment and to highlight their limits so that eco-pragmatists can find new solutions.
Consider the recent finding that lion populations in Africa have declined nearly 70 percent over the past 50 years. The economist’s diagram of lion habitat, for example, shows too little private provision of lion habitat because private benefits are seen as less valuable than social benefits. The loss of lions is therefore pegged as a market failure. The policy prescription is to list the lion as an endangered species and restrict markets for lion hunting. Will this help? Hunting was banned in Kenya in 1974, and since then, populations have plummeted from 20,000 to 2,000. Where local entrepreneur Jake Grieves-Cook leases land from Masai herders for tourist camps, however, cattle have been removed from the threat of the lions’ claws, and the locals receive revenue and jobs in return for shar- ing habitat with lions. Today, Grieves-Cook’s private conservancies encompass only 100,000 acres, yet they are home to more than 5 percent of Kenya’s lions.
Eco-pragmatists must do the same for ecological systems. Rather than yearning for nature as a place without humans, ecologists should provide Marris-type case studies illustrating dynamic ecosystems and highlighting the role of humans in them.
Charles Mann’s careful studies of North America before Columbus’s “discovery,” 1491, and after, 1493, should shake the confidence of any equilibrium-loving ecologist or economist. Long before the U.S. Forest Service realized the folly of its “Smokey-the-Bear” policy of putting out every forest fire and began to let some fires burn, American Indians were burning the landscape to enhance wildlife habitat. In other cases, American Indians created innovative property rights systems to encourage stewardship—witness salmon streams and clam beaches in the Northwest, beaver trapping territories in the Northeast, and water rights in the Southwest. Today, blackboard economists and ecologists label these as environmental problems caused by market failure. Think again.
Harmonizing human demands on the environment requires institutions that account for the dynamic nature of both. It calls for free market environmentalism.