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Markets Improve Environmental Outcomes Without Needing Most People to Notice or Care

Human prosperity is the engine of environmental improvement

  • Jonathan Wood

    Counterintuitively, human prosperity is the engine of environmental improvement. As people grow richer, they care more about the environment around them and can afford to make choices that marginally increase consumer costs but in exchange for far greater environmental benefit.

    This is known as the environmental Kuznets curve: as economies grow beyond mere subsistence, environmental impacts initially increase but, after a certain point, those impacts decline. The intuition behind this phenomenon is simple: If you’re struggling to feed your children, you probably won’t devote much consideration to the environment far away from you in either time or space.

    Today, the most fascinating example is consumer sensitivity to whether the products they consume will increase emissions that contribute to climate change. When have people ever been so rich that they could consider temperatures centuries in the future, long after their own lives?

    As Bruce Yandle and others have explained, institutions can significantly shape these curves, by either promoting environmentally friendly economic growth or thwarting it.

    GDP growth creates the conditions for environmental improvement by raising the demand for improved environmental quality and makes the resources available for supplying it. Whether environmental quality improvements materialize or not, when, and how, depend critically on government policies, social institutions, and the completeness and functioning of markets.

    Political factors can push institutions in the wrong direction. Market-driven environmental improvements may be particularly susceptible to this problem because they so often fly under the radar.

    Breakthrough technologies start out so expensive that only a few take any interest in them, only to become commonplace and taken for granted when prices fall. At the dawn of computers, the head of IBM famously predicted there was a market for maybe five of the devices. Today, most of us carry computers more powerful than he imagined in our pockets without reflecting on how astonishing that fact is.

    The same appears to be true for environmental innovations. Initially, they are expensive and appeal only to those who are uniquely sensitive to an issue. But as the market for these innovations grow, prices fall, and they become ubiquitous.

    Take, for instance, people’s sensitivities to the environmental impacts of food. As a vegetarian for the last 14 years, it’s amazing to me how much meat alternatives have improved. When I stopped eating meat, the alternatives were either low quality or prohibitively expensive. Non-vegetarians may not have noticed that, today, options are legion, generally good, and inexpensive.

    That’s just one example, but it’s indicative of the fact that many market shifts will only be noticed by the relatively few. However, the low profile of these changes also makes it easier for special interests to use government regulation to squash them.

    This idea was famously described by Bastiat as the difference between the seen and the unseen. If regulation prevents innovation, that effect is unseen. We don’t see a building that isn’t constructed, a company that is never started, or an invention that never materializes.

    For that reason, regulation pushed by special interests are a significant threat to innovation. For instance, a recent petition to the Department of Agriculture urges the agency to forbid companies from labeling their products as “meat” or “beef” unless they were produced through traditional slaughtering methods. The petition’s aim is to undermine the proliferation of meat-alternative products, like veggie burgers, and lab-grown beef that avoids what many believe to be cruel slaughtering methods.

    Although the petition has met with opposition, the political incentives make it more difficult for opponents of regulations to organize against them. Industry enjoys highly visible and concentrated benefits from efforts like this. But costs are widely dispersed among consumers and unseen.

    That’s a systemic problem that extends to countless environmental issues. Overcoming it requires greater awareness of the incredible, incremental environmental changes market innovation can produce and skepticism of regulations that constrain that innovation.

    Written By
    • Jonathan Wood
      • Vice President of Law & Policy

      Jonathan Wood is vice president of law and policy at PERC, leading PERC’s Conservation Law and Policy Center.

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