Why Free-Marketeers Should Be Environmentalists (And Vice Versa)

It is no original insight to note that ecologists and economists both derive equilibrium theories from the Darwinian assumption of natural selection of the traits of successful replicators – organisms for ecologists, firms for economists. Like an ecosystem, the economy is an “emergent” or “spontaneous” order, in which the decentralized actions of countless individuals generate a complex system with properties irreducible to those actions. Michael Polanyi and F.A. Hayek distinguish these spontaneous orders from planned orders, in which a system’s operation is guided or designed by a central engineer, and argue that spontaneous economic orders yield greater social welfare over the long run than planned ones.

Similarly, naturalists find that undisturbed ecosystems find their own equilibrium, in which each organism, as if guided by an invisible hand, seems to approach perfect adaptation to its niche relative to all other organisms. Extirpating one species or introducing another risks upsetting the equilibrium and extirpating more species. Since emergent orders are characterized by “tacit knowledge” unavailable to the outsider, we cannot easily replace them with designed orders that function “as if” spontaneous. Thus, the precise consequences of disturbing an ecosystem are as unpredictable as the precise consequences of disturbing a market (Bastiat’s “That Which Is Seen, and That Which Is Not Seen” is relevant here).

The principal difference between economic and ecologic orders is that the former are composed of more-or-less rationally choosing actors, many of whom are consciously considering the ultimate equilibrium that will obtain in a given market, while the latter are composed of nonrational organisms behaving according to evolved instinct. What this means in practice is that we should expect economic orders to approach equilibrium more nearly and more quickly than ecologic orders, which must wait for generations of organisms to survive and reproduce before desirable traits are passed on. Nonrational organisms seem to learn less about assuring their collective survival over their own lifetimes than do humans.

These considerations tell us that human engineering or central planning of an ecosystem is unlikely to work for the benefit of the inhabitants. Attempting to engineer nature to our advantage will have unintended, adverse consequences for the stability of nature. Why should we care about the stability of nature? Because we are part of it. While the ultimate consequences of disturbing nature in any given case are unclear, we know that there will be consequences, more likely adverse than not.

Clearly, maintaining nature in an absolutely pristine state everywhere is not an option. But then, nor is total spontaneous order in the economic sphere (unless one is an anarchist). Moreover, both economies and ecosystems can survive and adapt to ongoing disturbance, although they may not reach peak performance. However, these considerations do indicate, contra Ron Bailey, that some kind of “precautionary principle” might make sense for both ecological and economic planning. We might do well to build into our institutions and way of life a substantial but rebuttable bias against trying to re-engineer nature or the economy.

11 thoughts on “Why Free-Marketeers Should Be Environmentalists (And Vice Versa)

  1. I think Professsor Sorens is in fundamental error here.

    1. Ecosystems are not “things” like tables and chairs, but are useful human constructs. As such they are never in equilibrium, any more than economies, but are dynamic systems. See here the work of Daniel B. Botkin, in particular, Discordant Harmonies: A New Ecology for the Twenty-first Century, Oxford University press, 1990.

    2. Humans can and do live most everywhere. We constantly modify the environments in which we live to suit our various needs and to improve our lives. It is our nature to do so. In the process we have transformed the landscapes of the physical world for human purposes.

    3. Capitalism is the precautionary principle, the sustainable economy in practice, allowing people to try out new ideas in dynamic interaction–thereby increasing the resource base, encouraging efficiency, recycling feedstocks, unleashing creativity.

    4. I have been working on a manuscript on this topic off and on for twenty years (just now, some what on). Here is a paragraph from the book that shows, in part, how I would go about the connection between liberty and environmentalism:

    “Indeed, the principles of liberty and those of ecology are closely aligned. The ecologist speaks of the tragedy of the commons ; the liberal of the tendency to overuse common resources, especially the common pool resource known as the United States Treasury. While the ecologist recognizes the wisdom of nature, the liberal writes about the limits to rationality and the importance of recognizing the limited and partial nature of knowledge. Because of the complicated and hidden linkages of events, both realize that small changes may have big and unforeseen consequences. Both realize that resources are limited, or to put it differently, scarcity is reality and goods have prices and that, therefore, needs or wants are not demands. People have an unlimited set of wants, but budget constraints limit our demands. Both know that not all is possible at once and that difficult trade-offs among competing goods, such as additional leisure time and greater material wealth, must be made at the margin. Both also realize that individuals must be self-interested to survive and that therefore public choice economics and the doctrine of the selfish gene are harmonious concepts. Both should see that putting all your eggs in one basket, or risking all on a single throw of the dice, is very much like relying heavily on central government to impose solutions to some perceived problem, for only a powerful government is capable of massive, systemic, destabilizing error in contrast to the multiple, flexible feedback mechanisms of private endeavor and natural systems. Both groups should appreciate the fact that complex dynamic systems, either natural or artificial, cannot be successfully managed by centralized command and control operations of modern government or by visionary bureaucrats with global engineering schemes.”

    William C. Dennis

  2. William captured much better than I could some of my reservations to your argument, Jason. But here is a capsule version of my general worry: suppose we agree that having a congenial environment is not just a good, but a very great good. What is the explanation for thinking that here is a good the provision of which must be managed by a “precautionary principle,” when in general we know what the effects of such planning are for the economic ecosystem? The strongest arguments, it seems to me, are from negative externalities, but those seem to me to be arguments for more ingenious ways of internalizing externalities through property rights than short-circuiting the process of creative and productive use of resources, environmental or otherwise. Stewardship, yes, top-down direction as to the form stewardship should take, not so much.

  3. Externalities are a good way of integrating environmental costs and benefits into a policy analysis framework. I’ve no objection to that approach, it’s quite useful. My point here was more basic: simply to show that we should care about environmental costs and benefits, and that we should think about that issue in a particular way, namely, disturbance to a self-regulating system. To put it in externalities language, we should care about the negative environmental externalities that we don’t see, as well as the ones that we do see.

    As I see it, the precautionary principle doesn’t mean command-and-control regulation of every single technology, but rather that there should be an inherent bias against significant disturbances to nature, a bias that can only be overcome by demonstrable economic benefits larger than the expected environmental harms. This can be done with market-based solutions, from Coasean bargaining to Pigovian taxes.

    I actually agree with pretty much everything William wrote. Economies and ecosystems are dynamic systems that never actually reach equilibrium. However, they are continually seeking out and approaching equilibrium. As conditions change, so does the equilibrium, and the process of “seeking out” begins anew.

  4. I, like Bill Dennis, believe Professor Sorens is fundamentally wrong. That may be because some of the most important things I have learned about the interactions of humans and nature I have learned from Bill. I will limit my comments to two points.

    1. This sentence stood out: “Why should we care about the stability of nature?” The answer is that we should not attempt to achieve stability or balance. There never was nor will ever be stability. The only constant in nature is change. As Bill suggested, read Botkin (a new edition is soon to be released). Or read Tropical Nature by Adrian Forsyth and Kenneth Miyata. I learn as much about economics from those books as from Hayek or Bastiat. But recognizing that stability is impossible does not mean we should not care about misspecified and badly allocated property rights–which is where we get negative externalities. Far too many economists continue to rely on Pigou and a welfare economics approach to externalities instead of Coase’s insights about the reciprocal nature of externalities, the importance of transaction costs, and the need to allow property rights to emerge. And if the common law can emerge instead of being overridden by statutory law, we get far better environmental protection. See Bruce Yandls’s extensive body of work on the subject as a place to start reading.

    2. The precautionary principle is attractive and even beguiling. It is extremely difficult to operationalize in any meaningful way, however. One of the best, careful, free market treatments of the topic is Indur Goklany’s 2001 book, The Precautionary Principle: A Critical Appraisal of Environmental Risk Assessment. Goks is an economist in the Office of Policy Analysis in the Department of the Interior, but obviously does not speak for his colleagues. Another older but still terribly useful book from a political scientist is Aaron Wildavsky’s Searching for Safety. Aaron’s analysis lead him to believe that anticipating harms is far more risky than a strategy of resilience.

    Finally, let me note that the Property and Environment Research Center (PERC) in Bozeman, MT has been researching Free Market Environmentalism for more than 30 years. In fact, it was at a PERC conference in December, 1980 when I first heard Bill Dennis’s passionate discussion about private parks.

  5. Stability isn’t the same as stasis – here stability is merely meant that a system is able to carry on its ordinary, self-regulating functions. If you prefer, think “balance” instead. Again, the arguments for skepticism about central planning of the economy bite with equal or greater vigor against the conscious re-engineering of the environment for human betterment. I haven’t seen any arguments here that really call that conclusion into question.

    As for the precise mechanisms of policy, my goal wasn’t to address those in this post. I do realize that specifying property rights + allowing bargaining can get us a long way. But perhaps not all the way – wildlife, the air/atmosphere, and groundwater don’t respect land boundaries.

  6. I’d think the analogy would work a little differently, Jason. You’re right that the forecast is grim for top-down systems engineering, but even in the economics realm that doesn’t mean there’s no place for planning at all. It’s just that the planning is distributed, and involves micro-level decision-making at a level at which information on costs and benefits can be better utilized. Maybe I’m misunderstanding, but I’d think the common notion of the “precautionary principle” would count as one of those macro-level determinations the information for which nobody can hope to have.

    It sounds like the idea you’re after is homeostasis, but I wonder if, outside of organisms, in which something like homeostasis is clearly relevant, how fair it is to characterize biotic communities and the like as homeostatic. (Here I really don’t know, and there are obviously people posting here with much better ideas on the subject.) It also seems that the degree to which a system is homeostatic is going to be highly dependent on timeframes. Human organisms are relatively homeostatic over decades, not at all over centuries. So is part of the issue determining what sorts of time frames we are worried about in “ecological planning”?

  7. This has been an interesting exchange. Maybe we, and others, can continue on this theme sometime. Meanwhile, an interesting factoid:

    Yellowstone National park is 2,221,776 acres in size or 3,472 square miles.

    Ted Turner, entrepreneur, philanthropist, leftist, visionary, conservationist, and rancher, now America’s largest private individual land owner, owns 2,000,000 acres, or 3,125 square miles total over his several ranches.

    In a nation with a growing number of billionaires, and well defined property rights a lot of negative externalties can be dealt with and a lot of positive externaities provided, as well as many (possible) public goods such as wildlife, viewsheds, and ground water protections through private expenditures.

    But we cannot do those things well if we have a government that worries about material inequalities and a president who thinks he knows when someone is being paid too much.

    All for now. Best. Bill Dennis

  8. “Balance” cannot be the correct word because it is a political word, that has no current ecological meaning. The “balance of nature” is, according to Botkin, based on “prescientific myths about nature blended with early-twentieth-century studies that provided short-term and static images of nature undisturbed.”

    Maybe I misunderstand. If you do not mean self-regulating, balance of nature, static, constancy or stability or any of the other terms used in political debates about environmental policy then we might agree.

  9. I think perhaps this discussion would benefit from some concreteness. I’ll work up something with a few examples of what I would consider to be failed attempts to re-engineer nature and how a limited precautionary principle could work in practice.

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