Academic journal article National Institute Economic Review

Green Economics

Academic journal article National Institute Economic Review

Green Economics

Article excerpt

The Review is pleased to give hospitality to the deliberations of the Clare group but is not necessarily in agreement with the views expressed. Members of the CLARE Group are M.J Artis, A.J. C. Britton, WA. Brown, C.H. Feinstein, C.A.E. Goodhart, D.A. Hay, J.A. Kay, R,C.O. Matthews, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, MlF-G Scott, ZA. Silberston, J.H.B. Tew, J.S. Vickers, S. Wadhwani.

We all recognise environmental problems-thepollution of air and rivers, the destruction of rain forests, global warming. The article argues that environmental problems are less the result of inappropriate values than of an incorrect calculus, and that economic evaluation and economic instruments have a major role to play in the correction of that calculus.

The green prescription of lower growth as a means of reducing environmental damage is dismissed-if higher output is often the cause of the problem, it is also what enables us to afford to deal with it. Policy should start from an adequate evaluation of the costs and benefits of action and inaction; the article instances nitrate in water, where the costs of rectification seem out of proportion to any likely benefit. Market mechanisms-such as taxes and tradeable licences-are often the best way of tackling environmental problems; but economists are sometimes as naive about their general applicability as non-economists about the effectiveness of prescriptive regulation. 1. Introduction The environment is the problem of the moment. Politicians vie with each other in proclaiming their greenness, and a recent white paper, The Common inheritance, has set out the government's approach. The words of its title indicate two major dimensions of the environmental issue. The first is what has been known for many decades as the problem of the commons: our neglect of assets for which we are responsible collectively rather than individually. When we refer to assets in this paper, we do so in a broad sense which encompasses the air and the landscape as well as those things that are readily tradeable. The second dimension is the problem of inheritance. In this there is a sense that the legacy we offer to future generations may be inadequate, depleted and degraded.

This article seeks to make the important distinction between these two aspects of current environmental concerns. By our neglect of collective assets we impose damage on each other. When we pollute a beach with inadequately treated sewage, most of the unpleasant consequences are immediate. We do it because in discharging sewage we treat the environment as if it were a free good. But for those who use the beach, it is something that they value. Those who use the beach may be the same people as those who bear responsibility for the pollution. In any event, the problem rests in an externality-the absence of a direct connection between the originator of an activity and the costs which that activity imposes. The problem lies in an inconsistency in our calculus, and the solution to it is correcting that calculus-in ensuring that our decisions about how to treat sewage truly reflect our individual and collective preferences for an unpolluted beach. When we do recognise our error and impose restrictions, the damage to the beach can, in most cases, be rectified relatively quickly.

But the word inheritance implies something more, and something different. In emphasising inheritance there is a suggestion that the current generation is cheating its children and grandchildren-that we are behaving selfishly, and using up an environment which we ought to preserve more adequately for future generations. The argument here is not that our calculations are wrong, and that our decisions do not reflect our true preferences. Our calculations of our own best interests are correct, and our selfish decisions reflect our improper preferences. The argument here is one for moral, rather than economic, reform and it leads to the recommendation that we should restrain our current consumption, in both general and specific ways, for the benefit of posterity. …

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