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wrecking the earthThis represents a common view of the “cost” of our “bad” consumption habits. Let us ignore the religious aspects of the environmental discussion for now, and also let us overlook the misplaced concern that we are running out of resources, and let us grant that the common arguments against commercial society are correct.

It is often alleged, “there is nothing wrong, per se, about buying and selling goods that we need but we need to think about how we produce those products, and need to consider their real costs.” Such thinking is a weak attempt to use the language of economics to support an anti-market belief. What those who make this claim are trying to say is that, “there are environmental costs that are part of the production of every good and service, and these costs are not reflected by current market prices.” In this view, the production of every good constitutes a negative externality (a moral wrong to some), and therefore optimal Pigouvian theory suggests the placement of a tax on the production of every good or service that is equal to the incremental environmental damage caused by the production of each unit of goods and services we buy. Therefore, when consumers look at the price for goods, they are making decisions based on the total costs to “society” and not just on the marginal private costs they face themselves.

It all sounds so … pragmatic and reasonable … until you reflect on this for a moment.

First, If problem with goods is that they have too much packaging, or that we throw them out when we are done and buy newer, cheaper ones, it assumes that we are tossing trash onto the property of others without compensation. But this is not what we do. I pay for trash pick-up (as part of my city taxes). Many people pay for private trash services. What does it mean to pay for these services? Some will object, but you don’t pay ENOUGH for these trash services. In the case of my city collections, that seems to be an acute government failure and not any of the garden variety market kinds. In the case of private trash collection, if they are charging a low price, that must reflect that the pickup and disposal of these unwanted items is not very costly at all. Aren’t private trash companies supposed to be as greedy as these guys? Why wouldn’t they gouge us?

The point above is really a minor one, compared to this point. These anti-consumption arguments are making the claim that the sticker prices of goods and services are “too low” and not reflective of true costs. But the gist of these arguments is that it would be “efficient” if LESS goods were produced, irrespective of the price. That’s the essence of “too much pollution,” “too much packaging,” “too much fuel consumption,” and so on.

For example, the price of an autographed Mike Rizzo football card is probably less than a nickel, but that does not mean the good is being oversupplied in any colloquial sense of the term. So, are there not serious forces in the American and world economy that lead the production of goods to be lower than they otherwise would be? Let’s see, I make well less than 6 figures per year in income and my effective marginal tax rate on my income alone is 47.15% (25% federal, 6.85% state, 15.3% on payroll taxes since additional income I make is off the books and may put me into the range above cutoffs) … and once almost half of my additional income is taken, I still pay an additional 4% in Monroe County sales taxes and 4% in New York State sales taxes. My effective marginal rate is 55.15%. Layer on top of that the fact that many goods and services also have fees, excise taxes and a vast array of regulary cost built into them, and I am paying well over 60% marginal tax rates on my income … and I am well below what anyone would call rich (ahem … $250,000 seems to be the new definition).

In addition, my gross income is reduced each year by the property taxes that I must pay on my home (roughly $6,000 per year – well over 6% of my income) and then there are the various other fees and fines that one pays to government throughout the year. I can’t see how anyone can look me in the eye and seriously say that the quantity of goods being produced and sold is too high. These taxes are EXACTLY the policy that anti-consumerists are proposing. Doesn’t taxing me at a marginal rate of 55% reduce my consumption of goods and services from where it would otherwise be? Are the marginal external costs of making sneakers, iPods, televisions, etc. really 55% larger than the marginal private costs of production? That is unimaginable. And if it is not unimaginable, how much larger a tax does one recommend to remedy the externality? Raise sales taxes by 10 percentage points? 20? That brings my effective tax rate to over 75%.

This is hard to believe because when I read the global warming literature, I am seeing things like making gas prices DOUBLE from their current levels as being sufficient to achieve the needed slowdown in emissions to satisfy the IPCC recommendations. CO2 and global warming seem to be the negative externalities for the ages, and those remedies don’t seem to be anywhere near as harsh as those being presumed by the anti-consumerists.

Furthermore, reliable economic studies of federal income taxes indicate that  the efficiency loss (dead weight loss) of current income taxes exceeds 30%, and 50% if we include payroll taxes. Let me remind readers what that means. What that means is that as a result of the income and payroll tax, “society” is throwing away up to HALF of the gains from trade that would be had in the absence of the tax. Are the environmentalists who disparage the consumerist trends around the world prepared to argue seriously that the true costs of producing goods and services are 50% higher than the value that society currently gets from those goods and services? If so, then our current tax situation adequately deals with this inefficiency, because we are reducing output by enough to make up for those inefficiencies.  This sounds a little bit beyond the realm of reason to me … a 10% efficiency loss or even a 5% efficiency loss would be enormous environmental costs. But for anti-consumerists to have a case for increased taxation of goods and services under present economic conditions, they would have to argue that the environmental costs are higher than 50% of the current gains we get from exchanging these goods and services. And that doesn’t even pass the smell-test in a room full of kindergartners.

And even if we grant the anti-consumerists THAT point, the question still remains, is there ANY amount of environmental damage that is acceptable. Because clearly the economically and socially desirable level is not zero. So once you taxed us to holy heaven, and we have reduced our consumption of goods, it will still be true that the production of whatever goods remain will require using the earth’s resources, emitting some pollution, throwing materials away … would the movement for a perfect environment them take hold?

I’ll comment more directly on this in a future post.

3 Responses to “Consumerology”

  1. Michael says:

    Two very good points! I have my own simple answer, but I’ll have to remember yours, too. Mine is that if resources weren’t scarce, then there would be no use or need of economics. Of course, they’ll probably get into the market not working debate with that statement.

  2. There’s no denying that consumerism is an important part of our society. And I agree that increasing personal taxes would just make matters worse. Gosh, we pay more than our fair share of taxes!! However, I do think we could manufacture and consume more efficiently.

    As with previous centuries, it is more beneficial for the environment and for us if we produced fewer, better quality goods that were built to last longer. This would allow us (businesses) to ask more, and surely with better margins, businesses throughout the supply chain would benefit?

    For instance, instead of buying 4x $10 items, and throwing 3 or all of them away, we (the consumers) could buy 1x $40 item and enjoy using it for a longer time … Just because we’re paying taxes for waste disposal, doesn’t mean we should be excessive with the waste.

    Also, if we all worked together towards closing the loop (cradle to cradle principle) from manufacturing -> recycling -> manufacturing, then governments would “have to” follow suit with their policies. Our biggest problem as earthlings is our (lack of) ability to balance our personal needs and (perceived) social responsibility.

  3. BS says:

    I agree entirely with your second more important point, but I only agree in part with your first.

    I just think it should be noted that you pay a set price for garbage disposal. Whether you dispose 1000 bags a year or 100. If we were to pay per bag of disposal we would like see people internalizing the full cost of their purchases a little bit more efficiently.

    That being said, your second point sort of makes up for that in itself, I just thought it was was noting.

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