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A popular criticism of capitalism and freedom (even among folks sympathetic to the ideas) is that “The Free-Market Allowed Global Warming to Happen.” The common argument goes something like, each of us (rationally) pursued our self-interest in driving cars and producing oil, and none had the foresight to take into account the external costs that CO2 would place on the rest of humanity. So, this is a market failure for the ages. Of course, folks then take the next step and argue that your all-loving and all-knowledgeable government should step in to correct the error of our ways (or worse).

This is baloney. Not in the way you think. It is probably the case that “we” did not take into account the costs of our actions. That is not my point here. And its relevance ought to be discussed in a scholarly way (in a future post I will do so), My point is that this is not a legitimate criticism of markets in light of the way the real world works.

We know right now that we are infatuated with mitigating our carbon output. And we have all kinds of programs in place and in the works to promote this sort of thing. For example, we are being asked to drive less and drive more fuel-efficient cars via a slew of CAFE standards, regulations, cash-for-clunker subsidies, taxes on fuel, rail subsidies, and more.

Here are some questions:

  1. Do we know that the “fully loaded” carbon footprint of a Honda Civic Hybrid is actually less than a Mazda 6? After all, shouldn’t we consider the carbon impact of all of the resources and processes used to produce each vehicle? Fuel mileage alone is not an indicator. I rarely see the anti-capitalists recognize this.
  2. Furthermore, focusing ONLY on carbon footprints irrespective of prices totally ignores the damage that might be done from other more carbon friendly, but invasive pollutants involved in producing various “carbon friendly” products and services.
  3. For example, it might be true that a Civic Hybrid is more carbon friendly than a Mazda 6, but does anyone understand the environmental impact of using some of the materials needed to produce hybrid batteries? Do we know the long-term impacts on soil and air quality and human health of using vanadium and other rare-earth elements that are essential to the production of batteries? Or of gallium and germanium that are essential to the production of solar cells? No. And blind adherence to carbon footprints commits one of the most basic errors in economic – ignoring the unintended or secondary effects of a single policy. I don’t know anything about this, but certainly it COULD be the case that using these materials is even worse for the environment than CO2. Relying on price signals is a useful way to understand when this might be the case. But anti-capitalists reject the use of prices out of hand.
  4. The “market” is absolutely flambayed for “not having the foresight” to see that CO2 might cause climate change years ago. Weren’t all of the “non-market” anti-capitalists around during the entire time that we were foolishly and maliciously bespoiling our planet? How come these folks did not have the foresight to do something about it before it all went so wrong?
  5. In fact, these people were around all this time too, and even until the 1970s were worried about is cooling … how come they are not flambayed for their oversight? And how come we didn’t do anything about all of this before it became the “problem” it is today.

Now, when it comes to carbon, the market and political process will be overlooking these potential problems and when the vanadium (or whatever the next one will be) crisis comes rolling down the pike, you just wait to see the anti-capitalist demonization from a problem that was caused by NOT taking advantage of the role prices play in allocating resources.

You see of course that none of this is about the environment – it is just another convenient way for anti-capitalists to hand down the death sentence to capitalism and those of us who cherish the freedom one might enjoy under such a system. As Schumpeter correctly stated (I am paraphrasing) – capitalism stands trial with the death sentence already in the hand of the judge and jury, it is just the nature of the charge that will change from time to time. I would remind readers that none of this is to say that climate change is not something to worry about, the message is a bit more subtle than that – and I do not expect the anti-capitalists to get it.

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