TCS Daily


'The Two Things About Economics'

By Tim Worstall - August 2, 2004 12:00 AM

To call in these pages for an increase in government spending is heresy but before you start to prepare the stake and the burning brands allow me to point out that the costs will be minimal and the long term savings immense. I propose that every bureaucrat dealing with environmental policies and regulations be supplied with a small sign upon which will be printed "The Two Things About Economics".

"Two Things" is a mind game recently popularized by Glenn Whitman, an economics professor, in which you have to distill a complex subject or profession down to two droplets of pure wisdom. Glenn's own version of economics is:

"Two Things about economics. One: Incentives matter. Two: There's no such thing as a free lunch."

Point two can also be expressed as "There are always opportunity costs".

My hope is that by being continually exposed to this pithy enunciation of the basic principles the rule makers will stop being such dunderheads and begin to provide what we need: rules and regulations which increase the incentives to preserve and enhance the environment rather than ones to lead to its degradation. For there appears to be a gross misconception at the heart of such law making, which is that merely by insisting that such and such activity should happen, lo and behold, it will. Please note that this is nothing to do with Republicans and Democrats, nor the differences between the United States and the EU: There are examples everywhere of this error.

In the US the incentives for the preservation of wildlife habitat are perverse under the Endangered Species Act, for if an endangered fluffy appears on your land, you then lose the economic use of that same property. Instead of encouraging people to welcome both the habitat and the species, the monetary impetus is to, as they say, "shoot, shovel and shut up."

In recent years in the United Kingdom there has been a change in the value of a scrap car. It used to be that the tonne of steel and brass was worth $50 to you when delivered to the shredding plant. Tightening of the rules on what can be recycled and how has led to this value changing to you having to pay $50 to the merchant for the privilege of taking your car from you. Predictably this has in turn led to some 500,000 cars a year being abandoned on the streets at a cost of $500 each to local councils. Recent changes in landfill rules are making that even worse, with the head of British Metals Recycling Industry stating that the entire industry was going to shut down, leaving a further 43,000 cars a week rotting in the streets.

The problem has nothing at all to do with whether we wish to preserve biodiversity, nothing at all to do with whether cars should be recycled in one manner or another; it is to do with the economic incentives that the system provides to encourage -- or perhaps I should say fails to provide -- the desired actions.

One further example of how recycling is positively discouraged by our current set of desk-jockeys: Computers get recycled for the value of the gold, lead, tin and copper in them. Show me a mountain of old PCs and I will show you a line of eager bidders for them. Add in a few cathode ray tubes (CRTs) and the desire to hand over wads of cash will fade into mutterings of the necessity for a subsidy. CRTs also contain the same metals and these can be profitably extracted. Yet the glass on a screen is made with 25% lead oxide (to stop it frying your brain as you play Grand Theft Auto although that precaution might be redundant) and the rules state that the lead in glass must be treated in the same way as lead in solder: that is, recycled or treated as hazardous waste. Treating metallic lead, which will indeed leach into groundwater, in the same way as lead in glass is simply absurd. The full stupidity can be realized when one notes that lead-based glasses are proposed for the vitrification of nuclear wastes: if possibly the most stable material we know of, glass, can encapsulate plutonium for the necessary 5,000 years then why on earth are we worrying about it in landfills?

Again, the point is that the system of environmental rules is actively discouraging the desired end, that of greater protection and less pollution. Making something more expensive means that you will have less of it whether it be CRT recycling or wildlife habitat.

So my suggestion is that we simply print Professor Whitman's two points onto a piece of card, in sufficient quantity that each and every pen pusher in the system has at least one copy from which to absorb the text, perhaps in special large print for those whose lips move when watching TV. A small cost for what I believe will be very large benefits, the advantages that will come from a system whereby economic incentives are actually pushing people in the direction of the desired outcome.

That does of course leave the question of precisely where these cards should be displayed to best effect. I hope you won't think me too much of a cynic if I militate for colonic insertion offering the best bureaucratic visibility.

Tim Worstall is a frequent TCS contributor. See more of his writing at www.timworstall.com.


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