The Best Way to Save the Earth? Capitalism


This past Sunday was Earth Day. Founded in 1970, the annual event is now celebrated by some 500 million people in 175 countries. Although the friends of the planet might disagree on what they’re for — some care most about the quality of the air we breathe, some want to preserve endangered species, and some extremists wish human beings would leave the scene altogether — they all know what they’re against: capitalism.

Whether the alleged solutions are taxes on gasoline, fines for smokestack pollution, or stepped up enforcement of fishing quotas, the common thread is that free individuals cannot be entrusted to make wise decisions with their private property. Benevolent politicians (taking their cue from the environmentalist experts, of course) must use the power of the government to alter people’s behavior.

So far I’m saying nothing controversial. The tradeoff between jobs and the spotted owl is familiar to all, and indeed the typical environmentalist relishes the material sacrifice necessary to make amends with Mother Nature. (After all, you can’t properly atone for past sins without a little suffering.) But what most people don’t realize is that unbridled capitalism is the best way to achieve the environmentalists’ objectives. Let’s consider a few major issues to see how.

Endangered Species

Pop quiz: What’s the difference between white rhinos, giant pandas, and spotted owls on the one hand, versus dairy cows, thoroughbred horses, and talking parrots on the other? Answer #1: All of the former are endangered species, while all of the latter are in abundant supply. Answer #2: It is illegal to trade in the former, while the latter are bought and sold as commodities.

This is no coincidence. When owners have well-defined property rights in a reproducible resource, they have every incentive to maintain it. The government doesn’t need to pass laws to protect our supply of cows. Even when beef prices rise, ranchers aren’t so shortsighted that they slaughter the last pair of the animals, just as rising agriculture prices don’t lead farmers to eat all of the seedcorn.

Although it’s politically incorrect to say so, the best way to protect endangered species is to allow private individuals to own them and sell them to the highest bidder. Politicians might make stirring speeches and pass a few token laws to punish poachers, but you can bet they’d be a lot more vigilant in saving the rhino if it meant millions of dollars in their own pockets.

Nonrenewable Resources

Capitalism is routinely denigrated as myopic when it comes to nonrenewable resources such as oil. The government supposedly needs to place taxes on oil consumption, and hand out subsidies for hydroelectric or solar power, before it’s too late. Private corporations, it seems, are incapable of seeing the coming catastrophe when our SUVs guzzle the last barrels of oil.

Nothing could be further from the truth. There are literally futures markets in oil, natural gas, and other commodities, which give precise estimates of the future availability of these resources. Unlike the wildly alarmist predictions of professional scaremongers, the futures prices are our best estimate of the relative scarcities of these items, because inaccurate prices lead to huge profit opportunities for speculators. In contrast, when Paul Ehrlich claimed in 1968 that in "the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now," it didn’t cost him money; indeed it boosted sales of The Population Bomb.

At any given time, the market price signifies the consensus of true experts on what the future price of a commodity will be. If the geologists and other analysts working for Exxon realized with horror that there were only five years’ left of oil at current rates of consumption, their superiors would immediately stop all extraction of oil. They would wait for the impending shortage to manifest itself, and would only start selling oil again once its price had gone through the roof. The high price of oil, in turn, would spur consumers to buy more fuel-efficient vehicles, and producers of alternative energy sources would see an increased demand for their products. In other words, the self-interested reaction of private individuals would be exactly what the environmentalists want.

Of course, in the real world today, people continue to buy SUVs and few houses run on solar power. But this isn’t because of shortsightedness, it’s rather because there is plenty of oil to last for decades and decades. Keep in mind that the official warnings of oil stocks refer to known reserves. When those supplies dwindle, the oil companies go find more. (Proven worldwide reserves of crude oil went from 51 billion barrels in 1944 to 1.27 trillion barrels by 2002.)

At current market prices, it would be an inefficient use of satellites and labor to discover three hundred years’ worth of oil, just as the typical household doesn’t buy three years’ worth of groceries to stock in the pantry at a time. The alarmist cries over the impending shortage are nothing new; in 1939 the Interior Department predicted U.S. oil supplies would last only thirteen more years.

Global Warming

Of course, the bogeyman of the day is global warming. Now admittedly, as an economist I don’t claim to be an expert in climate change. Even so, I don’t quite see how mankind’s economic activity can be responsible for temperature increases over the 20th century, since most of the increase happened in the first four decades when industrial output was quite modest, while worldwide temperatures actually dropped during the massive postwar industrial boom. (That’s why Time magazine famously warned of a coming Ice Age in 1974.)

In any event, suppose the official global warming theory is true. Does it follow that governments around the world will be our saviors? The U.S. federal government can’t keep cocaine out of prisons or catch Osama bin Laden. Do we really believe that if we only would allow it to ruin the economy with massive taxes and regulations, it would at least succeed in stamping out carbon emissions around the globe?

Rather than a "solution" based on dubious science and a naïve faith in politicians, better to let the unbridled market reduce pollution through innovation and increased standards of living. After all, which countries are more polluted — those in relatively free Western Europe, or those that suffered under communist rule in Eastern Europe? Answer that and you’ll know which system, capitalism or socialism, is more likely to save the planet.