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Forum Post: Getting the Market to Tell Ecological Truths

Posted 2 years ago on April 11, 2012, 5:01 p.m. EST by Demian (497) from San Francisco, CA
This content is user submitted and not an official statement

by Lester Brown

Moving the global economy off its current decline-and-collapse path depends on reaching four goals: stabilizing climate, stabilizing population, eradicating poverty, and restoring the economy's natural support systems.

These goals - comprising what the Earth Policy Institute calls 'Plan B' to save civilization - are mutually dependent. All are essential to feeding the world's people. It is unlikely that we can reach any one goal without reaching the others.

The key to restructuring the economy is to get the market to tell the truth through full-cost pricing. If the world is to move onto a sustainable path, we need economists who will calculate indirect costs and work with political leaders to incorporate them into market prices by restructuring taxes.

This will require help from other disciplines, including ecology, meteorology, agronomy, hydrology, and demography. Full-cost pricing that will create an honest market is essential to building an economy that can sustain civilization and progress.

For energy specifically, full-cost pricing means putting a tax on carbon to reflect the full cost of burning fossil fuels and offsetting it with a reduction in the tax on income. Some 2,500 economists, including nine Nobel Prize winners in economics, have endorsed the concept of tax shifts.

Harvard economics professor and former chairman of George W. Bush's Council of Economic Advisors N. Gregory Mankiw wrote in Fortune magazine: "Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traffic congestion, safer roads, and reduced risk of global warming- all without jeopardizing long-term fiscal solvency. This may be the closest thing to a free lunch that economics has to offer."

The failure of the market to reflect total costs can readily be seen with gasoline. The most detailed analysis available of gasoline's indirect costs is by the International Center for Technology Assessment.If we can get the market to tell the truth, to have market prices that reflect the full cost of burning gasoline or coal, of deforestation, of overpumping aquifers, and of overfishing, then we can begin to create a rational economy.

When added together, the many indirect costs to society - including climate change, oil industry tax breaks, military protection of the oil supply, oil industry subsidies, oil spills, and treatment of auto exhaust-related respiratory illnesses -total roughly 12 per dollars gallon. That is on top of the price paid at the pump. These are real costs. Someone bears them. If not us, our children.

If we can get the market to tell the truth, to have market prices that reflect the full cost of burning gasoline or coal, of deforestation, of over-pumping aquifers, and of overfishing, then we can begin to create a rational economy.

If we can create an honest market, then market forces will rapidly restructure the world energy economy. Phasing in full-cost pricing will quickly reduce oil and coal use. Suddenly wind, solar, and geothermal will become much cheaper than climate-disrupting fossil fuels.

If we leave costs off the books, we risk bankruptcy. A decade ago, a phenomenally successful company named Enron was frequently on the covers of business magazines. It was, at one point, the seventh most valuable corporation in the United States.

But when some investors began raising questions, Enron's books were audited by outside accountants. Their audit showed that Enron was bankrupt - worthless. Its stock that had been trading for over 90 dollars a share was suddenly trading for pennies.

Enron had devised some ingenious techniques for leaving costs off the books. We are doing exactly the same thing, but on a global scale. If we continue with this practice, we too will face bankruptcy.

Another major flaw in our market economy is that it neither recognizes nor respects sustainable yield limits of natural systems. Consider, for example, the over-pumping of aquifers. Once there is evidence that a water table is starting to fall, the first step should be to ban the drilling of new wells.

If the water table continues to fall, then water should be priced at a rate that will reduce its use and stabilize the aquifer. Otherwise, there is a "race to the bottom" as wells are drilled ever deeper. When the aquifer is depleted, the water-based food bubble will burst, reducing harvests and driving up food prices.Enron had devised some ingenious techniques for leaving costs off the books. We are doing exactly the same thing, but on a global scale. If we continue with this practice, we too will face bankruptcy.

Or consider deforestation. Proper incentives, such as a stumpage tax for each tree cut, would automatically shift harvesting from clear-cutting to selective cutting, taking only the mature trees and protecting the forests.

Not only do we distort reality when we omit costs associated with burning fossil fuels from their prices, but governments actually subsidize their use, distorting reality even further. Worldwide, subsidies that encourage the production and use of fossil fuels add up to roughly 500 billion dollars per year, compared with less than 70 billion dollars for renewable energy, including wind, solar, and biofuels.

Governments are shelling out nearly 1.4 billion dollars per day to further destabilize the earth's climate.

Shifting subsidies to the development of climate-benign energy sources such as wind, solar, and geothermal power will help stabilize the earth's climate. Moving subsidies from road construction to high- speed intercity rail construction could increase mobility, reduce travel costs, and lower carbon emissions.

We are economic decision-makers, whether as corporate planners, government policymakers, investment bankers, or consumers. And we rely on the market for price signals to guide our behavior. But if the market gives us bad information, we make bad decisions, and that is exactly what has been happening.

We are currently being blindsided by a faulty accounting system, one that will lead to bankruptcy. As Øystein Dahle, former vice president of Exxon for Norway and the North Sea, has observed: "Socialism collapsed because it did not allow the market to tell the economic truth. Capitalism may collapse because it does not allow the market to tell the ecological truth."



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[-] 2 points by JadedGem (895) 2 years ago

HA! HA! Tax cuts for the wealthy again??? The % of income spent on gas for cars is much higher the lower your income actually is. It is simply a way to have the masses foot the bill yet again and give tax breaks to people who are grossly under taxed all ready. Electric cars are a design reality. Alternative sources of sustainable electricity exist but you are 100% right in that subsidies are not directed at encouraging their development and usage. We grow tons of pine trees in GA. Stumping is just part of the process. A natural stand promotes wildlife and greater diversity than planted for harvest stands of timber. A natural stand is not as profitable as far as tree for tree and speed of growth however the inclusion hard woods and the ability to hunt game on the land without tossing out bags of corn make it good choice for small farms. Planted pine does not a forest make. People can ill afford to have land sitting around generating nothing. Clear cutting and deciding to turn it into pasture or grow a natural stand of trees and bushes and have actual forest grow back is not the barren landscape you portray it to be. The game warden's love walking around a natural stand and are in awe of the diversity after roaming threw planted pines. You can't always drag one particular tree out of the middle of a mature natural forest without causing a disturbance if you know what I mean. You are right about the total costs being hidden and subsidy dollars being spent in all the wrong places. Shipping items all over the world should have a higher price. Globalization itself should have to reveal the size of its massive ugly carbon footprint!

[-] 1 points by Demian (497) from San Francisco, CA 2 years ago

I don't endorse all the ideas in the post. I just thought it was interesting so i decided to post it.

[-] 1 points by JadedGem (895) 2 years ago

It was really interesting to think about. It would not solve the problem of globalization and the crazy mad shipping going on I don't think. You'd probably just have ships trying to carry enough fuel that they never gassed up in the US. The way subsidy dollars are spent is very revealing. They go to whoever pays for lobbying generally. The supposed move to green the Obama administration is holding out looks more like mere token gestures when you consider the scale of what is needed to save the planet like YESTERDAY. Globalization is accelerating the planet's demise far quicker than previous studies indicated I believe. When I refer to a global collapse, I'm usually picturing the world's resources being thoroughly consumed already, not just a bad day on Wallstreet.

[-] 1 points by Demian (497) from San Francisco, CA 2 years ago

Yeah I don't really see any way out of the spiral we are in without a significant decrease in population and the way things are going that could be in the next 20 or 30yrs. Droughts smash the global food supply caused by global warming or wars over the last drops of oil or water or whatever. Next thing you know there is only about half a billion people left. People act like preppers are nuts but if I was financialy able i would be prepping my ass off. Theres just no way it can continue on like this forever.

[-] 1 points by JadedGem (895) 2 years ago

Yeah preppers may get flack because we gimp around a little longer than expected but really more and more people know this economy can't go on burning threw resources at this rate.

[-] 1 points by Demian (497) from San Francisco, CA 2 years ago

What part of the south are you from JadedGem? I'm from Kentucky but I grew up in the nashville area. I live in SF now. Nice to see another southerner on here.

[-] 1 points by JadedGem (895) 2 years ago

Southeast Georgia. Yeah, we southerners are watching the movement too. We might not be able to afford gas to get to the protests though especially not at these prices. I am really interest in localization and establishing more bartering and trading in the southern states. Using the local farmers markets etc and things that can be done even in rural areas. The ideas being presented have a lot of appeal to Southerners who don't watch Fox News regular.

[-] 1 points by Demian (497) from San Francisco, CA 2 years ago

Speaking of farmers markets and co-ops and what not check this guy out. http://www.garalperovitz.com/ He's done alot of work in the midwest setting up co-ops as an alternetive economy. I think this is the kind of thing the south really needs.

[-] 1 points by JadedGem (895) 2 years ago

Exactly! My grandparents always said the Great Depression passed in the south while poor southerners barely noticed a difference in their daily lives. They bartered and traded, shoes from a store were tough to get, but not food as you could trade to get most things. It was kinda like dollar bills were a rare thing but it didn't matter if you had crops and livestock to trade. They managed to get the staples, they were poor but that wasn't really a new condition for them.

[-] 1 points by Demian (497) from San Francisco, CA 2 years ago

Yeah I dont think people from other parts of the country realize how poor parts of the south are like the mississippii delta and appalachia. I know when i visit where my family is from in kentucky its like a different world.

[-] 1 points by lancealotlink (147) 2 years ago

Brilliant article. One thing I would add the reason that High-speed rail was not built in the last century is because corporate entities bribed and sabotaged the projects.They should have to pay for a new transit system.employmentforthe99.com

[-] 1 points by gnomunny (5691) from St Louis, MO 2 years ago

Good post Demian. Although I think the concept of 'full-cost' pricing might be new, I think it's vital to begin incorporating this into our models. It's going to be extremely complicated though. How do you estimate the true cost of cutting down a tree in Brazil or pumping a gallon of water out of an aquifer? Once the true cost of shipping crap from China to Wal-Mart is factored in, could it be incentive to start producing here again?

[-] 2 points by JadedGem (895) 2 years ago

Yes, and how do you apply any system of taxation globally if it isn't all owned by Goldmansachs? It shouldn't be cheaper to ship things from Timbuktu than to buy from next door and yet it is. I'm serious, what is grown on a neighbor's farm is hauled to a distribution center for inspection then shipped all around before it makes the trip back to the local grocer. It is like "how we can burn more gas?" It looks as if the oil company itself made these business models.

[-] 1 points by gnomunny (5691) from St Louis, MO 2 years ago

I have a sneaking suspicion once 'full-cost' is factored in we may find out it really ISN'T cheaper to ship from Timbuktu to Main Streeet USA. It's entirely possible you (and jph, below) are correct about 'big oil's' involvement in this scheme. It makes all too much sense.

[-] 1 points by jph (2652) 2 years ago

they likely did! there is mad cross-ownership in the few giant corporations that dominate the world today,.