Ecologically Fair Pricing Isn't the Magic Wand Environmentalists Think It Is

When it comes to ecological economics, Herman Daly is pretty much the man. So when he takes a swipe at one of the central tenets of current green thinking, the effect of incorporating the cost of pollution into the prices of consumers goods, you should pay attention.

The conventional green economic wisdom on pricing pollution—often trotted out when talking to people who think that protecting environment is just for liberals, socialists, and Luddites—goes something like this. Consider the price of gasoline. If you incorporate all the negative externalities—climate pollution, oil spills, habitat, and biodiversity loss—associated with producing and consuming the gasoline into the price consumers pay at the pump, the invisible hand of the market would swing into action to put everything into its right and proper place. Investment and consumer preference would shift towards products and production methods which produce less pollution, as it will simply be less expensive not to pollute than to pollute—the reverse of the situation now.

In a new piece for the Center for the Advancement of the Steady State Economy, Daly writes about achieving a truly ecologically sustainable human civilization and economy:

We must discard some dead-end dreams—not only the "American Dream" of consumerism, but also the mainstream economist's dream of internalizing all ecological relationships into the monetary accounts of the economy. It is a fantasy to believe that we can devise a rigged market system in which "corrected" prices would tell the whole truth about the opportunity costs of everything in the world, and automatically optimize the scale of the economy relative to the ecosystem, as well as the allocation of resources within the economy. In T.S. Eliot's words, this is "dreaming of a system so perfect that no one needs to be good."

In other words, while there is certainly virtue, economic, ethical, and environmental, in "corrected" prices, it's in no way the magic wand it's often portrayed to be by environmentalists.

In order to avert environmental collapse caused by the human economy pumping into the fixed ecological limits of a non-growing planet, we must actually make decisions and value judgments. We can't assume either that a fully price-corrected economy is even possible, or that it alone would be enough to create an ecological sustainable economy. We must also be, or at minimum, attempt to be, good.

Daly's leading recommendation on how to be ecologically good is "to leave most of the ecosphere along, to limit our absorption of it into the economic subsystem," so that it can continue to both renewably supply raw materials and successfully absorb all our waste—not to mention supporting all of the non-human life on the planet.

Though phrased in somewhat sterile terms, it's a radical statement to make in a society where few people and even fewer in business ever question the notion that economic growth is always and necessarily good. We have to be willing to say no, that we've gone far enough.