Sunday, April 27, 2008

Global Warming/Sustainability solutions make good economic sense...

I am a true capitalist. I dont believe it is ALWAYS the answer, but I will always first look for a capitalist solution to a problem before trying regulatory or government imposed solution.

The problem is that today's capitalism is not true capitalism but rather methods to make the rich richer and keep the poor poorer. A prime example is the treatment meted out to the Carbon Tax issue. There are several variations of this idea, but the basic idea is that people and organizations pay for the carbon they put in the atmosphere. This makes good capitalistic sense, and is a very good way to solve the global warming issue.

The reason why capitalism has failed us seems to be a revulsion to Malthus, who was the guy who told us that we would run out of food (and other resources) because they grow linearly, but humans increase multiplicatively. As Dr. Krugman points out, Malthus was right until his own time. Since then, most economists have consistently believed that natural resources are infinite. Which is why oil is priced as low as it is (although this is changing). Without this false belief, oil would have been priced much higher increasing investment in other greener alternatives. The last generation, and our generation is getting by with the exploitation of resources. Essentially, we are tapping into the the future generations' college funds to pay for our energy inefficient habits.

We wrongly account for natural resources as operating income, rather than capital, which is why a country's GDP increases by a billion dollars when it sells a billion dollars worth of raw iron ore to another country, rather than remaining constant (or possibly increasing by a few million dollars, assuming it was sold at a premium to its natural current worth). A billion dollars of iron ore given away to another country, might be a billion dollars more in cash-in-hand, but is still a billion dollars less in natural resources. It is like you selling half your house for a million dollars, and saying that your personal value has increased by a million dollars. Assuming that your house's worth is worth 2 million, this is not true, because the 1 million you gained in cash was lost in the 1 million of your property worth. Now, if you were to invest that 1 million in Google stock, and sell it a few months later at 1.5 million, you earned .5 million, and your net worth actually increased by that amount. This is analogous to converting the raw iron ore to steel, and making and selling utensils to another country for 2 billion dollars. It is only now that the country earned an extra 1 billion, and the GDP should only increase by that amount under this condition.

Another issue is the complete lack of value attached to property owned by everyone. By this I am referring to things like the atmosphere, and the ocean. If someone were to reroute their sewage system so their crap was dumped in your backyard, rather than through normal public works, you would surely have raised quite a stink (no pun intended) about it. At the very least, you would have charged them for it. So why are companies charged zilch for dumping crap into the atmosphere? The only difference between this and the personal example earlier is that in the former problem the rights to the property belong to an individual (or a few individuals) and in the latter, the rights belong to ALL individuals. It is a classic case of the Tragedy of the commons. Basically, most polluters get away by freeloading on you, me and everyone else. The solution is to charge them for what they take from us and for what they dump on our property. Charge them for dumping carbon, and charge them for destroying the ozone layer, and charge them for leaving our kids with a warmer world. This will establish the true price of driving a 100 miles in a hummer, and will make most sane people reconsider their decision to purchase one. There will then be tons of incentives to invest in alternative (and better) sources of energy, and the true cost of alternative energy will be shown (as it is) to be less than the true cost of oil energy.

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