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February 24, 2006

Undercover Economics: Free Trade vs. Environmentalism

by Eric

Recently, Patri Friedman posted an excerpt from the Copenhagen Consensus over at Catallarchy. He pointed out that economists agree that the removing trade barriers globally is one of the best ways to spend money from a cost/benefit perspective. I commented fairly extensively on that thread, suggesting that free trade really should be ranked #1 on the list, not #3, behind spending on HIV and malnutrition. This is because I believe that free trade will increase wealth, which will, in turn, increase the money available to be spent on problems like HIV and malnutrition.

I’ve also been, concurrently, reading The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor and Why You Can Never Buy a Decent Used Car! by Tim Harford. I got turned on to the book by another post Patri wrote, actually. In any case, although there are quite a few areas where Harford and I don’t see eye to eye politically, he has written an entertaining book explaining some of the core ideas of economics in a way that most people should be able to understand. In the second to last chapter of the book, which I just finished, he tackles globalization and free trade. There are quite a few myths surrounding globalization, most of which are memes created by special interest groups that appeal to progressives. This is neither the time nor the place, so I won’t get into what a contradiction in terms the label “progressive” actually is. Aside from that, two of the myths that Harford tackles quite well are that international free trade is bad for the environment and bad for the citizens of poor countries. I won’t tackle the issue of free trade being bad for workers in poor countries, that particular myth has been dispelled quite well many times over. I’m going to tackle free trade and environmental issues. I found the discussion surrounding environmental issues particularly enlightening, especially if you combine it with the realities of environmentalism and global warming. You’ll have to actually read the book to get all of the details, I’m not going to quote the whole chapter here. He lays out evidence for the following points, however:

  • Agricultural subsidies and tarrifs lead to mono-cultural ecologies and increased use of pesticides and fertilizers. The evidence correlates nicely. Industrialized nations that protect their agriculture have the highest rate of use of pesticides and fertilizer in the world.
  • Industries that pollute the most are located in rich, industrialized countries and not relocating to poor countries. These happen to be industries that require good infrastructure, rule of law, strong political institutions and well educated workers. The industries that are relocating are low polluting, such as textiles.
  • As nations grow wealthier, the rate of pollution per person begins to level off and then decline around the point of $5,000 of per capita income. This is a reason to want to see an increase the wealth of poor countries.
  • Manufacturers tend to use technologies that are low polluters because it turns out that they are, for the most part, also more efficient and less expensive once implemented. They tend to do this in all countries, not just the ones with tougher environmental regulations.
  • Economists believe that we are seeing the peak of energy demand in wealthy countries. This is primarily because of saturation, not cost. In other words, when every family in the US has a place to live with an air conditioner, two cars, a computer and a couple of TV’s (more or less), there really isn’t much that is being introduced to increase energy use. It’s a demand issue, rather than a supply and cost issue.

He then goes on to say:

What, really, are we to make of the environmentalist attack on free trade? We’ve seen that the race to the bottom is nonexistent; that polluting industries are still based in rich countries, rather than poor countries; that environmental standards are rising in China, Brazil, and Mexico, the major destinations for foreign investment into poor countries; that protectionist measures such as those on farming, steel, and coal, which sometimes claim environmental justifications in fact are tremendously harmful to the environment; that taxes on transportation fuels are consistent with free trade and much better for the environment than trade restrictions; and that the worst environmental problems, at least of today, are caused by poverty not wealth. The environmentalist movement should be manning the barricades to demand global free trade immediately. One day, perhaps they will.

I wouldn’t hold your breath. The environmental movement is also, for the most part, convinced that managed economies are the solution to the world’s ills. These folks believe in egalitarianism to the nth degree, which will simply result in all of us being equally poor except a privileged few living in privileged splendor. Kind of like the old Soviet Union was.

Environmentalism is sadly out of touch with reality in so many areas that I fail to see how we can possibly take them seriously.


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