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Another U.S. Treasury Secretary Says the Same Thing On Climate Change

(Last updated 5-25-15)

Last Month, Henry Paulson, a Republican, and former U.S. Secretary of the Treasury under George W. Bush, urged (emphasis added):

We’re making the same mistake today with climate change. We’re staring down a climate bubble that poses enormous risks to both our environment and economy. The warning signs are clear and growing more urgent as the risks go unchecked.

This week, former U.S. Treasury Secretary Robert Rubin, a Democrat – and the Treasury Secretary who presided over and, lucky or not, helped turn enormous federal deficits into surpluses by the end of his administration’s term – essentially stated the same thing:

We do not face a choice between protecting our environment or protecting our economy. We face a choice between protecting our economy by protecting our environment — or allowing environmental havoc to create economic havoc. And a major step toward changing the debate is to change the way we measure the health of our economy, our fiscal conditions, and the health of individual companies and businesses to better reflect the world as it will be.

Treasury Secretaries tend to be very good at handling large money issues. It’s what they do. Both Paulson and Rubin also come from the private sector, where they’re fierce free market capitalists, and where they were both extremely successful.

What both recognize – along with many who are looking at this issue in a way that lets go of one’s desires or preconceived notions regarding what the very best climate change redress entails – is that what’s happening right now  is not really “free market.” And it’s the opposite of efficient.

Just as limited government and maximum liberty requires some government and not anarchy to institute laws to protect that liberty, true capitalism also sometimes needs some rules and adjustments to keep the market efficient, fair and truly competitive.

Anti-trust regulation, a hallmark of the greatest economy to ever grace the earth – the U.S.’s – helps prevent anti-competitive, collusive, and monopolistic behavior. And it also helps to prevent excessive corporate power from winding up acting as a surrogate “big, intrusive, over controlling government”: One with fealty towards profits, not the public’s liberty or even individual rights. Excessive corporate power and influence over individuals, is potentially almost as much of a threat of overly intrusive government, particularly when the latter starts to think it its business to protect the former. (Unfortunately, 2010’s Citizens United– perhaps the most poorly reasoned Supreme Court decision in U.S. history equating money equally with speech itself, rather than as a normally convenient way (for those that have it) of pursuing it – is slowly but insipidly helping move us terribly in the wrong direction.)

Another market issue, and sometimes even more profound, but hidden, is that of externalities:

There may be external costs or damages – not naturally integrated into the marketplace or its pricing structures – that externally inflict highly counter productive or harmful results upon the world or “common environment” that we all inevitably share and rely on, and can’t avoid.

Or, as many believe, also impinge upon individual rights or at least certain basic reasonable expectations. This is particularly so when it comes to pervasive, but largely hidden and often intermingled affects on popular health: Person or Industry A does not have the right to harmfully pollute the air person B must breathe, for instance.

When we are all “person B” however – the effect is on the entire environment that we all collectively live in and rely upon, and we all rely upon the industry or industries that are “person A,” this becomes incredibly inefficient,and in the long run destructive and highly counter productive – and it’s exactly what we’re doing right now with respect to the issue of “climate change.”

Meanwhile B, C, or D (or even as of yet unknown, or “X”) industries  – the ones that do not have these same (or less) enormous long term but hidden costs, are not competing on an “even playing field,” or anything in even the same ball park as an even playing field with the first group of industries, industrial, energy, and agricultural and consumer habits that we’ve developed because their lower (or even nonexistent) negative impact upon person “B” (which again here is everyone), has no bearing upon natural marketplace mechanisms. That is, the benefit of far less external harm is not conferred upon the individual decision maker, but the world at large, and this benefit is not integrated into the pricing structure of these practices relative to the far more long term detrimental ones.

Unless recognized and corrected by some sort of outside influence on the marketplace, this process is thus also self perpetuating.

The basic phenomenon occurs because the harm is born by everybody, often hidden yet real, and since the cost of correcting it would be born only by end consumers (or companies) making self sacrificing decisions, there is no incentive toward correction.  And even with self sacrificing decisions, there is often not enough impact to make enough of a difference on what ultimately matters – market patterns.

Another way of saying this is that individually “altruistic” or well meaning actions don’t normally even have much affect unless everybody pitches in (and has good knowledge – also often hard to come by when it comes to longer term, often hidden and even commingled harms). And there’s often little incentive to do so when most people are not pitching in; nor is it right necessarily (or even practical), to cajole people or dictate individual behavior. Nor, secondarily, even necessarily very efficient.

This is the  tragedy of the commons, which is playing out in an enormous way when it comes to radical atmospheric alteration, commonly referred to as Climate Change.

Individuals can choose to buy local food, and do countless other helpful things, for example, that can help. But to be an effective strategy this requires large scale cooperation; let alone one that, more importantly, changes market alternatives and pricing structures so that more can even practically be chosen or accomplished in the first place, or movement of the market itself in response so that other people’s choices invariably come with less hidden non integrated harm. Hence the key role of proper market incentive to both motivate and facilitate such change far more broadly.

On the other hand, internationally the tragedy of the commons idea is very overplayed when it comes to climate change.

In this case, the tragedy of the commons is being rigorously applied to the global aspect of this problem, and the fact that nations, justly, make largely independent decisions. (Helping also to facilitate much of the largely irrational fear and even claim on the part of many so called “global warming skeptics” that anthropogenic climate change is just an excuse for, or a convenient means to, the loss of national independence and sovereignty.)

But from a strategic point of view (although much of it again comes from skeptics on Sunday news talk shows and elsewhere, trying to finagle any angle possible to downplay sensible climate change redress), the tragedy of the commons isn’t being rationally applied.

This isn’t a case of many thousands of individual nations. Just a few large ones alone – as well as just a handful of specific energy and agricultural practices – have a disproportionate impact upon total net greenhouse gas emissions.  And it’s both very reasonable, and in the absence of any serious problem mitigating effort rather than symbolic agreement (like Kyoto), it is probably strategically far more sound, to act unilaterally on this issue.

Then, in turn, negotiate for far more promise in return from other (key nations, and so on), in return for a little more addition from ourselves. This is because, as a true global issue,  other nations don’t get any real benefit if they don’t pitch in anyway, and first real movement both starts the process and buys a lot of leverage that we otherwise don’t even remotely have: I terms of showing good faith, and gaining strong moral authority – critical for a world leader like the U.S. that otherwise has great world power and some degree of “say,” but is also warily eyed and can’t simply impose it’s will – and immediately increasing the impact of other nations cooperation on the issue by virtue of our own initial contributions.

Thus, it’s not at all like NPR’s neat little but otherwise interesting red card black card example – where it’s incorrectly being presented as a no win situation or non beneficial to act: though the issue has been being widely perceived as just that, and which again, has been a further (and strategically unwarranted) impediment to action.

However, in terms of individual versus broad based strategic approaches, the issue is a complete tragedy of the commons, since the harm from all individual (if individually reasonable) choices amasses to the entire world: thus any benefit (no matter how microscopic) borne out by individual behavior would accrue to the entire world – billions of people and many more so in the future – yet would do so at the cost solely to that individual making the decision.

This doesn’t make “globe helping” and selfless individual choices unwarranted, it makes it an ineffective strategy for redress alone, since not enough people will act without proper incentive. Thus far less change will be effected, and far more importantly, there will be far less market advancement or transition – which is the real key- in response. And thus simply trying to encourage people to make better world assisting choices, while itself a fine thing on its own, is of less worth on such a grand, deeply entrenched, amplifying global issue, without an accompanying attendant broader based strategic approach.

What can that approach be? In terms of redressing any general tragedy of the commons problem, proscribed rules are one way to seek to somewhat offset often very counter productive, shared harm. but individualized cost redress phenomena.  But they are often very inefficient both short and long run. They also tend simultaneously, and often needlessly, to directly limit choice, rather than letting adjusted market decisions guide the best outcomes, and thus can sometimes be both more inefficient, as well as, simultaneously, infringing.

Thus another way is to use the market itself to provide such incentive. Through the need for adjustment and innovation, in combination with the pursuit of reward, either in the form of reducing costs, limiting otherwise excessive cost rises ( the most effective market adjusting mechanism yet known to man), or profit, this approach often leads to far more rapid improvement.

And “climate change” is a perfect candidate for this approach because through otherwise perfectly normal and okay behavior and choices, we are all – if in one way or another and in various degrees – contributing to the same problem that, if far less obviously, is at the same time harming us all; and in particular greatly harming the long term world we’re fashioning for our progeny.

Climate change, as most world leaders are starting to recognize, and many scientists who study the issue have for a long time now, presents an enormous pressing need to try and mitigate the continued long term harm of adding even further to our atmosphere’s net concentration of long lived greenhouse gases, which have already reached levels not been seen on earth in at least several million years.  And utilizing,  properly motivating, the market itself, rather them hemming it in by prohibiting or proscribing behavior, may just be the best way to do this – as well as protect individual rights and choice in the process.

This requires figuring out what adjustments need to be made, providing a structure of incentives so that the market reaches, and may well exceed, those adjustments, and letting the market, and individuals, in response, decide and facilitate the best avenues for getting there. Just as both Rubin, and Paulson – who know a thing or two about this process – advocate, and that many others have been advocating for a long time.

By doing so, and the very definition of what such an act ultimately entails – addressing an externality causing great harm but short term largely hidden from our decision making process – we’re not only improving our world long term and lessening our inadvertent damage of it in the pursuit of growth, we are improving the quality, and thus the real value, of that growth itself.

By not doing so, we’re harming the true value of that growth and of our very world in the process, merely because we can’t immediately make tangible, or quantify the “real costs” of harmful, counter productive long term processes.

Thus the rectification of that counter productivity is not the “sacrifice” of “value” or the addition of “cost” in order to do so; it is the creation of value, and, ultimately the creation of real growth itself – growth that more closely matches our long term interests by not only providing jobs (as of course investing in better practices invariably does), but by not simultaneously doing great harm to our world and our own long term interests, in the process.