 Welcome to Free Thoughts, a podcast project of the Cato Institute's Libertarianism.org. Free Thoughts is a show about libertarianism and the ideas that influence it. I'm Aaron Powell, a research fellow here at Cato and editor of Libertarianism.org. And I'm Trevor Burrus, a research fellow at the Cato Institute Center for Constitutional Studies. Our topic for today's episode is the environment. Joining us to discuss it is our colleague Jerry Taylor, vice president of the Cato Institute. Jerry, when I was a kid, there was a show that was on called Captain Planet. It was a cartoon. And the idea was there were these evil businessmen who, for whatever reason, set out to pollute. That was like every week they had some… That was their goal actually. Yeah, that was their scheme was to pollute some river or something like that. And there were these plucky kids who each had special powers but they would all join together to become Captain Planet who was a superhero who would save the environment and stop these evil businessmen. And it strikes me that that is the way a lot of people think about environmentalism still. This sense that we have these maybe not evil but at least uncaring private actors out there who want to turn a buck and will pollute the air or do whatever it takes to get that money and that it's only through kind of banding together with the best intentions that we can, via the government, we can kind of stop them from doing it. And if it wasn't for us stepping in as the superhero, we would stop them. Is there any accuracy to that? I mean not to the superhero and Captain Planet part of it but to the notion that business people in particular corporations or private individuals need to be stopped from using pollution as a way to turn a buck. And the only way to do that is through the power of the collective. Well, first of all, environmental policy like so much other policy discussions in Washington ends up being something of a very simplistic morality play. Evil polluters versus environmental do-gooders. Or if you're on the right side of the fence, anti-capitalist jihadis against industrial America, they tend to be relatively black and white conversations, rather cartoonistic and rather simplistic as well. So Captain Planet is well within that venue. Now is there any truth to these sorts of narratives? Yes, there is some truth to this. The argument would go that if an industrial actor is not forced to pay for the environmental consequences of his actions. In other words, if you can pollute the atmosphere and other people pay the price for that pollution but you don't have to pay it, then you are going to be more inclined to pollute than if you had to pay the price. So instance, if you had a factory that was spewing all kinds of environmental contaminants out at smokestack, but the costs of those contaminants were borne by third parties, people who ended up going to the hospital, people who incur medical expenses, people had property devaluations as a consequence of that pollution, they're paying for it, and if the company that's spewing the environmental constituents in the air aren't paying for it, in other words, their costs are not internalized and these are external costs, then there's going to be more pollution than would be the case if they had to compensate victims. This gets at the observation that a lot of environmental problems are associated with public commons, air sheds, water sheds, things like that, where we don't have individual owners. And in that regime, if you had a laissez faire world, so the argument goes, you would see more pollution than would otherwise be the case, were it not for A, government, or B, torts which might internalize those costs. So there is something of truth to the claims that are paraded about rather cartoonistically and Captain Planet. So what can government – government has done different things at different times to try and control those negative externalities. EPA started in 71, I think it was, Nixon, and we could either try and stop them from doing this entirely or we could try to get them to start trading these things or put a price on it. Is the government very good at doing those things? Well, there's a long and very interesting history of how we've dealt with pollution in this country. Up until the Progressive Era, we didn't have environmental laws, pollution laws or things like that. We had a system of tort. The law in the United States treated environmental pollution as a trespass. If a industrial actor or factory polluted water, then the person who was downstream from that pollution, who was exposed to these pollutants – it's maybe a farmer who relied on that water for irrigation – would have a case to go in the court and file a nuisance or trespass case and seek compensation. So there were no special environmental laws. We dealt with pollution in the court system as a trespass on property rights. People in that period look back and say, well, what changed? Why did we abandon that regime where we dealt with pollution as a trespass or a nuisance to a regime in which we regulated it from the state? And the argument which seems most persuasive to me is that we abandoned it because industrial actors found that property rights as a means of dealing with pollution was too restrictive on their operations. They argued there was a public good to manufacturing and to industrial activity, and that this public good was not being captured by a strict observance of property rights, which is why we needed regulatory bodies to decide how much pollution can be issued by industrial actors, how much of the public commons can be claimed by these actors, and even to what extent industrial actors can pollute on private property in the public interest. So the public itself would make this decision, not courts going on property rights. So the regulatory state grew not out of environmentalist complaint over run-and-mock pollution. It grew out of industrialist and manufacturing complaint out of an overly restricted regime of property rights. And what followed from these rules were initially more liberal pollution rules. The industrial actors and other polluters were indeed liberated to some extent from the constraints of property rights at that time. But it didn't last for long, or at least it didn't last forever. Of course, the pendulum changes and how much pollution the public is willing to deal with changes, whereas in the progressive era we saw industrialization and manufacturing as a general good and the environment was a secondary thought. As we grew richer, wealthier and more advanced, our desire for environmental quality increased as well. And we see this, the pattern of this historically is very clear, not just the United States but elsewhere, where you have a low per capita income, you have very low interest and concern and public value on environmental quality. You concern yourself more with wealth creation, but as you grow wealthier, per capita income increases, public interest and protecting the environment increases as well because environmental quality is in many extents, to some extent a luxury good in some dynamics. And in others, when it comes to human health, what good does living from the ages, instead of dying at 72, you die at 78 if you never got a job when you were in your 20s or 30s. So, with wealth creation and industrial advance, we saw more and more public interest in environmental protection. Now, this was primarily, the regulatory operations were primarily state and local up until around 1970. And we've published some books and essays, in particular, Inder Gogolani wrote an excellent book for us on the history of the Clean Air Act and Clean Air in general, Clean Air Regulation. And what he found is the greatest restrictions in pollution, or the greatest reductions in pollution we saw were under this regime of state and local regulatory authority, not under the EPA. Now, you could argue there's a lot of low-hanging fruit back in those days. But we moved to a federal response to pollution control, and away from state and local, not because pollution levels were increasing, ambient concentrations going up. The regulations weren't restrictive enough. They were quite restrictive, at least for that time. Pollution was indeed going down. But there were some episodic events like the Cuyahoga River, which catches on fire. And there were a lot of other political things that were coming into play that we don't necessarily need to get into, which encouraged federal action. One of the most important drivers for the Clean Air Act was, again, this age-old story of bootleggers and Baptists making a coalition. The story that David Showembrod tells, who at the time was on the staff, I think of Hubert Humphrey, he was on the Senate staff of Humphrey, and he ended up being an attorney at NRDC for a number of years, is that the Clean Air Act largely was driven by the fact that U.S. auto manufacturers who had operations in California found extremely restrictive regulations coming down the pike in California. New York was threatening to undertake the exact same restrictions. And so the automakers thought, well, how the heck do we get out of this? How do we dodge these legislative bullets coming out of California and New York? And their answer was to take it to Washington and argue that we needed one uniform national policy on pollution rather than 50 individual stage dictating things, particularly when New York and California, through their very centrality of the U.S. manufacturing system, could impose a de facto national standard without national input. And so the Clean Air Act was a coalition of environmentalists who were frustrated they weren't getting as much as they would liked in many arenas. And a lot of industrial actors who were finding that state and local regulations were becoming too restrictive, and this was a way to go around the corner. And so they joined forces and produced the Clean Air Act. And then, of course, the Clean Water Act and everything fell like dominoes. So now we have a federal regulatory regime. It seems kind of interesting because you have these two actors involved with sort of their own preferences for how much pollution there should be environmentalists with a preference for less pollution and maybe automakers with some and more uniform standards they can deal with. But the interesting question that they're trying to ask and get answered on a federal level is how much pollution should there be. And that's a question I find fascinating because one of the things you learn in economics is the answer to that question is not zero, first of all, because for the reasons you said in the 30s, pollution also came with manufacturer goods. But I always say that there's an optimal amount of pollution in the environment just like there's an optimal amount of dirt in your house. At some point, you don't want to clean your house anymore, and at some point, you don't want to clean the environment anymore. So how do we try and decide that question? I'm not sure I agree with the proposition that we can identify the optimal amount of pollution no matter how hard we might try or might want to. And the reason I say that is that your willingness to pay to reduce exposure to environmental contaminants is going to vary by individual. And there's no right answer. I might be willing to pay X and you might be willing to pay Y, and our differences in willingness to pay have a lot to do with our own personal preferences and the opportunity costs we face on those expenditures and how highly we value our health, and that's going to change by person. Some people smoke because, well, they have a different cost-benefit calculation than somebody else. It's not that they don't know that smoking is bad for them. So since we all have different subjective preferences with regards to environmental protection and our willingness to pay to be free of environmental contaminants, there is no way to find a socially optimal level save for the aggregation of subjective personal preference. How do we do that? Well, there are lots of games that economists play when they try to figure out what your willingness to pay might be based on your revealed preferences in the market, and there's some very interesting studies in that regard. But we don't make laws based on academic studies with regards to reveal preferences in other arenas. We make them through politics. And so I'm not sure, I'm speaking necessarily for all libertarians or even all people at the Cato Institute, but I've written in the Cato Handbook for Policymakers and in other places as well. My colleague Peter Van Dorn has also made this argument, the pages of regulation, that there is no right answer for how much environmental protection we, the people, should be willing to buy. I'm rather agnostic on the question. I have my preferences. My friend John Pasquitando used to run Greenpeace USA as his preferences. The only way to deal with our differences when we're all consuming the same air shed and the same watershed is to aggregate them at the ballot box somehow. And that means that while libertarians find themselves often opposed to environmentalists for this, that, or the other regulatory initiative. In reality, we can add to the conversation by pointing out what the costs and benefits are as we see them. But we can't use these cost-benefit calculations to tell people what they should or should not want. I'm curious about the difference going back to the regulatory regime for dealing with pollution versus this tort and property rights regime. As you said, we can compare kind of the early regulatory regime when it was state and local based and how effective it was to the current one of a federal system and we find more reductions in the local, when we had the local regime, right? But is there, can we do the comparison between the tort and property setup and the regulatory? Does one of them, is there evidence that the tort and property worked? I mean, obviously it worked better in the sense of being more restrictive because the manufacturers didn't like it as much. But can we compare historically or are there countries today that maintain a tort and property-based system that we can look at and see how well it works? That's a very good question. Let's look at these two comparisons. The argument, first federal versus state, the argument against state and local regulation was a story about how there would be a race to the bottom. If you allow each locality or each state to make its own rules, people, you're going to see a competition reduce regulation to attract business and create jobs. That may have been true. In fact, probably was true back when social preferences were for more industrial production and more economic wealth creation which were stronger than environmental protection. But that's certainly no longer the case. And in fact, it probably was not the case going into the 1960s. Now, what are the main fights that we see in environmental law? You see primarily state attorney generals and governors filing lawsuits against EPA for not filing strict enough regulation. So if anything, the tables have turned and state and local control would probably produce in most important jurisdictions tighter, not looser, environmental regulation because there's no longer a race to the bottom to create wealth. There is now a race to the top to produce attractive living conditions and politically preferable regimes with regards to pollution. Now, that's not always the case in Mississippi. You might see different rules than you'd find in Massachusetts. But on balance, the higher the income level of a state and the wealthier that state is, the more restrictive the environmental laws are going to be and as we grow wealthier, we're going to find more and more preferences for environmental protection and less and less for wealth creation as a trade-off for environmental protection. Now, let's look at the tort versus regulatory trade-off. Likewise, I mean, there's a long history of this. Historians tell the story about the extent to which historians have paid attention to it, not many legal historians have. But to the extent to which they do tell the story, they do tell a fairly convincing story, as I mentioned earlier, of restrictive property rights regimes which were overthrown by industrial actors. Today, would we see the same thing? Now, it's always generally been a libertarian story that this is the way to go, that we don't want politics to protect property. We'd rather have individual property owners protect property. But the difficulty in going back to that regime today or weighing it is that, first of all, when you've got a many polluter problem, and we've discovered that these are far more common than necessarily were understood back during the prior to the progressive era. It's very hard to surmount the transaction costs associated with identifying the polluter and identifying the victim. Take a simple example of the Chesapeake Bay. There are tens of millions of people who, by fertilizing their lawns in the summer, contribute to pollution in the Chesapeake Bay. Tens of millions of polluters. And there are likewise millions of people affected by this pollution. How are we going to identify, if we had property rights for the Chesapeake Bay, how in the world would we identify all these malfactors and bring them into court? The transaction cost could be staggering. Now, Murray Rothbard, a fellow who's long been associated with the Libertarian Movement, once wrote a very good essay called, well, I don't remember the exact title, but we published it in Kato Journal some 30 years ago, where he looked at ways we might get around these transaction cost problems. And he made various different arguments for how one could imagine them through class action suits and aggregation of tort. And various other steps and an aggressive regime of property rights for environmental protection. For how we could surmount this problem of large airsheds and large water sheds, and he makes a case that a lot of people have found compelling. Others haven't necessarily found it very compelling, but at least it's out there. Now, Libertarians have been peddling this story as in an ideal world, environmental protection will look like X. We would privatize environmental commons to the greatest extent possible and turn it back to the courts. Well, that used to be kind of a pie in the sky idea that Libertarians would offer, in fact, I've offered it in front of Congress. And I remember after the 1994 elections, the NRDC invited me and David Schoenberg to speak to their board of trustees. And I told that story about where we'd like to see policy go. Thinking that a group of environmental lawyers ought to kind of like this, right? I'm going to empower environmental lawyers to protect the environment based on a property rights regime. They ought to kind of like that idea. They didn't like it at the time. But today, what do we see? We see this argument having been resurrected. It has gone through an intellectual renaissance and what used to be thought of as kind of a fringy, kooky, neo-anarchist or anarcho-capitalist argument has been embraced increasingly by environmentalists. And you're seeing more and more lawsuits from the environmental community against polluters not based on violating public regulation, but based on trespass in nuisance. So what do we do when, say, an industrial actor is hit with a trespass or nuisance suit when that suit is occurring under a rubric of the Clean Air Act and various other regulatory initiatives? What courts have done is argued, for the most part, you don't have standing. These environmental laws make public these environmental resources and they're no longer subject to private lawsuits for trespass or nuisance, because that presupposes that these resources are actually privately held. Now, the interesting to me for libertarians is what do we make of that? Well, it turns out that for a lot of libertarians, the belief in a tort-based regime for protecting the environment seemed to be more a matter of at least theoretical convenience, not practical reality. Because once those suits got filed, where were libertarian actors? When it came to commentary or amicus briefs, almost always under the side. And the arguments were, well, this would be impractical, you don't have standing, nuisance and trespass is superseded by these laws. It's more appropriate this way. If we had a regime of trespass and nuisance, you would shut down the industry. Amazing, coming from libertarians. So when you ask me how libertarians would compare this world to that world or what we might think of it, I guess it depends on which libertarian you talk to. Some libertarians would argue that that regime really would de-industrialize the country, would empower a handful of Sierra Club members to shut down the auto industry if they happen to live near automakers or shut down the LA basin. Because, well, it only takes only a couple of lawsuits to do that. And others would argue, no, there would be cozy and bargaining and things like that, which would even out. But it turns out that when push came to shove, when environmentalists started picking up these tort-based arguments to pursue their claims, rather than argue that, well, let's look at them on their merits, most libertarians, to the contrary, repair to the regulatory state. And that probably gets into something about environmentalism, maybe the feelings that the idea brings forth in a lot of libertarians who might have more allegiances with conservatives and Republicans in general. Because there's a big dividing line there. There has been a change. Now, just for the sake of disclosure, I'm not entirely convinced that a tort-based regime and the Rothbardian sense as he's offered it, or in the historical pre- and progressive era sense, is necessarily the right approach to environmental protection in many circumstances, in cases where the transaction costs involved in privatizing environmental resources are low, that I have no problems with it. And I would definitely go in that direction. So, for instance, we're dealing with groundwater aquifers, which don't have a lot of these many-actor problems. Seems reasonable to me, this would be a privatizing groundwater aquifers and allowing owners to then protect their property against pollution in tort, makes sense to me. But dealing with auto exhaust emission or the Chesapeake Bay or climate change or acid rain due to tort, that's very problematic. So I don't want to be tagged as a guy who's bemoaning the loss of anarcho capitalism and tort-based environmental law. That having been said, there has, I think, it's fair to say there's been a shift in the libertarian community over the years since I've been at the Cato Institute anyway. I've been here for 23 years. And today, rather than hearing a lot of conversation about how property rights can better protect the environment than can regulators, we're hearing more and more stories from the libertarian and quote, free market, unquote community about how my right to make a widget trumps your right not to have pollution from said widget in your lungs. That industrialization is a good in and of itself. That the benefits of wealth creation swamp the costs of environmental exposures. And, well, to put it in vernacular, buddy ought to suck it up. And this is a change. I mean, it wasn't always the case that libertarians were happy to embrace wealth creation and industrial growth over all this. Historically, libertarians were born out of a set of ideas which argued that property rights were nearly inviolate. And the state's job is simply to protect your rights to life, liberty, and property, whether that maximized wealth creation or not is kind of secondary. There's no, you know, asterisk in the Declaration of Independence or in the U.S. Constitution that says all these things are all well and good as long as it maximizes wealth creation. So, I'm not sure I like this development of the libertarian community, but it's one that I think is quite obvious. I wanted to turn to some specific issues within some specific environmental issues because we've just talked about kind of in general how to think about these things. And one of them that gets talked about a lot, and so I thought maybe you could explain to us what this means and how we should think about this issue, is cap and trade as a way of dealing with pollution of various kinds. So, these typically we have assist, you know, the way we typically think of the government addressing pollution is you just say, well, you can't, you can only pollute so much or you can't put any of those sorts of emissions into the air. But cap and trade introduces presumably some kind of market mechanisms into the regulation. So, what is cap and trade and how does it work and is it effective? Is it a good way to address some of these problems? It might very well be the best way to address some of these problems. It really depends on what problems we're talking about. Now, if we want market approaches to environmental protection, and virtually all economists would argue that it's far better to allow market actors to control pollution than have regulators simply because efficiency is more likely to be found when private actors are undertaking this job simply for all the reasons that Hayek might identify in the fatal conceit. There's no way that any central plan or central regulator can have all the information necessary to know exactly how to most efficiently reduce pollution at every single facility in every sector of the economy, in every locality in the United States. It defies ability to believe simply because what costs X in Michigan might not cost the same in California or for this plan or that plan and the technology may be different. And even the cost of environmental damage is going to be very different. A unit of auto exhaust emissions in Sioux City, Iowa, causes far less harm at the margin than that same unit of auto exhaust in New York City. So, we would have far different pollution regimes if you were to try to maximize efficiency. So, the idea is to let market actors undertake this job rather than regulators. Well, there's really two ways you can do that. The two main ways you can do that is you can just tax people for their pollution and then they act accordingly. It essentially allows the variable is the amount of pollution. The fixed determinant is the price of pollution. A cap and trade regime flips it and says the fixed determinant is the amount of pollution. The variable is how much it's going to cost to reduce that pollution. Now, which is preferable, you know, that sort of cap and trade regime where you cap the pollution and then let market actors trade for permits to pollute in that regime or to tax them for pollution and then just see what happens. It really depends on the circumstances. If there is a big threshold, let's assume that pollution up to point X is only a modest concern, but pollution over point X has much more greater damages at the margin than a cap and trade regime where you establish the, where you fix the amount of pollution that is tolerable. It would make more sense. If you weren't in a regime like that and was more linear and just each unit had the same marginal costs, then attacks might be preferable there. So it really depends on what world we're looking at and how you understand the stylized scientific facts regarding this, that or the other environmental problem. So should we be afraid, though, of putting that into a politicized mechanism, the cap and trade at the federal level and what sort of things you're going to come out in terms of more opportunities for Crony Capitalism, more opportunities for weird pricing and all different types of. I guarantee you that any government intervention or any government act is going to introduce all of those phenomena and the conceit that a cap and trade program introduces the opportunity for political rent seeking and cronyism and inefficiencies through mucking around with who gets the permit under what terms and conditions, how long the permits are allowed to go before lapsing and what the trade rules are with the permits and this is an infinite playground for special interests and that sort of thing. All true. But I haven't noticed the tax code being all that simple, either. So the alternative of, well, a pollution tax would be far more efficient, straightforward and much harder to mess with. Well, the tax code tells us that's just a pipe dream as well. There's infinite ways you can mess with the tax code and we do it all the time. So the complaint against going forward with either a cap and trade because of these charges is a complaint that is universalizable. You can make that complaint virtually involved to engage and take issue with every single government acting economy. Now, since we're libertarians and anarchists, we're generally unpersuaded by these arguments. So for instance, when it comes to producing public goods, we don't say better to have no military at all than a military because if we have a military, before you know it, we're going to be throwing the military around and engage us, have nothing to do with the protection of the United States, the people, the liberties of people of the United States, and we're going to be captured by special interests and different lobbying groups for different ethnicities or national subgroups, and we don't make that. We know that's going to happen. But far worse to be in a regime in which the United States had no military protection at all, which is why we're not anarchists. Now, you can make the credible argument for the anarchist position. Don't get me wrong, I don't mean to denigrate it. It's simply not a libertarian argument. Similarly, when it comes to providing public goods in the domestic economy, you make the same argument against a judicial system. You can make the same argument against public law. You can make the same argument against the whole host of things, including environmental protection, all of which are true. But if that were a good argument for rejecting Cap and Tradon's face, it's a good argument for rejecting the United States Navy. It's a good argument for rejecting the court system. It's a good argument for not having police. So since we created this federal system, mostly as we were talking about in the 60s and 70s, I think Clean Air Act was 71 possibly all around that time, have we seen pollution go down and the environment get cleaner in general? And do you think we can assign that cause to those laws? Well, we have seen environmental quality improve in most, though not in all, arenas where we have measurable data. The ambient concentrations of virtually every pollutant we can track have declined. Save for one pollutant, that's CO2. Now it is going under decline these days because you've seen an industrial retreat after the 2008 financial crisis. But for every other constituent we see declines. Now there are a lot of complicating factors for why. Wealth creation is one reason. After all, we do see a strong correlation in per capita income and ambient concentrations of pollutants. And that drives a lot of different things. It drives environmental preferences for environmental quality. The more willing the public is to pay for environmental quality is associated with the degree of resource that the public has. And of course, preferences for environmental quality just seem to go up amongst wealthier people and they tend to be lower amongst poorer people. So that's one reason that wealth creation drives environmental improvements. Another is just efficiency. After all, pollution is a waste product. And industry would rather not waste resources. They'd rather capture them for profits. So in the 1950s, for instance, if you're going to make a beer can, it would take a tremendous amount of material inputs. And they were very, very sturdy. In old movies, motorcycle gang members would crush a beer can to show how tough they were to scare the town's folks and intimidate them into getting their free booze and pool games. Of course, today, my grandmother can crush a beer can and commonly does. They're made to just extremely light and flexible. How is that? Well, the reason they're so much lighter and flexible and they're so easily to crush is it takes far, far, far fewer material inputs to make that coke can. And far less aluminum and far less material inputs to make the beer can also follows less pollution. There's less material needs, therefore less pollution associated with it. Beer can manufacturers didn't do that with the goodness of their hearts. They didn't do it because Greenpeace or EDF or NRDC or anybody else sued them into doing it. They didn't do it for PR purpose. They did it to reduce overhead costs. And it just so happens that to reduce overhead costs, you reduce material inputs. So all these things drive. But, you know, environmental regulations probably have a role to play in this as well. It used to be that polluters never had to account for the external damages caused by their pollution. And everything we see in the environmental code today is largely at least advertised as trying to remedy that problem. Command and control regulatory regimes implicitly make them pay as do the various trading regimes that become more popular cap and trade programs which we see with constituents that contribute to acid rain and various other things. So it's a mixed bag. It's not such an easy story to say it's this, that or the other. It's a lot of different things working together. A lot of what you just said runs counter to a narrative that is pretty popular particularly on the environmentalists left that you said that wealth creation, economic growth leads to or causes us to tend to pollute less or pay more attention to the environment or willing to trade in favor of the environment. And that also the advances in technology will lead us to use fewer resources to get the same number of outputs. The declining amount of metal in a beer can. But we often hear from people like an opposite argument that economic growth causes us, you know, the wealthier we get the more we consume. So therefore the more environmental damage we do, you know, everyone has a car now and so everyone's out polluting even more than when most people couldn't afford a car. And so to some degree a clean planet is incompatible with... Industrialized planet. Right. With just a planet where people are getting wealthier that at some point we're just going to overrun the environment. So you're saying that that narrative just doesn't... No, it's just simply not true. I mean it's intuitively attractive narrative. I mean it seems plausible on its face and why would you argue with it? But then how do you square that narrative of the fact that air quality in China is improving and not declining? Chinese rate of automobile ownership used to be very, very small in China. Now it's obviously growing in leaps and bounds. Wouldn't that lead to greater concentrations of air pollutants in Chinese cities? Well, it's not. Air pollution is declining. You're not increasing. There are a lot of different reasons for that. But you can test these narratives against a publicly available deal with regard to ambient pollution concentrations and find that, no, they decline. They decline with wealth creation. Now of course it's not a perfect relationship. What usually happens is these are... The environmental cruise net curves are what the statisticians talk about. When per capita income is very low as you industrialize, pollution does increase. Ambient concentrations do increase up to a certain level. And each different constituent is going to have a slightly different looking bell curve. But once per capita income tops at a certain level, sometimes it's 6,000 per capita, sometimes it's 7, sometimes it's 4, sometimes it's 9, then it begins to decline again. And it declines right down that curve as quickly as it ran up. So it really depends whether industrialization is increasing pollution based on where you are on that cruise net curve. But we do see that in the most advanced civilizations, advanced societies, western Europe, the United States, places like that, pollution levels are a tiny fraction of what they are in the industrialized world. I shouldn't say that. That kind of implies they were industrialized at one point. The unindustrialized are lesser developed countries. You see much higher levels of pollution. And one of the reasons for that is it takes a lot of wealth to protect environmental resource just from day-to-day living. One of the biggest advances in environmental quality in the United States is something you never think of. And that's sanitation and wastewater treatment. If you are a poor society, there is no wastewater treatment. Wherever you defecate, it's probably going to end up in a stream somewhere. And if you don't have the money to clean streams, you're going to have dirty water. Turns out that kills millions and millions of people every year around the world. And it costs tens of millions of dollars to build these facilities. Even just primary treatment. The United States is engaged in tertiary treatment of water quality. And these facilities are extremely expensive like power plants. Poor societies can't afford them. Poor societies suck it up and deal with poor water quality. Poor societies don't have an electrical grid. So how do they get their heating and cooking needs met? Well, they heat and cook onsite. Which is far more pollution. There's far more cases of deaths associated with air pollution simply from people cooking in their small hut or in their small house than there is from electrifying a country because it's far more efficient and far easier to control pollution from central station power plants than from dispersed energy creation on a household basis. That may not always be the case, but that's certainly been the case over the last several centuries. And so, you know, these things don't ever look sexy to environmentalists. These sorts of very mundane environmental protections. But even Larry Summers has argued as had virtually everybody who's paid any attention to this. The poverty is the number one environmental killer. If you want to save people, what you want to do is get them out of poverty because there's far more pollution associated with poverty than there is in the industrialized world. It's interesting, too, because there's other counterintuitive things that, you know, I grew up with whole discussions of how it was important for us to recycle and all these things. But there are probably more trees now, I think, than there used to be because we're ordering more trees when we buy paper. Oh, exactly. I mean, what people forget is that we create resources. We don't just consume them. If we'd grown out of chickens every couple of years, that would be the end of that. We grow trees for paper production. We have tree plantations. Not all. You know, sometimes we don't. But for the most part, we produce our resources as we need them. We don't run out of corn that we make a whole lot of tortillas. And we eat corn chips, and we have corn flakes, and corn added is for a whole lot of things. But we grow more of it, and the same thing applies to paper. When it comes to resources, well, you know, we can't grow our own aluminum, but it turns out we've got plenty of aluminum in this world. As far as glass, we're not running out of sand. Energy inputs are the main determinant for whether, you know, we use a glass container or a plastic container or something else. And when energy is cheap, we make certain kinds of containers, and there's certain prices associated with it. When energy is more expensive, the prices go up, and certain other containers become more popular. So... So in general, would you say recycling is not really worth it? Well, it depends on what we're talking about. It's worth it if the market tells us it's worth it, right? Yes. If I can get a price for something I'm throwing away in the private market, then it tells me somebody values it. But if it costs... But if I can't get a price for it, if nobody's willing to pay me for it, it tells me it doesn't have a great deal of value. And, you know, there's no market failure involved in post-consumer material. It's just that the market generally doesn't really need this stuff. If it had to pay me for it, you know, it's not worth my time. It'd be a fraction of a penny for each can I save, so why would I bother? You know, but we recycle for, you know, almost social, civic, symbolic reasons. They happen to be popular. If you poll people, recycling is an awful popular activity. If you left it at the market, I don't think it'd be quite so popular. One of the resources that we always hear about using up that we can't grow more of the way we can corn and chicken is oil. And so there's been a big push for not only limiting use of oil because of the pollution that it creates, but also because we're going to run out and so what we need are clean energy alternatives, including biofuels, which would be turning that corn that we can grow more of into gasoline for our cars. And we certainly shouldn't be doing anything like building the Keystone pipeline or anything that encourages us to use oil and not get away from it, yeah. So is that a legitimate concern both about oil running out or needing to switch off for other reasons and are these clean energy proposals that we hear so much about from politicians and from companies that want politicians to create green energy proposals, are they valuable at all? A couple of observations about that. First of all, if it is indeed true that we're about to run out of crude oil, that we're rapidly depleting crude oil resources, we don't need any government plan to move to green energy or non-fossil fuels. That'll happen endogiously in the market. The scarcer crude oil becomes, the more expensive it is, the more competitive green energy will become and at some point when oil becomes scarce enough, green energy will become cheaper and people will endogenously move away from crude oil. The old saw that I hear at countless policy conferences like this is that the Stone Age didn't end because we ran out of stones. We found better ways than stones to accomplish our ends. So if you believe this story that we're running out of crude oil, it does not necessarily follow the government need lift even a single finger. This will occur endogenously in the market, not out of the goodness of anybody's heart, but out of the rapacious desire to make profit and to save resources, which environmentalists are always shaking their fists at. So it's a problem that is self-correcting. Now if you ask the question, are we really running out of this stuff? Well, if you look at the price data, when it comes to crude oil, it's more expensive than it's ever been. The interesting thing for me in this area, which I used to spend a great deal of time in, is that over history, since even before World War II, oil prices after adjusting for inflation would generally float around at around $22, $24 a barrel, with big peaks and valleys. I mean, it is a volatile market, but the volatility was episodic and the equilibrium price tend to be around $22, $24. So you'd have these giant peaks and price and you see a collapse in the oil market. And this is what we saw with lots of movement in the data, but equilibrium numbers are on $22, $24 a barrel. In 2004, things began to change dramatically and we now seem to be in a world where the new equilibrium isn't that, it's double that, triple that, quadruple that, depending upon what year we're comparing it with and how we're normalizing or making real the price. Does this mean it's permanently more scarce? Some people think so. People would argue that our present high price for crude or our present scarcity is driven by the fact that OPEC nations have not reinvested in upstream production capacity since they seized control of these oil fields in the early 1970s. The production capacity hasn't changed hardly at all. It turns out, however, there's a heck of a lot of excess production capacity in the 1970s and 1980s and 1990s and there isn't now. We've slowly eaten it all away. And so now we're seeing higher prices. Will OPEC reinvest in upstream production capacity? Because they certainly could do it and expand it. We don't see any real signs they're doing much of that. So it might be that, well, we are running out if the metric for this is the supply of crude relative to demand of crude. But usually when we hear this, we're not really hearing that. What we're hearing are stories about peak oil and the ultimate extent of these reserves, regardless of how interested we are in investing upstream. And to this, my own opinion is I see no particular reason I think we're close to peak oil. And that story comes from the observation that there's conventional crude oil, which is usually what the peak oiler is looking at. There's unconventional crude oils as well. Fract crude is an example of unconventional crude oil. The oil coming out of Canada and Alberta fields, this is an example of unconventional crude. And as oil prices go up, these unconventional crude, which are more expensive to produce, become economic and they come into the market and trillions of barrels come with them. And that story can play out even several iterations beyond the unconventional crude we're looking at. So I don't see any particular reason to think we're on the cusp of peak oil. On the other hand, the future is unknowable. And there's a lot of disagreement about what the ultimately recoverable reserve levels are for crude, whether conventional or unconventional. So all I can tell you is some day there will be a peak in crude oil production. When will that day come? I do not know. And if people had very firm ideas about when that day would come, they can make a heck of a lot of money in the futures market. And there are some people who do bet on a near peak in crude oil production, or at least, at the very least, they're betting on increased scarcity for crude, not going away anytime soon, in fact becoming more and more pronounced over time. And they are investing in futures markets. And for quite a long time, they're making some pretty good money. And depending upon how they've dealt with their poor father, they're still doing okay with that strategy. So I don't think that it's useful for libertarians to make dogmatic statements with regards to the level of ultimately recoverable stock, or peak crude or anything like that. All we need to say, and all we can really fairly say, is that the ultimate scarcity of something is best measured by its market price because it's scarce compared to what? Compared to demand. If something's becoming more scarce, it's going to become more expensive. If we strip out all the things which might otherwise distort the price, whether we're talking subsidies or un-internalized externalities or something like that. And then we'll see. If it's becoming more scarce, it's going to become more expensive. It's the problems of self-correcting. Quite honestly, green energy will come without the need of Al Gore becoming president or John Kerry getting the job or Hillary Clinton or NRDC taking over the Department of Energy or anything of the kind. It's actually going to occur because market forces will bring it. The real debate we have today is whether the government ought to goose the market and say, well, we know it's coming and it's not here quite yet where green energy is more competitive. It's soon going to be there and we want to head start in solving this problem so the government's going to jump in. And that's really what this debate is about. So what do we say to that? We had the Cylindra, it was a scandal a couple of years ago from one of those sort of pet green energy products. What do you see tends to happen if the government steps in to get ahead of the market and be better at doing this and start making some green energy initiatives? Well, if I put on my red meat hat, I would say the government is very poor at picking winners in technology markets whether we're talking about energy markets or any other markets. If I'm being less churlish, I would say nobody's very good at picking winners in energy markets. And in fact, one of my favorite essays on this topic is a chapter in a book written by Vaslav Smil. The book is called Energy at the Crossroads. He's got a chapter in that book called Against Energy Forecast or Against Forecasting in which he documents all of the forecasts made with regards to market share and price for various elements of the energy market, natural gas, crude oils, various renewable energies, things like that. From government, from banks, from trade associations, from academics, from the industry themselves, from various consultants, from futurists, from Nostradamus, from Newt Gingrich, if you even want to go that far. And he finds that nobody has a very good track rigour here, not just government. The industry doesn't either. And neither does academia. And neither do think tanks. And in fact, drunk monkeys could outperform virtually any of them when it comes to retrospectively looking at these forecasts that have been made. And this is, again, not just with price, but with technology and technological breakthroughs and the evolution. It's all very uncertain. All we can know, so we can't know with any degree of accuracy what the competitive technologies that tomorrow might look like. To give you a good example of that, on the very eve of the revolution of the fracking industry brought on by George Mitchell in Texas, we found that people who were relying on natural gas were shipping their facilities out of the United States and their investments out of the United States because they saw an eternal future of high U.S. gas prices relative to Europe and the Middle East and elsewhere. And so they were flinging, largely the petrochemical industry, not the petrochemical industry, but the chemical industry, Dupont and Dauer, just shipping plants out of here and investments out of here as fast as they possibly could. This is on the very eve of the fracking revolution. Nobody saw this coming. Which is to clarify, well, what was that revolution? Well, fracking has been around for about you know, for about a hundred years. There's nothing new about fracking. But what George Mitchell did was that he improved the process and used pressurization and different chemical solutions in various and he used various new technologies associated with horizontal drilling and all sorts of things to make far more efficient and far more productive fracking than it ever had been before. This is something he had been working on for a long time, most investors didn't think it was going to really pan out, and it did. The point is nobody saw that coming. The biggest revolution in energy market since World War II, I believe, will end up being this fracking revolution. Nobody saw it coming. Nobody saw this coming. Nobody's going to see when the breakthrough occurs that makes solar power economic, which is conceivable. There are all kinds of ways scientists can tell you with just this little improvement or that little improvement, this innovation or solving this little problem, boom, everything changes. It has yet to happen. It doesn't mean it never will happen, but it means I take with a giant grain of salt predictions that tomorrow's solar power is going to displace coal. But it could happen. But if it does happen, markets will deliver it and the ability of government to deliver it with R&D and basic science and all that is very attenuated simply because, one, they have no better idea than I do what to invest in and secondly and more importantly, their decisions are primarily driven by political metrics, not economic or scientific metrics because they're politicians or they're regulators or bureaucrats and answer politicians and so the politically popular stuff's going to get attention but less politically popular stuff isn't. I had read a story a few years ago about a guy who invented an amazingly efficient gas engine that, proof of concept I don't know how efficient, it cost him millions of dollars to make but it worked and he went to an energy trade show where trying to get governments to invest in it especially Germany and France and all that but it was politically impossible for them to do that because they would say they would spend in gas and so they would get political feedback from that but it may be the case that highly efficient gas engines are a good way for the future. We don't even know. I don't know about your near, I don't know about this particular story but something smells fishy right away. Why does he need to go to government for money? I mean if he's got an efficient internal combustion engine that's so incredibly attractive then why isn't Ford or somebody else investing in it? This is their job. Probably because the governments are giving money away for those things. Yes but general motors and Ford and various other automakers would love to have this technology because it would make them great profit. If they could sell you a car, they got double or triple the gas mileage of your current car at a very low cost of course they'd try to sell it and if somebody walked into their show room or into their trade show or in their board room saying look at this wonderful device and I will give it to you for the low, low price of X as long as they gain more than they lose in the transaction of course they're going to make that deal. You hear stories like this all the time of some whiz-bang wonderful energy technology that for some reason everybody's trying to stop or nobody's impressed with. It tells a story of market failure that would be so epic that if these stories were commonplace or even true in a few circumstances then it's a miracle that we've created any wealth at all through capitalism because we know as a general matter these market failure stories don't hold up at least that version of it. For final question I wanted to ask talking to our audience of libertarian listeners where do libertarians go wrong in the way that we talk about environmentalism? Libertarians too often talk as if you they don't care about the environment or that caring about the environment is the antithesis of caring about the well-being of mankind or that caring about the environment is some sort of signal, Pace, Ryan Rand novel that you hate mankind or that you have an epistemological flaw somewhere or that you have these weird sense of priorities that are somehow signaling some other character flaw or intellectual flaw or something of that nature. I think that's just counterproductive and it's analytically suspect. If environmental preferences are subjective libertarian should not be in the business of telling people they should not have preferences. That's sort of like saying well if I taste an ice creamer subjective libertarian should be in the business of telling people they shouldn't like strawberry. Why? Some people, including a lot of libertarians by the way, do care about wild places. They do enjoy backpacking. They don't, they are willing to pay to reduce the level of contaminants in the environment even if the risks are very small even if the costs of doing so are higher than are comfortable for some people to pay. They care and there's no reason necessarily they shouldn't care. It's a subjective preference. Libertarians should be in the business of allowing subjective preferences to reign whenever possible and sometimes our personal subjective preferences aren't matched by majority preferences but in those regimes where we can't provide for private provision of environmental goods and in some places we can. But a lot of places we can't. Then respect for the preferences of others means respect for for social preferences, the guards of environmental protection. And this idea that environmental protection is inimical to a modern society is just silly. I mean it's silly on its face. We've had tremendous investments in environmental protection over the last century. Lots of money spent on taking contaminants out of smoked stacks. Lots of environmental cleanups been going on. The regular costs of environmental protection are not trivial and yet we've continued to see industrial growth and activity in wealth protection. Maybe not as much as we would have seen otherwise but on the other hand there are indeed third party costs of social environment they would be paid by somebody. So I think that environmental quality is one of those areas that libertarians I think make a big mistake by declaring friend info. I think the best that we can do to contribute this discussion is to talk about how to most efficiently provide the environmental goods and services that people want. Whether it's through private provision of goods or if it's going to be through public provision of goods and how to most efficiently do that. And that's where we can help and I think that's the most consistent libertarian position. Not one which tells people they're not allowed to have what they manifestly do want and are willing to pay for. Thank you for listening to Free Thoughts. If you have any questions or comments about today's show you can find us on twitter at Free Thoughts Pod. Free Thoughts is a project of Libertarianism.org and the Cato Institute and is produced by Evan Banks. To learn more about Libertarianism visit us on the web at www.libertarianism.org