TCS Daily

TCS COP 11 Coverage: An Unethical Environment?

By Roy Spencer - December 7, 2005 12:00 AM

MONTREAL -- I've been thinking a lot lately about people who - -despite living in industrialized countries -- find affluence and the associated consumption of natural resources troubling. By their lights, wealthy countries like the US are the world's principle consumers -- unfairly rich, winners of life's lottery, polluters of the environment and so on. They claim that rich countries wish to "impose" their way of life on the rest of the world.

Maurice Strong, for example -- long an influential executive officer at the U.N. and the head of the 1992 Earth Summit -- once said: "Isn't the only hope for the planet that the industrialized civilizations collapse? Isn't it our responsibility to bring that about?" In his book Earth in the Balance, Al Gore (who could easily be the US president right now) advocated "bold efforts to change the very foundation of civilization."

What motivates these people? Have they tried poverty and decided that poverty is better than wealth? I doubt it. The poor of the world aspire to gain what we have. Many will risk their lives (some will lose their lives) to enter the United States to be able to enjoy what we frequently take for granted.

The single most important underlying theme that unites these critics of affluence is a misunderstanding of basic economics. I'm not talking about the intricacies of economic theories and their associated technical buzzwords. I'm talking about concepts that are so basic to the health and happiness of a society that they should be taught in every high school -- perhaps before. Yet, most college graduates do not understand even the basics of economics.

While one of the most famous definitions of economics is "the study of the use of scarce resources that have alternative uses," I would like to advance a more fundamental definition. The practice of economics is simply "people doing useful things for each other." Anything that makes that process more efficient will contribute to the creation of wealth, which leads to health, longevity, and a more comfortable existence for any given individual. Central to this process is the fact that a person, not the government, is ultimately the most qualified to determine what is 'useful.' The aggregate effect is people in society finding the processes are the most efficient and beneficial without knowing it.

Here's my list of some basic economic principles that must be understood in order keep us from falling prey to popular misconceptions that, when acted upon, hurt the economy -- and thus the processes by which people achieve health and well-being. While these are not new, I have restated them in ways that might be more meaningful to non-economists.

  1. Wealth is created; it is not static. Russia has immense natural resources, but remains a very poor country. Japan has very few natural resources, yet has one of the world's strongest economies. Why is this? Because what people do with the natural resources, not how many natural resources their country has, is what is important. If a society constantly strives to produce what its people want, maximizing efficiency in the process, then that society will develop a rising standard of living. A society that doesn't, won't.

  1. Hard work does not necessarily create wealth. If half of us spent our time digging holes in the ground, and the other half fill the holes up again, we would be doing a lot of work, but we would have a very low standard of living. In a free market, people are paid wages based upon the value of their services and knowledge to other people, balanced against the supply of other people who make the same skills available to the labor pool.

  1. Free markets improve the standard of living. When individuals determine what is of value, through purchases of goods and services whose prices depend upon supply and demand, their standard of living will be improved. The interplay of supply and demand is an impressively self-regulating process. While well-intentioned governmental planners have attempted to do a better job than the market, they have been unable. No subgroup of people can be more knowledgeable about what society wants than the people who make up that society (i.e. those involved in each and every transaction.)

  1. Profits positively motivate free markets. Profits are good for the economy as a whole. On average, transactions in a free market result in about 10% profit and 90% recovery of the costs of doing business. The hope of sharing in that profit, though relatively small on a percentage basis, is part of what motivates people (and companies) to increase efficiency and develop new products or services that the public desires. If someone becomes immensely wealthy, it is because the public has "voted" through their purchases. That means, the products that the wealthy person produces are more valuable to his customers than alternative products or services they could have purchased elsewhere.

  1. Higher prices can spur competition and prevent shortages. No one likes high prices, yet they play a crucial role in a market. When prices rise -- whether due to shortages, the increased cost of raw materials, or increased demand -- free market mechanisms will act in such a way as to reduce those prices. Demand will subsequently go down. New types of materials will be found to replace those that have become too expensive. More efficient production capabilities will be developed. High prices also attract greater investment, which helps to facilitate these changes. If you prefer, call high prices a necessary evil. But they are indeed necessary for the system to work. Government price controls (to prevent prices from going too high) or price supports (to prevent prices from going too low) ultimately hurt the economy. That's because prices have important information in them.

  1. Governmental interference in the economy is almost always harmful. Other than preventing either the formation of a monopoly (which is extremely rare) or collusion to fix prices among companies in a particular sector (which is like a monopoly), the best role for government is to simply stay out of the way. Interference with an economy's price mechanism limits the benefits to be obtained from flourishing free markets.

Yet to this last point, governmental interference is central to the UN's conference on climate change (COP-11) in Montreal this week. In order to reduce mankind's production of greenhouse gases (primarily carbon dioxide), the U.N. Framework Convention on Climate Change (commonly called the Kyoto Protocol) was devised by many of the world's bureaucrats to keep you from producing so much carbon dioxide. And despite the health and well being these people have personally achieved from access to affordable energy, most of them will likely lobby for prosperity-dampening restrictions on energy use.

A presentation by experts in philosophy and ethics at COP-11 this week, sponsored by the Tides Foundation and Penn State's Rock Ethics Institute, made it clear that it is, in their view, unethical for the industrialized countries of the world to threaten the health and well being of poor countries by releasing so much carbon dioxide into the atmosphere. Even if the threat has only a low probability of being realized, they argue, the only ethical course of action is to stop this "risky" activity. But just as command-and-control approaches by governments have historically hurt humanity, we can see that once again governments are ignoring the negative unintended consequences of the proposed "solutions" to the problem.

Access to affordable energy has benefited most of humanity in one way or another. Therefore, the very real dangers of restricting energy use have to be weighed against the potential dangers associated with climate change. An admittedly extreme, but simple, example would be our dependence on food. Even though you risk choking to death when you eat, do you stop eating? Of course not. Yet the majority of the COP-11 participants continue to march humanity toward solutions to a potential environmental problem without realizing that they could, at the same time, be shooting everyone in the collective foot.

It is imperative that people understand what is necessary for the well being of humanity as a whole: political, personal, and economic freedom to do as one chooses. Just as technology has solved past problems as they have arisen, so economic growth will lead to new energy technologies that reduce the risk of global warming. But these solutions will only come about when people are left free to generate the wealth that will be required to invest in the development of these new technologies.

And economic growth, facilitated by the global spread of freedom, is now blossoming in historically destitute countries such as India and China. Somewhere in a poor village in Africa, China, or India may well be a child who will grow up to spearhead the development of a new energy technology that will eventually remove global warming as a threat. As the economist Thomas Sowell put it, our most valuable and scarcest natural resource is human knowledge. If the anti-growth folks at COP-11 have their way, this natural resource will be greatly restricted. The global warming problem (to the extent there really is one) will only become graver.


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