The many dominant media reports on Pope Francis’ new papal encyclical letter, “Laudato Si’” (“On Care for Our Common Home”), make it clear that the encyclical represents an endorsement of the conventional (or mainstream environmental) view of anthropogenic climate change, with explicit papal support for “enforceable international agreements” (¶173) to deal with the purported attendant adverse future effects. And, indeed, Francis makes explicit his view that:
Climate change is a global problem with grave implications: environmental, social, economic, political and for the distribution of goods. It represents one of the principal challenges facing humanity in our day. Its worst impact will probably be felt by developing countries in coming decades. (¶25)
Pope Francis conducts a mass before presenting palliums to Archbishops in Saint Peter’s Basilica at the Vatican June 29, 2015. Reuters
Unsurprisingly, the applause from the political and environmental left for the encyclical has been deafening, an amen response that carries its own set of rich ironies simultaneously obvious, subtle, and not of direct interest here. Instead, it is important to note at the outset that, notwithstanding the general tenor of the news reports and commentary, the encyclical at the most general level is deeply problematic for the left, in that Francis argues clearly that people are not a scourge on the planet, but instead “… that every man and woman is created out of love and made in God’s image and likeness…” (¶65) He celebrates two centuries of technological advances that have “remedied countless evils which used to harm and limit human beings,” noting that “science and technology are wonderful products of a God-given human creativity” (¶102).
In short: Francis makes clear his view that people are assets rather than liabilities, criticizing those who view “men and women and all their interventions as no more than a threat, jeopardizing the global ecosystem, and consequently the presence of human beings on the planet should be reduced and all forms of intervention prohibited” (¶60). And: “demographic growth is fully compatible with an integral and shared development” (¶50). That is a stance diametrically opposed to the dominant view within the mainstream environmental movement that global population growth is the central driver of environmental degradation and that, therefore, people are harmful on net, or at least on the margin. Accordingly, the encyclical is clear, even if Francis fails to recognize it, in its implicit support for the late Julian Simon’s view that human inventiveness and ingenuity — people — are the “ultimate resource,” expanding true resource availability and the wealth that increases both the social demand for environmental quality and the resources needed to achieve it.
It is unfortunate that even as the encyclical endorses this view of humans as assets, it fails to display an understanding of the implications of that reality; and so it fails as well to apply that central lesson in its lengthy discussion of environmental stewardship, the responsibilities of developed and less-developed nations, and all the rest. Instead, it attempts to blend religious faith, climate science, and benefit/cost analysis in a way consistent with eternal truths. Any such endeavor is fraught with difficulty, and nowhere is that reality illustrated more clearly than in the encyclical: It is a curious mix of naïve externality theory, a Club of Rome–style static view of resource limitations, and myopia on the environmental benefits of increasing wealth. Moreover, it is afflicted with a central inconsistency: People are assets and poverty should be alleviated, but economic growth should be limited in pursuit of environmental improvement. To wit: “…given the insatiable and irresponsible growth produced over many decades, we need also to think of containing growth by setting some reasonable limits and even retracing our steps before it is too late.” (¶193). Wow.
Naïve externality theory
That market prices sometimes do not reflect all social costs is obvious, and that reality may be particularly important in the case of greenhouse gas (GHG) emissions because the future attendant changes in GHG concentrations will be global. The attendant climate effects, if any, are likely to be concentrated in specific regions, in ways understood only poorly. Nonetheless, it is a long leap indeed for Francis to conclude that:
… since local authorities are not always capable of effective intervention … relations between states must … lay down mutually agreed means of averting regional disasters which would eventually affect everyone. Global regulatory norms are needed to impose obligations and prevent unacceptable actions… (¶173)
Thus does Francis blandly assume that international collective action will yield environmental improvement, or, more broadly, an increase in the efficiency of resource use writ large. Because all regulation has the effect of transferring wealth among groups, political competition cannot be predicted systematically to yield efficient outcomes; instead, the need to forge political coalitions means that the regulations are likely to create gains for existing market participants, at the expense of newcomers (or potential competitors). Moreover, the regulatory enforcement bureaucracy itself is an interest group seeking larger budgets and enforcement powers so that optimization of the trade-offs among the benefits and costs of regulatory activity cannot be predicted to be the likely outcome.
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In the context of increasing GHG concentrations, it is easy to show, using the same climate model employed by the Environmental Protection Agency and under stronger climate sensitivity assumptions than those of the Intergovernmental Panel on Climate Change, that the strongest plausible emissions limits might reduce temperatures in 2100 by about 0.4 degrees, at a cost of something on the order of 1 percent of global GDP, or roughly $600 billion to $750 billion per year. Quite apart from the incentives of international negotiators to use agreements as vehicles with which to transfer wealth to their own economies, a negotiation process — the UN Framework Convention on Climate Change in this context — focused on one dimension of resource use inexorably is led toward “solutions” that violate basic principles of benefit/cost analysis. Is a temperature effect of less than half a degree worth well over half a trillion dollars per year?
Static resource limitations
The concept of “sustainability” appears repeatedly in the encyclical, unsurprisingly without a useful definition (e.g., ¶159). Francis argues also that “We have not yet managed to adopt a circular model of production capable of preserving resources for present and future generations, while limiting as much as possible the use of non-renewable resources, moderating their consumption, maximizing their efficient use, reusing and recycling them.” (¶22). And: “The earth’s resources are also being plundered because of short-sighted approaches to the economy, commerce and production.” (¶32).
Those passages are deeply problematic. Consider, as noted above, the late Julian Simon’s view that human inventiveness and ingenuity — people — are the “ultimate resource,” expanding true resource availability. Technological advance means an expansion in the ability to do more with less, and self-interest — the profit motive — means that the search for ways to economize on the use of costly resources is relentless. Yes, institutional arrangements have to complement such private incentives: People must be able to enjoy the fruits of their work and investments, contracts must be enforceable, and so forth. But the view that the finite quantity of given resources means that eventually they will be depleted is unsupportable analytically. Technological advance means that the discovery and production of resources become cheaper; the US revolution in the production of gas and oil from deep shale formations is only the most obvious example of this effect.
But let us ignore the effect of technological advance in terms of expanding the supply of resources. Instead, consider the role of market forces in terms of driving conservation: The market rate of interest —the price of current consumption in terms of forgone future consumption — links the interests of generations present and future. If a resource is being depleted, then its expected future price will rise, other things held constant. If that rate of price increase is greater than the market interest rate, then owners of the resource have incentives to reduce production today; by doing so, they can sell the resource in the future and in effect earn a rate of return higher than the market rate of interest, thus raising current prices and reducing expected future prices.
In equilibrium — again, other factors held constant — expected prices should rise at the market rate of interest. Under market institutions, it is the market rate of interest (the marginal rate of time preference) that ties the interests of the current and future generations by making it profitable currently to conserve some considerable volume of exhaustible resources for future consumption.
Accordingly, the market has powerful incentives to conserve — that is, to shift the consumption of vast quantities of resources into future periods. That is why, for example, not all crude oil was used up decades ago even though the market price of crude oil always was greater than zero; using more of it would have yielded value.
Environmental benefits of increasing wealth
A review of the available analyses and data show unambiguously that environmental quality is higher in wealthier economies and that increasing wealth in given economies tends to result in improved environmental outcomes. This should not be surprising: As wealth increases, individuals and societies demand cleaner environments, and that increased wealth allows them to afford it. Accordingly, Francis’ view that reduced economic growth is a necessary condition for environmental improvement is at odds with many decades of experience. Francis recognizes this implicitly when he argues in the encyclical,
The developed countries ought to help pay [for environmental improvement] by significantly limiting their consumption of non-renewable energy and by assisting poorer countries to support policies and programmes of sustainable development. The poorest areas and countries are less capable of adopting new models for reducing environmental impact because they lack the wherewithal to develop the necessary processes and to cover their costs. (¶52, emphasis added)
GHG policies, reduced economic growth, and wealth transfers
Francis is arguing, in a nutshell, that reduced economic growth is needed to reduce GHG emissions and that “differentiated responsibilities” (¶170) and assistance to “poorer countries to support policies and programmes of sustainable development” is needed (¶52). Accordingly, Francis is assuming that reduced growth will yield an increase in the willingness of the developed world to transfer resources to poorer nations and that the latter nations will be better off if their energy costs are increased and they are made increasingly dependenton transfers. Notwithstanding Francis’ calls for increased use of renewable energy — implicitly, he is assuming that it is an economic substitute for conventional energy — it is simply a fact that renewables are vastly more expensive than conventional power and thus are uncompetitive without large subsidies (¶52 and ¶164, for example).
The difficulty of engendering resource transfers from the developed economies to the less-developed ones is illustrated by the experience of the international fund established in 2009 for that purpose, which is supposed to have raised $100 billion by 2020. The amount thus far? Less than $10 billion. Can anyone believe that reduced economic growth in the developed world will yield a greater propensity for charity?
And if the transfers in fact materialize? They will represent an attempt to compensate the less-developed economies for foreswearing coal and other inexpensive sources of energy and, more broadly, rapid economic growth. It is difficult in the extreme to believe that such higher energy costs combined with international transfers — to use a crude term, welfare — will result in favorable outcomes. And that is why Francis’ hope that “… the time has come to accept decreased growth in some parts of the world, in order to provide resources for other places to experience healthy growth” is one virtually guaranteed to prove futile (¶193).
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Francis simply accepts the conventional “crisis” view of the current and future effects of increasing GHG concentrations (¶25). Suffice it to say that the evidence does not support that view. More broadly, it is important to note that just as Francis attempts to derive his principles and the appropriate trade-offs among them from the ancient tenets of religious faith, so does the environmental left. The interpretation of the destruction wrought by weather as the gods’, or God’s, punishment of men for the sins of Man is ancient, and it is hardly original to point out that modern leftist environmentalism has much in common with western religious tradition. A crude, simplistic, but accurate summary of the underlying tenets of modern environmentalism can be stated as follows: Once upon a time, Earth was the Garden of Eden. But mankind, having consumed the forbidden fruit of the tree of technological knowledge, has despoiled it. And only through repentance and economic suffering can we return to the loving embrace of Gaia.
Another quasi-religious dimension of the debate over environmental policies generally, and climate regulations in particular, is the view that government action can be predicted to make for improved conditions. It is one thing to say that market competition under certain conditions can lead to undesirable outcomes. It is quite another unthinkingly to assume that actions by governments or by an international body will yield salutary outcomes. In that belief, Francis has much in common, ironically enough, with many of my fellow economists; merely peruse the recent “analysis” of climate change policy published by the Council of Economic Advisers, which offers a (deeply flawed) discussion of the risks of policy delay, but not a hint that governments (at the level of international negotiation!) might make matters worse, in particular for the world’s poor. One does not have to have heard of public choice analysis to see that the central argument in the encyclical — that government action is needed and will make for environmental improvement — simply is a non sequitur.
One might have thought that Francis would ponder very carefully the views on powerful government offered by John Paul II, a man who experienced firsthand the effects of socialism both in Poland and as an international plague, as well as his views on the best path for the less-developed world to follow in the aftermath of the collapse of communism:
Is [capitalism] the model which ought to be proposed to the countries of the Third World which are searching for the path to true economic and civil progress? The answer is obviously complex. If by “capitalism” is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative…
Thus did John Paul II with his emphasis on “free human creativity in the economic sector” condemn cronyism as capitalism, the sort that is the inexorable result of politicized policymaking, and a fortiori at the international level. And one might have thought also that Francis’ close familiarity for most of his life with the deeply perverse results of governance and poor economic freedom in Argentina — cronyism for the few, poverty for the many — would give him pause about the effects of policies as actually implemented by powerful governments. And one would be wrong.
Benjamin Zycher is the John G. Searle Scholar at the American Enterprise Institute.
Notes:
[1] Strictly, speaking, it is not the price of the resource that should rise at the market rate of interest; instead, the total economic return to holding the resource for future use should equal the market rate of interest. That economic return includes expected price changes and capital gains, expected cost savings, and the like. For a more detailed discussion, see Richard L. Gordon, “The Case against Government Intervention in Energy Markets,” Cato Institute Policy Analysis, no. 628, December 1, 2008, www.cato.org/pub_display.php?pub_id=9810. See also, for example, Richard L. Gordon, “A Reinterpretation of the Pure Theory of Exhaustion,” Journal of Political Economy 75, no. 3 (June 1967): 274–86.
[2] Again, this depends upon enforcement of clearly defined property rights in the resource. If such rights are weak or unenforced, the resource becomes subject to the standard “tragedy of the commons” problem, an example of which is overfishing in international waters, the product of which (fish) is owned by no one until the fish are caught.
[3] Michael Crichton years ago offered a similar analogy in “Environmentalism as Religion,” September 15, 2003, www.pe.tamu.edu/DL_Program/graduate_seminar_series/Documents/MichaelCrichton_evironmentalism.pdf.
[4] John Paul II, Centesimus Annus, 1991, at paragraph 42, at http://w2.vatican.va/content/john-paul-ii/en/encyclicals/documents/hf_jp-ii_enc_01051991_centesimus-annus.html